The European Union’s approach to VAT and e-commerce

Abstract

The digitalisation of the global economy is one of the main topics of discussion at the OECD – and at the European Commission (‘the Commission’) – in relation to taxation, in particular indirect taxation. The growth of e-commerce (by which we mean supplies of services and intangibles online and supplies of goods acquired over the Internet) requires that the European Union (‘the EU’) VAT rules, which have their origins dating back to the 1950s, be brought up–to-date and modernised so that they are adapted to the new environment of cross-border trading in order to ensure the correct determination and collection of VAT, to limit the scope for fraud, and to simplify the application of VAT to cross-border trading in goods and services, in particular for small and medium-sized enterprises (‘SMEs’). In recent years, the EU and a number of countries around the globe have, as a consequence of these global trends, been introducing specific VAT rules applicable to e-commerce to ensure that the right amount of VAT is collected at the right place and at the right time. On 1 January 2015, new ‘place of supply’ rules were introduced into the EU for supplies of electronically supplied services (as well as radio, TV and telecoms) supplied by taxable suppliers established in one EUMember State to non-taxable customers located in a different Member State (B2C). The place of supply (and so the place of taxation) of electronically supplied services is now the place where the non-taxable customer has established or has his/her place of residence.