UK wins compromise on digital EU VAT chaos

Mon 7th Sep 2015

The UK has seemingly won an important concession from other EU member states on introducing a VAT registration threshold for the new 2015 EU VAT MOSS regime for the supply of digital services.  This includes: apps, membership fees for online dating sites, online journals/newspapers, streaming games, video and music.

The new rules introduced in January, required thousands of UK micro-businesses to register for VAT for the first time, were aimed at simplifying EU VAT rules. However, the number of VAT MOSS registrations has been a disappointment at only 12,000 compared to the hoped-for 1 million.

EU tax authorities debate VAT threshold compromise this week

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 microbusiness 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, they debated 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 challenges to a workable threshold solution, including:

  1. A threshold would take out of the VAT net sales already taxed domestically in countries that have a low registration threshold – including 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 would 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.

The problem arises because of the UK’s high VAT registration threshold of £82,000 which lifts hundreds of thousands of businesses out of the VAT net. Most other EU countries are at €25,000 or below. The UK is pushing for a €100,000 annual threshold on VAT MOSS. But countries such as Germany and Denmark may only be prepared to accept €10,000.