Updates – Articles & Press Releases From EU VAT Action

HMRC Simplifications To The EUVAT Rules – A Help Or Just Plain Confusing?

Will the new HMRC EUVAT simplifications make a positive difference for you? Or are they a sticky plaster that could actually make things worse?

We worked with HMRC on this and explained to them, before Christmas, why these two simplifications weren’t actually much help for most businesses – and could make things worse. Here’s our view on the changes to the HMRC guidelines for MOSS simplifications from 8th January 2016:

Here’s Where To Find The New HMRC Guidance

https://www.gov.uk/government/publications/revenue-and-customs-brief-4-2016-vat-moss-simplifications-for-businesses-trading-below-the-vat-registration-threshold/revenue-and-customs-brief-4-2016-vat-moss-simplifications-for-businesses-trading-below-the-vat-registration-threshold Catchy & memorable little URL, isn’t it? 😉

Here’s Where To Find Your Finance Minister’s Email Address


Please write to your Finance Minister to get them to present the case to the ECOFIN meeting, asking them to suspend the EU Digital VAT rules on a temporary basis, while the EU Commission proposes and passes the permanent threshold.

They DO have the power to do this. It’s just that it’s politically uncomfortable. But that’s not a good enough reason to close down thousands of micro businesses.

And let us know over at Facebook when you’ve done this! EUVAT Action On Facebook

Thank you!

x Clare & the EU VAT Action Team

What Is Happening With Physical Goods & EU VAT / VATMOSS in 2016?

2016 VATMOSS on physical goods: facts vs fiction

Is VATMOSS going to be extended to physical goods on January 1st 2016?

Will it be applied to digital sales that have human intervention?

There have been a lot of rumours going around recently and most of them are based on ‘what if’ scenarios, rather than hard data. Separate the facts from the fiction, based on our recent meetings with the EU Commission, attending the EU Finance Minister Fiscalis Summit in Dublin in September, Cabinet-Minister-level meetings with HM Treasury in the UK and our Consultative Status with HMRC.

Quick summary:

  • VATMOSS does NOT come into force for physical goods on Jan 1st 2016
  • BUT legislation WILL be proposed next year that will include proposals for:
    • The removal of the Distance Selling Thresholds
    • The removal of Small Value Consignment Relief
    • The extension of VATMOSS to physical goods, so that you don’t have to register for VAT in 27 countries just to sell a widget or three
  • A threshold for this year’s Digital VAT changes, below which your home country VAT rules will apply
  • A threshold above that level with a simplified version of the rules for Digital VAT

If you have strong views on these measures, please start talking to your MPs / MEPs / Tax Authority NOW, so that they can make sure the legislation is well-drafted. It will still take a couple of years to negotiate and implement, so we’re at least 2-3 years away, but we have seen the mess that was accidentally made with digital VAT. You need to be acting on this one already.

And if you’re a member of an industry representative body or a regulatory body, please get them involved, too. Although your voice counts, they will have fast-track access to the decision-makers and it’s often the best way to make your voice heard.

Interim Threshold For Digital VAT

This is urgently needed. Whilst getting the threshold legislation proposed is a huge achievement, any permanent threshold is unlikely to come into effect before 2019 / 2020. So you need to keep hassling your MPs & MEPs to tell your FINANCE MINISTER to lobby ECOFIN to bring in an interim threshold, while these laws are passed. (They will understand what all of that means! If you’re not sure, here’s a video that explains it).

We are asking for €20,000 of cross-border, digital sales as the first threshold, and €100,000 of cross-border digital sales for the ‘soft landing’ zone.

The Good News

The European Commission and HM Treasury (UK) have confirmed that the selling of digital services with a strong human intervention component will remain under domestic Place Of Supply rules. So live webinars, courses with integral live components and other high-human-intervention components will continue to be liable for VAT based on the business’s location, rather than the customer’s. This is great news for those selling those products. However, we need to keep in touch with our government representatives to make sure this doesn’t get lost during the negotiations!

Please let us know via the comments how these changes might affect you and, if they do, what you will be doing to help make sure our governments don’t mess up with physical goods!

x Clare & the EUVAT Action Team

Ongoing EU consultation on VATMOSS & Digital VAT. Make your voice heard!

Take action and get your story heard

Here’s an important new route to making your voice heard on the VATMOSS system and related problems.

