Could the EU VAT Rules Soon Incorporate a Threshold?

14 September 2015, 15:33

Could things be about to change with regard to the EU VAT rules? In case you don’t remember, the EU brought in rules that changed the way VAT was charged across the EU. Basically, if you sold digital products across the EU you had to charge VAT according to the country your buyer was living in. The rules were created to try and stop big sellers such as Amazon escaping larger VAT bills by registering in a country with low VAT rates, such as Luxembourg. However, this backfired on a wealth of small businesses.

The rules didn’t take into account the thousands of people who run micro businesses. These businesses might sell a few dozen copies of eBooks every month, or maybe the odd knitting pattern or app online. These businesses couldn’t cope with the amount of additional paperwork and have since had to close their doors. This has taken away a key stream of income from many people.

Now Brussels has announced it is going to suggest an exemption that would take into account these small businesses. It could mean a threshold is brought in under which businesses don’t have to worry about meeting these new rules.

There is just one problem. No one yet knows what the exemption limit might be. And there is no guarantee it will be accepted anyway. Furthermore even if it is, it could be years away from actually happening.

So what sounds like good news could in fact be anything but. We all know it takes a long time for anything to become law when it is proposed, even when it is agreed upon by all parties. As such, many have pointed out that the very businesses an exemption might protect could already have gone to the wall or closed down long before any threshold is enshrined in law.

It remains to be seen whether the EU representatives attending Fiscalis will be able to take firm action to make sure the smallest businesses do not suffer. Yet it could already be far too late for many of them. While no business is supposed to do so, many are geo-blocking sales from EU countries other than the country they reside in and trade in. Apparently, some reports state many people are ignoring the rules and trading only in their own country or simply not paying attention to complying with the complex rules.

While we would not encourage flouting the law in this way, it is easy to see how this might happen. If a solution is not found soon, this could be a significant blow to many people who rely on such sales to help them earn a little more money. Because in all this, it seems as if those in charge in the EU have failed to even realise there are individuals making a few extra pounds or euros selling a few isolated digital products here and there. It is these people who are suffering the most.