On 6 May 2015 the European Commission published a document entitled “A Digital Single Market Strategy for Europe” outlining a plan for coordinated action to take advantage of opportunities for innovation, growth and jobs brought about by the digital economy. In a digital single market there would be an opportunity for businesses and individuals to perform online activities in conditions of fair competition with a high level of consumer and personal data protection wherever they are located.
The strategy to bring about a single digital market is based on three pillars of better access of consumers and businesses to online goods and services, creating the conditions for digital networks and services to flourish and maximizing the growth potential of the European digital economy. Within these three pillars a number of actions are envisaged, covering areas such as contract, copyright, value added tax (VAT), telecoms rules, regulation of online platforms and data protection.
The obstacles to cross-border e-commerce particularly hold back consumers and smaller companies. Better online access involves action to eliminate obstacles to online activity such as differences in national contract and copyright law and reducing the VAT related burden. One statistic quoted by the European Commission is that only 7% of small and medium enterprises (SMEs) in the EU make cross-border sales.
The different national VAT systems are an obstacle for enterprises trading cross-border both online and offline. The situation has been improved by the change in the place of supply rules for VAT on telecommunication, broadcasting and electronic services that became effective from 1 January 2015. The VAT on these services is levied at the location where the customer is based rather than where the supplier is located. Costs and administrative burdens have also been reduced by an electronic registration and payment system.
The European Commission document quotes statistics indicating that an EU business making cross border sales has a VAT compliance cost of at least EUR 5,000 a year for each member state in which sales are to be made. There are also costs for EU business arising from economic distortions from VAT-free goods supplied by non-EU businesses. The costs of these distortions are estimated at EUR 4.5 billion a year.
An Action Plan will shortly be put forward by the European Commission on a new approach to corporate taxation in the single market, aiming at taxing profits where the value is generated, including the digital economy.
The European Commission is also to put forward legislative proposals in 2016 that will aim to reduce the VAT administrative burden on business. The following measures will be included in the proposal:
- The current single electronic registration and payment mechanism will be extended to intra-EU and third country online sales of tangible goods;
- A common EU-wide simplification measure in the form of a VAT threshold will be introduced to assist small start-up e-commerce businesses; and
- Controls will be done on a home country basis including a single audit of cross-border business for VAT purposes.
The current VAT exemption for importation of small consignments from suppliers in third countries will no longer be needed and will therefore be removed.