Most crucially if you are a non-UK business, your answers will help prove that this really isn’t just a UK issue. It’s not as if there’s a wonderful solution available to Hungarian or Danish businesses, after all. We’re all facing the same difficulties.

Please find 15 minutes for this – and please spread the word through your personal and professional networks. The more responses they get, the more likely we are to see meaningful change on a worthwhile timescale.

“As part of the study on e-Commerce in Europe, Deloitte was invited by the European Commission to assess the effectiveness and impact of the 2015 place of supply changes and the MOSS system. The survey forms a part of this evaluation exercise and focuses on microbusinesses and on the impact of the implementation and application of the 2015 place of supply rules and MOSS system.

The information on administrative burden impact on microbusinesses provides a valuable angle to our overall analysis. Therefore we would appreciate your responses to the questions below. The results of the survey will be included in our overall analysis and presented in the report, which will be published early next year.

Participation in the survey should not take more than 15 minutes. Please provide us with your feedback by Monday 26 October.”

Click here to complete the survey

It’s Time For Your Finance Minister To Show You The EUVAT Support You Deserve

It's time for your Finance Minister to show you the EUVAT support you deserve

Juliet and I had a really successful trip to Brussels last week.

We have very strong assurances that the threshold we all need for the digital VAT mess – AND a ‘soft landing’ threshold above that – will be included in the EU Commission’s legislation, to be proposed late next year. The Commission is also very aware that this could still take several years to pass and that an interim solution is needed.

Unfortunately, it is not in their power to do anything without the legislation.

However, all is not lost – there is still hope – and it’s good, strong hope:

Basically your Finance Minister can ask for the threshold to be added to the November 13th ECOFIN agenda (big meeting of all the EU Finance Ministers), to be approved on an interim basis, while we all wait for the permanent legislation to be agreed. This could then be ratified by the December Heads Of State Council meeting.

Please block out an hour in your diary for the end of this week for our next Action Challenge. Together we can make a big difference.

We are going to be making it as easy as possible for you, with an outline of suggested points for your letter, the email address and name of your Finance Minister, and a one-page summary of the key objections that were raised by the Finance Minister teams at the Fiscalis event, so your Finance Minister won’t fob you off.

Here’s a reminder of what we’re asking for:

  • The €20,000 of cross-border digital sales to be exempt from the new EU Digital VAT rules, instead being liable for your home country VAT instead
  • The next €100,000 of cross-border digital sales to have a ‘soft landing’, simplified version of the rules, including one piece of data (e.g. payment processor country code) and guaranteed home country-only audit control

Please keep an eye on our updates and join our Facebook group, to make sure you know when this is all ready.

The outcome of this is by no means guaranteed. That’s why it will need each and every one of us to take action – especially those outside of the UK, because most non-UK Member States are still claiming this is a UK-only problem, even though we know it isn’t.

If you feel you could join us for this action challenge, please let us know (and tell us your country) via the comments. And if you might have an hour spare to help us to translate the letter template and one page summary, please also let me know via the comments (thank you!)

And if you know of any business groups in your country who should be part of this, please share the Action Challenge with them, too.

As always, huge gratitude to you for your support. Without it, we couldn’t have achieved the unprecedented changes we have already seen. We really need to keep going for this next push to make sure we can all breathe a sigh of relief and go back to trading digitally in 2016.

Thank you!

x Clare & the EU VAT Action Team

Don’t Let Your Government Leave It Too Late To Help You With EUVAT

EU Commission Meetings on EU VAT this week

Juliet and I are off to Brussels this week, to meet with senior members of the EU Commission.

Our meeting with David Gauke (UK Treasury Secretary) in September was successful, but everything the UK government is proposing is ‘tinkering around the edges’. The are not prepared to negotiate an easement threshold until the formal EU legislation has been passed.

This isn’t even being proposed until ‘late 2016’ and it could take 2-5 years from now to get all 28 Member States to agree. By that point, the Digital Economy will be pretty much over.

So Juliet and I are heading off to Brussels this week, to meet with senior members of the EU Commission, on your behalf.

We need to see what can be done to separate out the easement legislation from the larger legislative programme of which it is part, to allow an interim threshold to be agreed now, not in 2020.

Given how many EU Member States are quietly giving exemptions to their smallest businesses, we need to have EU-wide action to make these unofficial thresholds available to all.

