The Great VAT Switch

A change in EU law comes into effect on January 1, 2015 that will affect e commerce across the union. The change will prevent the big boys (like Amazon) from undercutting competition by selling stuff from a country with a low VAT rate (Luxembourg). They could do this because the rules were to assess VAT based on the country of the seller. In January, 2015 the new rule will be to assess the VAT based on the country of the buyer.

It is a classic EU response to a policy problem. Fix the problem, even if it creates a nightmare for SME’s. BTW, how big is the problem?  Consider this

Luxembourg’s finance minister Pierre Gramegna estimated the country would lose 70 per cent of its total VAT revenue when the new rules come into full effect, a loss he estimated at between €660 million and €1.1 billion. The country will raise its general VAT rate to 17 per cent to try and compensate.

So, ok. This has been a major problem that will be fixed. And what about SME’s? They will not be able to register in all EU member states where their buyers are located. So they will do the MOSS registration in their home country. But here is the kicker — if they do a single cross border e sale, they will have to register for MOSS even if they would be too small to register under the old rules. Can you spell headache?

The Brits have already created their own ad hoc exception for this. But my guess is that we will see an ongoing mess in the EU on this issue for a while.