22 Nov 2019
EU Ministers Agree on New VAT Rules to Fight Fraud in the E-commerce Sector
On 8 November 2019, the European Commission announced that the EU's VAT system is set to be further equipped to tackle fraud in the e-commerce sector, following new rules agreed by Member States on that day. The political agreement will, it is announced, for the first time make relevant data on online purchases available to anti-fraud authorities in their fight against VAT fraud in the e-commerce sector, estimated at around €5 billion a year in the EU.
Hong Kong sellers may be particularly interested to learn that other decisions were also made by EU Finance Ministers in the field of VAT on 8 November, in order to help cut red tape for SMEs. In addition, measures were agreed to simplify VAT and excise duty rules for EU Member States’ armed forces, by exempting supplies to armed forces in certain scenarios.
Pierre Moscovici, the current (but soon to be departing) Commissioner for Economic and Financial Affairs, Taxation and Customs commented that “with a stream of proposals over the last five years, this Commission has been quietly building up a formidable track record in helping to simplify the EU's VAT system, reducing opportunities for fraud and making life easier for legitimate businesses. It’s clear that Member States are of the same mind when it comes to these aims, and I hope that this momentum can translate into large-scale reform of the entire legislation underpinning the system”.
The new rules to fight fraud in the e-commerce sector, that were agreed on 8 November, intend to reinforce Member States’ capacity to fight against e-commerce VAT fraud. The rules will do this by ensuring that anti-fraud experts in EU Member States have access to VAT-relevant data held by payment intermediaries such as credit card and direct debit providers that facilitate over 90% of online purchases in the EU.
Practically, payment service providers will be obliged to provide Member State authorities with certain payment data from cross-border sales, which anti-fraud specialists (the so-called ‘Eurofisc’ network) can then access and analyse.
Importantly for online traders: in turn, both EU and non-EU online sellers will be identifiable when they do not comply with VAT obligations.
The Commission’s announcement notes that similar provisions in place in some Member States and other countries have already shown how such cooperation can have a tangible effect in tackling fraud in the e-commerce sector.
The new rules will have to be confirmed by the European Parliament before entering into force in January 2024.
As for simpler VAT rules for SMEs, the EU finance ministers also reached a political agreement on an update to already-existing special VAT rules for EU SMEs, giving more opportunity for cross-border activities. The new regime should, it is claimed, reduce red tape and administrative burdens for small companies and create a level playing field for businesses regardless of where they are established in the EU, since a patchwork of approaches across the EU means that thresholds to qualify from VAT exemption vary.
The new rules will ensure a uniform domestic turnover threshold of €85,000 for companies doing business only in their own Member State, and an EU-wide €100,000 threshold in turnover for SMEs doing business cross-border to be eligible for exemption in another Member State. Qualifying SMEs will be able to take advantage of further simplifications in dealing with VAT obligations such as registration and reporting. The new and improved VAT scheme for SMEs should enter into force in January 2025.
The political agreement of 8 November also covered tax exemption measures to facilitate common defence efforts in the context of the EU's Common Security and Defence Policy (CSDP). The new rules will, it is stated, exempt supplies to armed forces from VAT and excise duties when these forces are deployed outside their own Member State and take part in a European defence effort.