We will be asking for:

  • the first €20,000 of cross-border digital sales to be subject to your domestic VAT rules, rather than the new place of supply rules
  • the next €100,000 of cross-border digital sales fall under the ‘soft landing’ zone, with simplified rules (e.g. Payment processor country code, instead of 2-3 pieces of evidence)
  • all firms below the EU Audit threshold (€2m) to have a guarantee that all enquiries, penalties and audits will be handled through their home country Tax Authority, rather than through the 27 other Member States, as is currently happening.

We need your help – both with the positive vibes and the tangible action. David Gauke (for the UK) and Pierre Moscovici (EU Commission) need to hear from your MP and MEPs to insist that the easement is brought forward on an interim basis, to allow us to keep trading while the longer-term legislation is passed.

Is it not acceptable for the slow pace that legislation can take in the EU to be allowed to close down or damage so many digital businesses. NONE of the EU Member States are currently proposing official interim easements, but that is what we all need.

There is no such thing as ‘impossible’ – it’s simply that what we are asking for is not the norm and may not be easy. But that doesn’t mean it can’t be done.

And, having led this campaign for nearly a year now, we believe it CAN be done. Your elected representatives can apply the pressure needed to make sure that happens.

Thank you so much for your continued support.
With love and gratitude,
Clare & the EU VAT Action Team

P.S. Although the EU Commission asked us to attend this meeting, they do not fund us in any way. We are funding this trip ourselves, which will cost Juliet and I over £1,000 between us. If you feel you could help with our direct expenses, here is where you can make a donation:

>>>> Donate to the travel costs <<<

Every donation helps. Thank you so much.

The latest VATMOSS update & how to help EU VAT Action towards still vital goals

The Telegraph (and other papers) have been triumphantly proclaiming victory in the VATMOSS fight. The EU has conceded that the legislation needs revising to include a threshold. Hurrah!

Well, as the saying goes, up to a point…

Securing this sort of solid, on-the-record commitment by both the European Commission and the UK Government to researching and enacting such revision as soon as possible is undoubtedly a major win for the EU VAT Action campaign. A year ago they were all saying there was no need for any such thing, everything would be fine and anyway, nothing could be done even if it wasn’t.

But we still won’t see any long-term relief for the thousands upon thousands of businesses hit by this for another two years – maybe eighteen months at very, very best. Which means we still need vital interim suspension or some other easement to stop the ongoing damage being done to the grassroots digital economy.

This could come from Westminster – and yes, as we’ve already explained, we know that it’s asking a lot but we’re asking on the basis of informed, expert opinions by legal and academic authorities.

Not least because the deficiencies in the consultation process (laid bare here) before all this was brought in are so appalling that could be the basis of a legal challenge – if any of us had the money to instruct the appropriate lawyers…

So please feel free to write more letters to your MPs and MEPs stressing just how and why we need to see action now.

Interim relief could come from Brussels, especially if as many people as possible reply to the current consultation on modernising VAT for cross-border ecommerce. If this affects you at all, please do so – no questions are compulsory and there are plenty of boxes for you to go into detail about your problems, and most likely, why a lot of the questions being asked are in themselves inappropriate, revealing dangerous flaws in the understanding of the new problems.

Please complete the survey if you’re not yet a digital seller but only deal in physical products. Although ‘plans to roll this out to physical sales in 2016’ have been revised to ‘2016 should see discussions about plans to roll this out at some future date’, it’s still vital that the law makers understand the needs and concerns of those posting actual parcels who will be affected by any extension of what’s currently still such a mess.

As part of this consultation process, EU VAT Action Team members (specifically me and Clare Josa) are off to Brussels again next week. Then we’ll have another trip in November, focused on meetings with cross-border, cross-party groups of MEPs, looking to nail the misapprehension that this is only a UK problem.

As before we’re having to fund all this ourselves, at time of writing. The previous Just Giving appeal was focused on getting Clare Josa to the Fiscalis Summit in Dublin and hoping to fund one further trip to Brussels. Now that we’re looking at two Brussels trips plus more meetings in London to make our case up to ministerial level, any and all donations to the campaign fund via PayPal will be most gratefully received, however small those might be.

(If anyone wants to discuss other methods of making a contribution, get in touch via email as per the information on my Contact page.)

