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European Commission Publishes Explanatory Notes on the New VAT e-Commerce Rules

The European Commission has announced the publication of explanatory notes providing extensive explanations and clarifications on the new VAT e-commerce rules.

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Modernising VAT for cross-border e-commerce

On 30 September 2020, the Commission published Explanatory Notes on the new VAT e-commerce rules. They contain extensive explanations and clarifications on these new rules including practical examples on how to apply the rules if you are a supplier or an electronic interface (e.g. marketplace, platform) involved in e-commerce transactions. These explanatory notes are meant to help online businesses and in particular SMEs to understand their VAT obligations arising from cross-border supplies to consumers in the EU.

These Explanatory Notes will be soon translated in all official EU languages, as well as in Chinese and Japanese. The Explanatory Notes will be accompanied by the update of the Guide to the One Stop Shop and by guidance in the customs field.

Due to the practical difficulties created by the measures taken to contain the coronavirus pandemic, the application of the new VAT e-commerce rules is postponed by six months. Thus, the rules will apply as of 1 July 2021 instead of 1 January 2021, giving Member States and businesses additional time to prepare.

The European Commission aims at simplifying VAT obligations for companies carrying out cross-border sales of goods or services (mainly online) to final consumers and to ensure that VAT on such supplies is paid correctly to the Member State in which the supply takes place, in line with the principle of taxation in the Member State of destination.

The Commission proposed EU legislation in this area in two stages. The first measures entered into force in 2015 and covered telecommunications, broadcasting and electronic services to consumers. The second package of measures was adopted by the Council in December 2017 and extended the simplification to distance sales of goods as well as to any type of cross-border service supplied to final customers taking place in the EU. The latter measures, also referred to as ‘the VAT e-commerce package’ are set to apply from 1 July 2021.  

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