1.CONTEXT OF THE PROPOSAL
•Reasons for and objectives of the proposal
The present initiative is, together with the proposal for a Regulation of the European Parliament and of the Council establishing the Union Customs Code, the European Union Customs Data Hub and the European Union Customs Authority, and repealing Regulation (EU) 952/2013 (“UCC revision”), and the proposal for a Council Regulation amending Council Regulation (EC) No 1186/2009 of 16 November 2009 setting up a Community system of reliefs from customs duty and Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff, part of a broad and comprehensive reform of the Customs Union.
Value added tax (VAT) is a major source of government revenue in all EU Member States. 1 In 2020, its contribution to total tax receipts ranged from 20% to 50% across Member States and accounted for approximately 26% of the total yearly tax receipts for general government in the EU27. It is also a key source of financing for the EU budget since 0.3% of VAT collected at national level is transferred to the EU as own resources, representing 12% of the total EU budget.
The revenue loss, known as the ‘VAT gap’, delineates the issues caused by sub-optimal VAT collection and control. Estimated at a total of EUR 93 billion for 2020, a significant part of this loss is due to missing trader intra-Community (MTIC) fraud. The VAT gap also includes revenues lost to domestic VAT fraud and evasion, VAT avoidance, bankruptcies and financial insolvencies, as well as miscalculations and administrative errors. The VAT system is not only prone to fraud, but has also become increasingly complex and burdensome for businesses.
In response to the explosive growth in e-commerce activity and a fragmented regulatory framework for the collection of VAT on e-commerce supplies, on 1 July 2021, the VAT e-commerce package introduced a number of VAT and customs related reforms to modernise and simplify the collection of tax on e-commerce transactions. The implementation of the e-commerce package has proven to be a great success as shown in the results of an evaluation that was conducted in relation to the first 6 months of application. This was confirmed by Member States in the Council Conclusions 2 of the March 2022 ECOFIN.
On the import side, one of the primary objectives of the VAT e-commerce package was to level the playing field for EU established suppliers by addressing distortive rules that led to competition issues in the e-commerce market. The VAT exemption for the importation of small value consignments not exceeding EUR 22 was abolished. As a result, VAT is now due on all commercial goods imported into Europe from a third country or third territory, irrespective of their value.
With the abolition of the EUR 22 threshold, the e-commerce package introduced a number of simplifications to help ease the compliance burden for traders making distance sales of imported goods into the EU. Albeit, the scope of these simplifications was limited to imports with an intrinsic value not exceeding EUR 150.
One such simplication is the Import One-Stop Shop (IOSS) ), which is however only available for distance sales of imported goods with an intrinsic value not exceeding EUR 150 (as the VAT e-commerce package did not remove the EUR 150 customs duty exemption threshold). Traders who opt to use the IOSS do not need to register for VAT in each Member State in which their eligible supplies of imported goods to consumers take place. When the IOSS is used, the VAT due on those supplies is collected upfront at the time of the supply, meaning that VAT does not have to be collected at the time of importation. However, the regime is different for goods with a value above EUR 150, as such distance sales of imported goods are liable to import VAT at the time of importation (VAT is not collected upfront).
The proposal to reform the customs framework 3 creates a clear rationale to delete the EUR 150 threshold, which currently limits the application of the IOSS to distance sales of imported goods not exceeding EUR 150. That proposal introduces the concept of a ‘deemed importer’, who is any person involved in distance sales of goods to be imported from third territories or third countries and who is authorised to use the IOSS. Such persons will incur a customs debt when the payment for the distance sale is accepted and will be able to apply a ‘simplified tariff treatment for distance sales’ when determining the appropriate customs value.
Under the simplified tariff treatment, the deemed importer can apply one of the ‘bucket’ tariffs to the customs value. The deemed importer will therefore have all the information required, including the duties due by reason of importation, to properly calculate the taxable amount upon which VAT must be applied. Therefore, it is opportune to amend Council Directive 2006/112/EC by deleting the EUR 150 threshold that applies to the IOSS.
The removal of the EUR 150 IOSS threshold is warranted in its own right as it will help to support the objective of a single VAT registration in the Union by allowing IOSS registered traders to declare and remit the VAT due on all their eligible supplies of IOSS goods, irrespective of their value. While the removal of the IOSS threshold is not dependent on the implementation of the customs reforms, it will, nevertheless, support the reform of the customs framework as it will maximise the benefits that the customs oriented simplifications will create for the calculation of VAT on distance sales of imported goods. As the deemed importer, an IOSS registered trader will have all of the information needed to calculate the correct amount of VAT payable on all their eligible distance sales of imported goods. This measure will therefore also help to prevent undervaluation in relation to distance sales of imported goods as the correct amount of VAT will be collected at the time of supply, which is when the payment for the e-commerce transaction is accepted.
Moreover, this proposal aims to further reduce the compliance burden faced by traders making distance sales of imported goods by also extending the simplification known as the ‘special arrangements’.
When certain conditions are met, the special arrangements allow postal operators, express carriers, customs agents and other operators who fulfil the customs import declarations on behalf of the customer to declare and remit the collected VAT on those imports on a monthly basis. The special arrangements are an optional simplification and apply, subject to conditions, to the importation of goods with an intrinsic value not exceeding EUR 150, excluding excise goods. Under this proposal the EUR 150 threshold, which currently applies to the special arrangements, will also be removed. This iniatitve will further ease the compliance burden and costs associated with the importation of goods above EUR 150.