Is A Unilateral UK VATMOSS Threshold A Realistic Proposal? We Say Yes.

Over the past nine months, the EU VAT Action team has made the case for a VAT threshold cross-border digital sales indisputable. The European Commission and the UK Government has publicly agreed, and revised legislation will be enacted.

However, even with the UK Government’s active involvement no EU threshold will be introduced in less than eighteen months to two years (and that’s being highly optimistic!). Untold damage will still be done.

Can the UK save the businesses worst hit with a unilateral, domestic threshold, specifically and only relating to cross-border digital trade, as an interim measure to apply until new EU legislation is enacted to solve the current problems?

When as various authorities have politely and accurately pointed out, doing so would be in direct contravention of this new EU legislation which the UK has agreed to and enacted.

We are very well aware of this, and thus, of the magnitude of what we’re proposing. We do not suggest this lightly. That we are doing so at all reflects just how seriously we view the ongoing damage being done. And why we have taken extensive advice from eminently well-qualified legal and academic experts among the campaign’s supporters.

A solid case can be made in mitigation for the UK choosing to take such radical action.

The data from VATMOSS returns so far makes is clear that the administrative costs to governments of administering this system, and of collecting and remitting such taxes, for the smallest tier of businesses affected. This has justified granting exemptions from taxation in past instances. Indeed, both case law (para 20, 21) and HMRC’s own guidelines explicitly set out HMRC’s responsibility to collect taxes in the most efficient way.

“For example, if it would cost £10,000 to collect £1,000 in tax due, a higher net return to the Exchequer would be achieved by not collecting the tax in question. In such cases, it would be reasonable to allow concessionary treatment because that will result in a net increase in funds to the Exchequer.”

The data from VATMOSS returns so far makes is clear that for a high percentage of affected businesses, the administrative burdens and costs of compliance massively outstrip the tax collected. Case law supports granting exemptions from tax on just this basis, and the UK is currently defending just such an easement for small scale cider producers at the European Court of Justice. (You will have to scroll down a bit to find the details).

Small scale direct online traders remain unable to gather the data to enable them to comply. Until payment processors routinely supply customer location codes for all transactions, such businesses simply cannot meet the legislation’s requirements. The UK is currently defending another case at the European Court of Justice, because leisure boat owners are not being pursued for using commercial marine diesel rather than the higher rated fuel they should legally be using, because so few refuelling facilities offer both types of fuel. The practical difficulties of complying with the legislation are so insurmountable for yacht owners that they’re being given a pass. Surely small digital businesses deserve similar consideration when it’s impossible for them to comply?

Previous EU legislation has been amended, even abandoned, when it’s become apparent that the burdens of compliance, in terms of cost and practicality, would significantly favour big companies over small, local enterprises. For example, in 2013, when new regulations over bottling olive oil would have destroyed family businesses across Southern Europe.

In this instance, we’re not advocating the wholesale rejection of this legislation. The UK would be merely acting to limit the damage to its own economy, by way of a specific and limited exemption and only as an interim measure to cover the time it will take for the European Commission to see its own proposals along the very same lines through its legislative process.

Doing so would also be acting to avoid potential legal challenges to this legislation on the grounds of its discriminatory impacts on protected and minority groups.

It would also be acting to avoid potential legal challenges on the grounds of the failure of due diligence since this legislation was prepared without consulting or considering the interests of those businesses worst affected. Small scale direct online traders were never factored into anyone’s calculations. The authorities didn’t even know we existed.

We’ve been advised that strong cases can be made against this legislation on such grounds.

The UK government would also be acting to remove the severe market distortions and significant barriers to trade that this legislation has inadvertently created. Looking at other cases currently before the European Court of Justice, where various member states are being challenged over VAT issues, fair competition and equal access to markets come up time and again as major concerns. These cases are being brought in the interests of cross-border trade and the European single market.

So would the UK Government really find itself summoned to answer for taking action to defend its own economy and to promote Europe-wide ecommerce? When the timescale for bringing such a case to court would mean legal arguments being heard at pretty much the same time as the revised legislation on EU digital VAT was being enacted to make the interim threshold unnecessary?

Though as our experts have pointed out, this would not simply be an issue between the UK and the European Commission. This new system requires the UK to collect VAT for other countries. Easements over such things as cider and marine diesel only relate to UK VAT. Taking unilateral action over cross-border digital VAT, in direct contravention of EU law, could be challenged by other member states demanding their money.

