Tuesday 17 July 2018

Brussels to overhaul cross-border VAT on online sales

Amazon, led by CEO Jeff Bezos
Amazon, led by CEO Jeff Bezos

Francesco Guarascio

The European Commission will today propose changes to the way VAT is levied on cross-border purchases, in a move that could hit US online retailer Amazon.

The proposals aim to tackle fraud and curb firms' excessive tax-planning and keep more cash in economies where sales are made.

It comes as Amazon faces the prospect of being hit with a bill that could run to hundreds of millions of euro for back taxes in Luxembourg. It follows an investigation that echoed Competition Commissioner Margreth Vestager's €13bn Apple tax ruling last year. That ruling is expected today.

The VAT plan is part of a broader EU tax campaign that has put the Commission at odds with member states including Ireland.

In a draft document to be published today, the Commission will propose that VAT in a cross-border trade be charged at the rate set by the country where the buyer is located, rather than in the seller's home.

The aim is to reduce billions of euro of tax revenues lost to some EU states each year. The change is also likely to eliminate the incentive for exporting firms to base themselves in countries with low VAT rates.

"With goods and services being taxed in the member state of destination, suppliers derive no significant benefit from being established in a lower-rate member state," the Commission said in a document seen by Reuters.

Luxembourg and Malta currently apply the lowest VAT "standard" rates in the 28-country EU on most products.

Some countries, including Luxembourg and Ireland, also charge reduced VAT for certain goods.

Countries can also exempt some goods, like food and medicines, from VAT but the list must be approved by the Commission, which is also in charge of setting minimum rates.

The EU executive said the proposed changes would reduce the need for a harmonized VAT rate policy. By November it will make new proposals to reform VAT rates, giving member states more power.

VAT rules became a political football ahead of the Brexit referendum when Britain could not exempt tampons from the tax even though goods such as razors, mainly used by men, are.

The EU proposals would increase the administrative burden on companies that serve the EU from a single country, like Amazon in Luxembourg.


Irish Independent

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