European Commission Proposes New Tax Rules to Boost Small Businesses

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The European Commission has unveiled a series of tax reforms and efficiencies that it says will help e-commerce and online businesses thrive in the European Union.

Under the proposals, consumers and companies will be able to buy and sell goods and services across borders more easily online thanks to the introduction of an EU-wide one-stop-shop digital portal for the payment of value added tax (VAT). According to the European Commission (EC), the proposals will save businesses across the EU €2.3 billion ($2.4 billion) a year by cutting red tape and administrative costs.

Under the existing system, online traders have to register for VAT in every EU member states where they sell goods. The EC estimates that these obligations cost businesses around €8,000 ($8,500) for every EU country into which they sell.

The new plans, which form part of the EC's digital single market strategy to simplify and modernize trade throughout Europe, will mean that online business are only required to make quarterly returns for VAT due across the whole of the EU – a system that already exists for sales of certain e-services such as mobile phone apps and collected more than €3 billion in VAT in 2015.

A new yearly threshold of €10,000 in online sales will also be introduced to enable small and start up businesses to continue using the VAT rules of their home country. The EC says this arrangement will make complying with Europe's labyrinthine tax laws easier and more cost effective for 430,000 companies across the EU, representing 97 percent of all micro-businesses trading cross-border.

The new rules also mean that VAT will be paid in the member state of the consumer, increasing VAT revenues for the EU's 28 member states -- which includes France, Germany, Spain and, at least until 2019 when Brexit becomes a likely reality, the United Kingdom -- by €7 billion ($7.4 billion) by 2020, according to European officials.

"We are delivering on our promises to unlock e-commerce in Europe," said Andrus Ansip, vice president for the Digital Single Market, calling the simplification of VAT regulations "the last piece in the puzzle."

"Today's proposal will not only boost businesses, especially the smallest ones and startups, but also make public services more efficient and increase cooperation across borders," Ansip went on to say.

The proposed measures also include the provision that digital publications such as e-books and online magazines will be subject to the same favourable VAT rate as their printed equivalents. That reform coupled with the one-stop-shop VAT efficiencies will mean that "companies big and small that sell abroad online will now deal with VAT in the same way as they would for sales in their own countries," said Pierre Moscovici, commissioner for economic affairs, taxation and the customs union.

"That means less time wasted, less red tape and fewer costs," stated Moscovici, crediting the proposed reforms with allowing micro businesses and startups to "tap into new markets more easily."

The legislative proposals will now be submitted to the European Parliament for consultation.