That’s certainly possible but is it probable? When business organisations in countries such as Germany are currently lodging complaints with their own competition authorities and the European Commission over abuses and market distortions stemming from companies like Amazon’s dominance over online and digital markets. Would they simultaneously object to action facilitating a broader range of ecommerce to counter just such monopolies? When the unintended consequence of this legislation has been to strengthen the stranglehold that global corporations like Amazon, Apple and Google already have on the digital market, making future challenges to them vanishingly unlikely?

Wouldn’t other countries be just as likely to enact similar interim thresholds to help out their own small digital traders? What supports online start-ups and back bedroom businesses in Birmingham or Edinburgh helps their counterparts in Dublin, Oslo, Tallinn, Barcelona, Zagreb, Paris, Helsinki, Turin, Amsterdam, Lisbon, Bratislava – and everywhere else across the digital single market – just as much. Indeed we already have evidence of ‘unofficial’ easements in other member states.

Given the unique nature of the problems this new legislation has created, and provided any interim UK easement was tightly and precisely drawn by the finest legal minds, surely the risk of this creating an inadvertently troublesome precedent is minimal?

Until any such action might be taken, such questions remain unanswerable. It is certainly the case that the UK Government has an unquestioned duty to consider very carefully all the legal implications and other arguments on both sides of any such proposal.

Equally, our elected representatives have an unquestioned duty to defend the interests of all our businesses, from the smallest up.

EUVAT Action: Meeting With David Gauke – Tuesday 22nd September

Some really good news. David Gauke is the UK’s Treasury Secretary – a key decision-maker in the EU VAT mess / fix possibilities. We met with him in December, to tell him about the problems you have been facing, but had been unable to get another meeting with him since.

Thanks to your efforts after our post-Fiscalis appeal for help last week, we are now meeting with David tomorrow – Tuesday 22nd September at 4pm.

And we URGENTLY need your help:

We (and you!) have huge support from MEPs (European Members of Parliament), the EU Commission and many of the EU Member States.

However, it could still take 2-5 years for the EU Commission to convince each of the 28 Member States to bring in a threshold, once they propose the legislation in late 2016 and, at the end of the Fiscalis meeting on 9th September, there was little appetite among the other EU Member States for any interim measures to help businesses.

David Gauke is in a position to recommend that the UK suspend these rules for the smallest businesses, to keep us trading in the meantime. If the UK does this, then other Member States may follow suit.

If you are in the UK, please would you:

  • Send an urgent email (or make an urgent phone call) to your MP (and MEPs if possible) TODAY or Tuesday am
  • Ask them to phone / email David Gauke before tomorrow’s meeting asking him to agree to suspend this legislation for the smallest businesses, as a matter of urgency, until the EU Commission’s promised legislation is passed
  • Ask them to explain that these UK businesses would then revert to the UK VAT rules – we are not asking for an additional VAT exemption
  • And they need to ask the UK government to indemnify us against any risk of double taxation by other EU Member States during this period (we have done the maths and it would cost them peanuts to do this, but would keep hundreds of thousands of micro businesses trading)

Please let us know via the comments when you have written to or phoned your MP!

And please join us over on Facebook to hear how we get on: EU VAT Action

Thank you SO much for your on-going support.

Please send hugely positive vibes and a generous sprinkling of breakthroughs for tomorrow afternoon.

Clare & the EU VAT Action Team

The VATMOSS Threshold Paradox, Reasons Why Countries Are Wary & Why We Need Action NOW

The VATMOSS Threshold Paradox

If we’re to find a way forward to save the European digital economy – and every passing month sees yet more damage done – EU countries need to realise they can actually profit by taking small businesses out of cross-border digital VAT. On the other hand, it’s equally important to realise why different nations may be reluctant to agree to a VATMOSS threshold, despite the arguments in its favour.

Granted, at first glance, the idea that giving any businesses an exemption from tax would make any nation’s Treasury better off doesn’t seem to make much sense. Especially when countries worldwide are seeing their economies suffer from tax-base erosion and profit shifting. Which is what happens when global corporations from Amazon to Starbucks set up subsidiaries in tax havens with minimal taxation, and shuffle the paperwork to ensure they can do business worth millions of pounds/euro in the UK, France, Germany or elsewhere and only pay a fraction of the tax that would be due if those businesses were actually based in that country. These are legitimate concerns for governments and the new EU digital VAT regulations are intended as a first step to frustrate such financial fancy footwork.

