UK hope of EU VAT MOSS reform premature?

Sat 12th Sep 2015

Last week’s UK reports of an important concession from EU tax authorities on introducing a VAT registration threshold for the new 2015 EU VAT MOSS regime is likely to face delays for up to 2 years, and the threat of watering down.

The new rules introduced in January required hundreds of thousands of UK micro-businesses to register for VAT for the first time, burdening them with high administration costs. The new rules are aimed at simplifying EU VAT rules. These cover the VAT reporting on the sales to EU consumers of apps, membership fees for online dating sites, online journals/newspapers, streaming games, video and music. However, the number of MOSS registrations has been far below expectations.

UK victory faces resistance from other tax authorities

To eliminate the requirement for micro-businesses to VAT register, EU tax authorities this week debated introducing a threshold. This follows extensive campaigning by UK micro-business faced with the complex rules and reporting obligations, which they claimed was leading most of them to ‘geo-block’ sales to other EU countries. David Cameron appealed for a VAT threshold in March this year to the European Commission.

At the regular meeting of the EU tax authorities, Fiscalis, the structure of the threshold was debated in advance of a proposal from the EC in the forthcoming weeks. However, there are still a number of concerns from other tax authorities to a workable threshold solution, including:

  1. A threshold could reduce the VAT net sales taxed domestically in countries with low registration thresholds – e.g. Germany, Italy and France
  2. Any such threshold would have to be extended to non-EU providers to ensure it was not anti-competitive. This threshold could be very challenging and expensive to police outside of the EU.
  3. A threshold may encourage the practice of ‘splitting’ revenue between shell or closely-related providers to remain under the threshold.

Whilst the acceptance by other EU tax authorities that a VAT registration threshold is needed, the UK’s push for a €100,000 threshold may face stiff opposition. Denmark and Germany may only compromise on a €10,000 per annum threshold which would still draw several thousand UK firms into the VAT net.