EU to revisit 2015 VAT B2C MOSS changes

Tue 14th Apr 2015

The European Commission has agreed to reconsider the new EU 2105 VAT rules on digital services. In particular, the disproportionate impact on micro businesses which are now having to track, charge and pay VAT in all the EU states of their foreign customers.

The potential solution for this burden may be the introduction of country-by-country VAT registration thresholds on foreign digital services income.  This could be modeled on the existing distance selling thresholds for e-commerce goods.

The problems facing small digital businesses have been highlighted by the low numbers of VAT MOSS digital services registrations since the start of 2015.  Less than 10,000 businesses have signed-up against an expectation of hundreds of thousands.

2015 VAT confusion

The changes introduced on 1 January 2015 move the place of supply (which country a cross-border supply is taxed in) from the country of the service provider to that of the customer. For digital providers selling e-services over the internet, this mean having to charge their non-domestic customers the VAT rate of their country (non-EU customers are VAT free as an export). However, the EU has simplified the reporting and payments of this by launching web reporting portals, Mini One Stop Shop MOSS, where providers can make a single, quarterly reporting covering all sales in other member states.

However, this created problems for small or ‘micro’ businesses in some countries where there is a relatively high VAT registration threshold – notably the UK. To report through MOSS, these companies had to obtain a VAT registration. The UK VAT office, HMRC, made concessions such as not requiring such businesses to charge UK VAT even thought they were now VAT registered.

Additionally, all companies must track and collect at least two pieces of evidence to help locate the country of consumption. For small companies this is creating a huge burden on their slender resources. Online marketplaces, such as Apple iTunes, Amazon and Google Play are now offering to calculate and pay the VAT on behalf of their merchants.

European Commission to reconsider MOSS

The EC, the civil service of the European Union, has now agreed to review this issue. One solution would be to introduce a VAT registration threshold like e-commerce cross-border sales.

The EC has acknowledged that when all member states agreed to the new regime in 2008, the digital market was in its infancy and some undesirable outcomes may not have been foreseen.