In addition to the IOSS simplification and the special arrangements, the e-commerce package also provided for the deemed liability of marketplaces and platforms, where they facilitate distance sales of goods imported into the EU with an intrinsic value not exceeding EUR 150. The ‘deemed supplier’ regime is a key reform that is designed to mitigate the risk of non-payment of VAT. Where this regime applies, individual sellers on marketplaces do not have to register for VAT in respect of supplies covered by the deemed supplier rule. This particular measure removes the compliance burden from sellers who operate via marketplaces. It also bolsters compliance as it streamlines the VAT obligations of thousands of underlying sellers by deeming the marketplace as the person liable to declare and pay the VAT due on those supplies. This initiative proposed the removal of the EUR 150 threshold to further expand the scope of the deemed supplier regime to cover all distance sales of imported goods into the EU, irrespective of their value. Consequently, this proposal also aims to reduce the compliance burden for taxable persons making distance sales of imported goods into the EU via marketplaces, which is in line with the key objectives of the VAT in the Digital Age (ViDA) proposal.
Building on the moment of the VAT e-commerce reforms, the Commission adopted the VAT in the Digital Age (ViDA) proposal in December 2022, as announced in the 2020 Action Plan for fair and simple taxation supporting the recovery. 4
This current proposal seeks to further adapt the EU VAT framework by expanding the range of supplies covered by the IOSS, Special Arrangements and deemed supplier regime. Under this proposal, the IOSS could be used to declare and remit the VAT due on all distance sales of imported goods into the EU, irrespective of their value, but not including products subject to excise duties, which remain excluded from the scheme. Likewise, both the speical arrangements and the deemed supplier regime will be extended by removing the EUR 150 threshold, which currently limits their appication and effectiveness. This initiative will further stengthen the concept of a single VAT registration in the EU. Therefore, this proposal is coherent with the ViDA proposal and its objective to reduce the compliance burden for taxable persons, as it will remove the multiple registration obligations that persons making distance sales of imported goods above EUR 150 may otherwise face.
•Consistency with existing policy provisions in the policy area
This initiative is consistent with the ViDA proposal 5 , which was adopted by the Commission on 8 December 2022 and is currently being discussed in Council. The ViDA proposal aims to modernise and reshape the EU system of VAT to the the digital era. In fact, the ViDA proposal represents an extensive and multifaceted package of reforms with three key primary aims, one of which is to enhance the concept of a single VAT registration (SVR) in the EU.
One of the main objectives of the ViDA proposal is to limit the need for multiple VAT registrations in the EU. The ViDA proposal strives to achieve this aim by expanding the scope of the simplification tools used to declare and remit the VAT due on distance sales of goods 6 . The ViDA reforms will advance the concept of a Single VAT Registration (SVR) in the EU by expanding the range of supplies covered by Union One-Stop Shop (Union OSS) simplification, which forms part of the suite of One-Stop Shop (OSS) simplifications. This proposal aims to further reduce the instances in which a taxable person making distance sales of imported goods has to register for VAT in more than one Member State by expanding the deemed supplier rule and by expanding the IOSS and special arrangements to cover imported goods above EUR 150. Therefore, both this initiative and the ViDA proposal help to support the aim of a single VAT registration in the EU.
The ViDA proposal also imposed the mandatory use of the IOSS for platforms. Under the ViDA proposal, the IOSS will be mandatory for marketplaces acting as deemed supplier for certain distance sales of imported goods. Under this proposal, marketplaces that facilitate distance sales of imported goods above EUR 150 will now be the deemed supplier in respect of those supplies and will, as a consequence, be obliged to declare and remit the VAT due on those supplies via the IOSS. This reform further protects the EU VAT system and strengthens the fight against VAT fraud as the compliance effort will now be focused on an even smaller pool of marketplaces (taxable persons) who are well versed in the field of VAT compliance and who, from a customs perspective, will also be the deemed importer for all supplies of imported goods that they facilitate via their platform. Futhermore, this measure will reduce the risk of undervaluation in relation to distance sales of imported goods. As the deemed importer, the marketplace will have all of the component ingredients at its disposal, which are needed to calculate the correct amount of VAT payable on such supplies. Undervaluation will no longer be possible as the marketplace will charge VAT upfront on the listed sales price of the goods. When determining the taxable amount upon which VAT is levied, the IOSS-registered marketplace, acting as both deemed supplier and deemed importer, will include all factors such as the taxes, duties and levies due by reason of importation, along with other incidental expenses such transport and insurance costs, that are required to properly calculate the taxable amount for VAT purposes. Consequently, the correct amount of VAT will be charged and remitted to the relevant tax authorities. As VAT is collected upfront at the time of sale of IOSS goods, the import process will also be eased as the subsequent import of IOSS goods is exempt from import VAT.
The initiative supports the EU’s sustainable growth strategy 7 that refers to better tax collection, reduction of tax fraud, avoidance and evasion and to the reduction of compliance costs for business, individuals, and tax administrations. Improving taxation systems to favour more sustainable and fairer economic activity is also part of the EU’s competitive sustainability agenda.
•Consistency with other Union policies
This initiative is consistent with the Customs Action Plan 8 . Management of e-commerce is one of the four key areas of action in the Customs Action Plan. This proposal to extend the IOSS scheme by removing the EUR 150 threshold is done in the framework of the customs reform.
In the final report of the Conference on the Future of Europe 9 , citizens call for ‘Harmonizing and coordinating tax policies within the Member States of the EU in order to prevent tax evasion and avoidance’, ‘Promoting cooperation between EU Member States to ensure that all companies in the EU pay their fair share of taxes’. This proposal is consistent with these goals.
Source: europa.eu