But effective taxation is all a question of scale and this applies most particularly when dealing with the smallest businesses. There’s a crucial point where the fixed costs of collecting a tax are more than the money that comes in. This is a central concern with VATMOSS, given so many small-scale direct digital traders are making quarterly returns of under £/€20.

After six months of these new regulations, HMRC has revealed that 78% of the VATMOSS returns being processed in the UK only bring in 1% of the total revenue they get from this scheme. And that’s not even counting all those people submitting zero returns because they don’t happen to have made a cross-border sale in that quarter.

Is that 1% of revenue covering the cost of all that added administration? If not, then taking those smallest traders out of this system will mean the Treasury’s better off overall. It’s basic cost-versus-benefit analysis which every EU state now needs to do as a matter of urgency. They have the data. They need to use it NOW.

More than that, countries need to consider is this 1% or so worth having in the short term, compared to the losses of tax revenues that they will see in the medium and longer term?

Because there’s a tipping point for small businesses when considering the tax to be paid and the costs of paying that tax in administration and accountancy fees. There’s a point where those costs use up such a high percentage of a business’s turnover that it simply makes no sense for an individual to carry on trading for what little income is left.

If giving up their fledgling enterprise means going onto unemployment and other benefits, then that person’s government will see their social security bill go up. That country would be better off forgoing a comparatively trivial amount of tax in return for this saving on welfare.

Longer term, these small businesses which are currently being killed off with every passing month can never grow into the medium and larger companies which would have paid worthwhile amounts of tax as well as generating employment and overall economic growth.

When a small business’s income is subject to a particular tax from the very first penny, the loss of potential is even greater. The expense of compliance added to other start-up costs has now created such a forbidding barrier to entry that promising enterprises are being abandoned at the planning stage. Companies which could have become world leaders will never see the light of day.

This is especially true in the digital economy where multinational corporations have quite literally started at kitchen tables (Dunnhumby) or in garages (Apple). In the 21st century, online enterprise means investing time to start a business instead of a whole load of money up front. A single entrepreneur can turn a good idea into a digital product and take it to a global marketplace using freely available computer resources to learn new skills and the marketing reach of blogs, social media and online interest groups. As soon as a trickle of money comes in, services like web hosting and domain registration are easily affordable. As the business grows, more aspects can be contracted out, all generating economic growth and employment. All of that activity increases a country’s tax base.

But not if that business never starts up because of VATMOSS compliance costs. We already know that enterprises expecting to pay under £/€100 annually in cross-border digital VAT are facing anything from £500 to £5000 in added costs. No wonder so many people are giving up on the very idea of starting a new digital business now that they have to find that sort of money up front, before they’ve even earned a penny.

You don’t need to just take our word on all this. The OECD Secretary General has just issued a key report to the G20 Finance Ministries on taxation including VAT issues for small and medium enterprises (SMEs). You can read the whole thing here if you’re keen but these are some key points:

“… Tax compliance costs typically have a significant fixed cost component, tending to impose a relatively higher burden on SMEs than on larger enterprises which can benefit from returns to scale in complying. Tax compliance costs may affect a number of economic margins faced by the owners and operators of SMEs, notably, whether to become self-employed, whether to employ others and whether to operate in the formal economy.” (page 105 para 207)

“Along with other taxes, VAT imposes compliance costs on businesses and administrative costs on tax authorities. Although VAT is designed to be neutral for business taxpayers, VAT is often classified as particularly difficult and burdensome for SMEs to collect and comply with. Hence simplified VAT regimes for SMEs are often an efficient way to promote compliance.” (page 118, para 262)

“Exemption thresholds set a level of turnover below which there is no obligation to comply with VAT regulations. Entities under these thresholds do not account for output VAT and consequently are not entitled to deduct input tax incurred on purchases of goods and services. This is a commonly-used and straightforward option to address VAT compliance costs.” (page 118, para 264)

So why is there any debate? Why wasn’t a threshold included from the start, when the VATMOSS system was agreed?

