European Parliament Backs Measures to Combat VAT Fraud Related to E-commerce

European Parliament Backs Measures to Combat VAT Fraud Related to E-commerce

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Online sales in the EU are estimated to worth €550 billion a year – €96 billion of which is cross-border. The new EU VAT system for e-commerce aims to give simpler value added tax (VAT) rules and administration for businesses and measures for Member States to tackle VAT fraud related to e-commerce.

The new framework introduced the destination principle for cross-border business-to-consumer (B2C) sales; i.e. VAT is to be paid at the rate of the country of consumption as of January 2021. The regime is expected to raise €7 billion in VAT revenues for Member States and drop in VAT compliance costs of €2.3 billion a year for businesses from next year. Identification of the online businesses supplying goods and services to customers in other Member States, however, is going to be key when it comes to ensuring effective collection of VAT and addressing e-commerce VAT fraud.

The European Parliament supported measures on 17 December 2019 designed to fight e-commerce VAT evasion that would help close some of the €137 billion VAT gap each year across the EU due to (inter alia) VAT fraud. E-commerce payments in most cases involve intermediaries (payment service providers (PSPs). Accordingly, the first proposal would oblige PSPs to collect and retain cross-border e-commerce payment records for three years. The second proposal includes several measures to improve administrative cooperation, information sharing between the parties and effective prosecution supported by the European Public Prosecutor's Office.

Now, it is up to the EU Member State ministers to adopt the two pieces of legislation.

By Balint Zsoldos, Head of Tax, KCG Partners Law Firm