New EU VAT rules will have seismic effect

New EU VAT rules will have a seismic impact on how eCommerce works.

Affected businesses will have to adapt so as to meet the internal demands and external requirements of the VAT legislation reform.

Compliance with the new EU VAT rules is now key.

How will an eMerchant comply with the new rules?
The new EU VAT rules change the emphasis of eCommerce taxation. From January 1, 2015 (the launch date of the new legislation), all merchants providing broadcasting, telecommunications and electronic services in the EU will have to ensure that their business complies.

The new rules only apply to B2C sales of these services.

Therefore merchants will have to identify and prove the location of their end consumer. To comply merchants will have to collect at least two pieces of non-conflicting evidence so as to prove the location of their end consumer.

Accepted pieces of evidence for these digital service sales include:

The burden of proof is on the merchant, it is their responsibility to prove that they charged the current VAT rate based on where their end consumer is located.

Registration with the mini one stop shop
As part of the path to compliance with the new EU VAT rules a system called MOSS (mini one stop shop) has been created.

Registration with MOSS is optional. But eMerchants must realize that if they decide not to register with MOSS then they will have to account for and declare VAT in all the EU member state in which they have sales. That can potentially include 28 member states. This will entail dealing with different languages and currencies (only 18 member states are in the Eurozone).

MOSS has been created to ease the compliance process. An EU eMerchant can register with the MOSS in their own country. This country will be the MSI (member state of identification). The merchant register all the VAT collected from their EU sales with their MSI. The MSI will, in turn, distribute the relevant VAT to the EU member states where the VAT is due. These member states will be the MSC (member state of consumption).

A non-EU eMerchant with no permanent base in the EU has the option of selecting an MSI from the 28 EU member states. Once selected the compliance process is the same as for EU eMerchants.

Aim is to make the digital economy pay fair'
Last October 2013, Algirdas Semeta - the EU Taxation Commissioner - said the main reason behind the new EU VAT rules was to compel the digital economy to play fair and pay fair'. Compliance is all that matters now as the EU will work to enforce the rules from January 2015 onwards.

By Daniel Clark
Daniel, the author of this post, practices law. Here he explains about the importance of VAT changes in 2015, and you can be up to date with new EU VAT rules change.

Copyrighted 2020. Content published with author's permission.

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