Well, as with so much in life, it’s more complicated than that. The OECD hasn’t produced a 160 page report analysing taxation issues in detail for the fun of it. As this document also says:

“Whether to establish a threshold is an important issue for VAT design. The level of the threshold is often a trade-off between minimising compliance and administration costs and the need to avoid jeopardising revenue and/or distorting competition. Exempting small firms from the VAT system may forgo little revenue, however, the balance between cost savings and revenue losses shifts as thresholds increase and at some point the forgone revenue will exceed the compliance and administrative costs. At some intermediate point an optimal VAT threshold can be identified, at which the cost savings and revenue losses are equal. Further, there are a number of other factors including distortionary effects inherent in the application of thresholds that should be taken into account. All these considerations make the identification of the optimal threshold for each country a difficult question to determine and one which may vary across the heterogeneous SME population.” (page 119 para 271)

If identifying an optimal VAT threshold for an individual country is difficult, how much more challenging is that going to be for the entire European Union?

The 28 member states vary hugely in geographic size, location, resources and population, just to begin with. Every country’s economy has different strengths and weaknesses. Every nation sets its own priorities with regard to regulation or liberalisation of market forces and in terms of the social contract between government and citizens. Each exchequer and finance ministry sets its own budget accordingly, balancing direct taxation on income and indirect taxes like VAT, and accountable to the electorate giving its politicians their democratic mandate.

So it’s hardly surprising to see different countries oppose sweeping proposals for some one-size-fits-all, universal VAT threshold applied to all small companies’ total turnover.

This is why the EU VAT Action Campaign’s call for a VATMOSS threshold specifically states that this should only apply to cross-border digital sales. Every country’s own domestic VAT regime would still apply outside that, leaving national sovereignty over taxation unchallenged.

Working out the fine details will be a complex task and such things invariably take time. Unfortunately we have no time to spare, now that these regulations are already in operation.

The damage is already being done as businesses close, scale back their digital sales or lose income vital to their future growth in 3rd party marketplace fees. All of which erodes every EU country’s tax base and potentially adds to its welfare bill.

This is why the EU VAT Action Campaign is calling for immediate interim easements to save the small businesses worst affected from going under in the two to five years it will take before these laws can be changed at EU level.

Whether these interim thresholds or suspension come centrally from the EU Commission or individually from national governments using their discretion to protect their own economies as they see best is a secondary consideration. The primary issue is practical action to save the digital, knowledge and skills-based economy needs to happen NOW.

What Happened At The EU VAT Fiscalis Summit? #EUVAT #Fiscalis

Thank you all so much for your support last week when I was at the Fiscalis Summit.

Here is a summary of how it went and what our next steps are:

In summary: there was widespread agreement that the implementation of the EU Digital VAT rules has hit the smallest businesses very hard. There was also widespread support of a cross-border sales threshold, below which you would revert to domestic VAT rules, plus a ‘soft landing’ threshold above that, with all reasonable simplifications available to make the start of complying with these rules more reasonable.

However, the support was NOT unanimous. And it would need to be, to pass it as legislation.

The EU Commission will propose legislation in late 2016, to potentially bring in thresholds and simplifications. But that is still a year away. And it could take 2-5 years after that to debate and agree the proposals.

What we need is an interim suspension of these rules NOW for micro businesses, to allow them to keep trading while the political wheels do their turning.

To move us forwards, we are now translating and analysing the EU-wide quantitative survey that we launched in March. We need support with translating these responses for analysis and then translating the summary reports, please.

Once we have these, it will be another all-hands-on-deck for writing to MEPs and Finance Ministers, to tell them how badly we need an interim suspension.

Also, the OECD is proposing an EU-style ‘place of supply’ VAT change to be applied worldwide and they are meeting with G20 Finance Ministers in Lima in October. We urgently need to meet with the UK’s David Gauke (Treasury Secretary) or Chancellor George Osborne, to make sure they understand the gravity of the problem, first hand.

If you have contacts who could help to set up this meeting (they are well-protected by the Civil Servants with whom we have been working 😉 ), please let us know.

Thank you so much for your on-going support. We are making progress – great progress – even though it may feel slow at times compared to the fast-pace at which a micro business can move, compared to the EU legislative machine!

We would love to see you over at our friendly Facebook group. Please let us know if you have any new news.

x Clare & the EU VAT Action Team