The European Commission published in September a statistical report on the VAT Mini One Stop Shop (MOSS). According to this report the overall VAT revenue collected under MOSS (Union and Non-Union) shows a constant growth from EUR 3 billion of VAT collected in 2015 to EUR 4.57 billion collected in 2018. In 2018, the VAT collected increased by more than 20% compared to 2017 figures.
Considering this constant growth, now is a good time to reflect on this simplification measurement. In part 1 of a series of three articles on the VAT MOSS scheme, we’ll look at the background and considerations for applying this scheme. In part 2, we’ll share recent updates and the effects of Brexit on this simplification measurement and looking ahead in part 3 we’ll focus on what to expect next.
Background
On January 1, 2010 VAT rules were introduced in the European Union (EU) to ensure that VAT on services will better accrue to the country of consumption. From January 1, 2015 and as part of this change, the supply of digital services will be taxed in the EU country where the private customer is located, has his permanent address or usually resides. Digital services are defined as cross border telecommunication, television and radio broadcasting and electronically supplied services. So for example, when supplying music online to a private individual in Germany, German VAT is due. For webhosting services to a private individual in Sweden, Swedish VAT would be due etc.
The impact of this change can be quite burdensome for eCommerce companies doing business in multiple EU countries. Under these rules, an eCommerce company would be required to register, keep a local administration and submit local periodical returns in each EU country in which they do business.
The VAT MOSS system was introduced as a simplification measurement for these updated VAT place of supply rules. With this system, you can avoid having to register in all EU countries of consumption and avoid the additional administrative burden. Instead you can account for all VAT due in one single EU country.
There are two schemes running under MOSS:
- The Union Scheme, for companies established in the EU (or with at least one branch based in an EU country
- The Non-Union scheme, for companies not established in the EU (and without any branches based in the EU).
The VAT MOSS system is optional. However, in choosing the MOSS system, you must apply it in all relevant EU countries. It’s not optional on an individual EU country basis. In other words, you either apply the MOSS system or register in all relevant EU countries. Once registered for VAT MOSS you are required to submit quarterly VAT MOSS returns via the electronic portal of the respective authorities in the EU country of registration.
Considerations for applying
As said, this system is optional and not mandatory. Clearly there are great benefits from this simplification measurement, namely the avoidance of the administrative burden of having to register and submit periodical returns in each separate EU country where you do business.
However, this scheme may not be beneficial to all eCommerce businesses. Via the VAT MOSS return you can’t reclaim input VAT incurred on cost. For this you would need to follow a special and separate VAT reclaim procedure. So if you are an eCommerce business that incurs a lot of foreign VAT on costs, you may not want to opt for this VAT MOSS scheme. Instead you may prefer to register in all relevant EU countries and offset the input VAT against the output VAT in the local return.
