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European Commission Proposals - Digital Single Market

9th December 2016

Digital Single Market

The European Commission has recently published a series of proposals regarding the digital single market and cross border e-commerce.

The proposals have yet to be adopted and like anything, post Brexit, it remains to be seen whether they will be implemented in the UK, and if so how. However, the proposals are welcome.

MOSS and electronic services

The VAT treatment for electronic services was changed in 2015 for B2C supplies, such that the place of supply became the country where the customer was located. This meant that a person making a sale to a private individual of an electronic service had to register for, and charge VAT in the EU Member State where his customer belonged. Alternatively, he could use a facility known as the Mini One Stop Shop (MOSS) whereby he worked out how much VAT should be charged to customers in the various Member States, and submitted a single return to HMRC using the MOSS facility, and HMRC acted as a clearing house remitting the VAT to the other Member States.

Whilst MOSS was helpful, it has in practice meant a significant amount of time is spent on compliance for very small amounts of tax, sometimes only a few pounds for say the sale of a digital journal by a learned society to a handful of members in the rest of the EU.

The UK Government had been lobbying for the introduction of a de minimis limit and the Commission finally seems to have taken this on board. The Commission is now proposing that from 2018 onwards sales of electronic services up to €10,000 will be treated as domestic sales and not subject to the requirement to use MOSS or register in another Member State.

In addition, for businesses with such sales of over €10,000 and up to €100,000 only one piece of evidence will be required to demonstrate that their customer belongs in another Member State (at present two such pieces of evidence are required).

It is also proposed that MOSS will be extended to the online sale of goods and all cross border supplies of services which will remove the current distance selling rules and low value consignment relief from 2021 onwards.

Under a further proposal the Commission is proposing the alignment of the VAT treatment of digitised and hard copy publications. If this is adopted then it remains to be seen whether the UK would adopt it, and if so how. For example, would e-publications become zero-rated, would hard copy books and newspapers become subject to 20% VAT, or would both become subject to a reduced-rate of VAT of, say 5%. Member States will be permitted to do this from 2017 onwards.

If you have any questions, please contact Phil Salmon, VAT Partner, on 0207 969 5611 or via email, or your usual haysmacintyre contact.