The European Commission Thursday released a set of proposals aimed at simplifying value-aded tax (VAT) requirements for e-commerce retailers, making it easier to buy and sell goods and services online across foreign borders.
Online merchants must currently register for VAT in each of the European Union countries where they do business, which can cost about €8,000 ($8,500) per country, Reuters notes. Under the proposed rules, VAT on cross-border e-commerce sales under €10,000 will be handled domestically (a simplification for startups and smaller businesses).
Smaller to medium-sized businesses will also benefit from simpler procedures for cross-border sales of up to €100,000, as well as proposed actions against VAT fraud from outside the EU to protect against unfair competition and market distortions. The new rules additionally present an opportunity for member states to reduce VAT rates for e-publications such as e-books and online newspapers.
Thanks to close proximity and existing cross-border reforms from the European Commission, European shoppers even now are used to buying goods from outside countries, more so than their American counterparts. But the traditional “value-added tax” on goods and services (a tax on consumption that has no equivalent in the U.S.) is applied at different rates among the various EU member states, ranging from 17% in Luxembourg to 27% in Hungary, for example. Those variations have been problematic for retailers, especially those selling across borders, and for the smaller upstarts so prevalent in e-commerce that can be a particular issue.
The new EU reforms come on the heels of proposals to cut costs of e-commerce delivery and reduce other barriers to global commerce. They are also part of the European Commission’s overall work on VAT reform for member countries this year, an effort to create one VAT area across the EU.
“We are delivering on our promises to unlock e-commerce in Europe,” Andrus Ansip, EU Vice President for the Digital Single Market, said in a statement Thursday. “We have already proposed to make parcel delivery more affordable and efficient, to protect consumers better when they buy online and to tackle unjustified geo-blocking. Now we simplify VAT rules: the last piece in the puzzle. Today's proposal will not only boost businesses, especially the smallest ones and startups, but also make public services more efficient and increase cooperation across borders.”
The EU’s VAT reforms could bring the member states closer to the free and open commerce enjoyed by U.S. states, which was part of the framework introduced by the American founding fathers in an effort to tamp down inter-state rivalries at the vulnerable time after the revolution in the 1770's. The rise of e-commerce has made that goal even more pressing.
"Online businesses operating in the EU have been asking us to make their lives simpler,” Pierre Moscovici, EU Commissioner for Economic Affairs, Taxation and the Customs Union, said in a statement. “Today we're doing that. Companies big and small that sell abroad online will now deal with VAT in the same way as they would for sales in their own countries. That means less time wasted, less red tape and fewer costs. We're also simplifying rules for micro-businesses and startups, allowing them to tap new markets more easily. Our proposals mean that European governments stand to gain an additional €100 million a week to spend on services for their citizens."
While reforms could ease e-commerce within the EU, it could hurt U.K. manufacturers and retailers in light of that country's decision to leave the EU by making tax considerations in cross-border sales comparatively more cumbersome.