Proposed EU VAT Changes May Affect Canadian Businesses | KPMG | CA

Proposed EU VAT Changes May Affect Canadian Businesses

Proposed EU VAT Changes May Affect Canadian Businesses

Global Tax Adviser, May 03, 2016. The European Commission has taken its first steps towards tackling VAT collection shortfalls and modernizing the current EU VAT system. The Commission's highly anticipated Action Plan on VAT, which was released on April 7, 2016, is intended to make the EU VAT system simpler and more business friendly, particularly for small and medium-sized enterprises. If these proposed changes are adopted, some Canadian businesses selling into the EU or with operations in the EU could see changes in their VAT compliance obligations.

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The Action Plan sets out VAT initiatives that include:

  • Modernizing and simplifying VAT for cross-border e-commerce
  • Providing greater autonomy to Member States to set VAT rates
  • Creating a definitive VAT system based on the principle of taxation in the country of destination of the goods
  • Improving cooperation between tax administrations, including non-EU countries and law enforcement bodies, to strengthen tax administrations' efforts against fraud.

Following this release, the Commission intends to present more details in 2016 and 2017, including legislative proposals. All 28 EU Member States must unanimously agree on any proposals before they are adopted.

E-commerce

The Commission proposes to modernize and simplify the VAT for cross-border e-commerce, since the current VAT treatment is costly and complex. To help modernize and simplify the VAT in this area, the Commission proposes to:

  • Extend the "One Stop Shop" mechanism, a mechanism that allows a business to register with one EU Member State to collect and remit VAT related to supplies of e-services made in all EU Member States, to online sales of tangible goods to EU customers
  • Remove the VAT exemption for imports of low value consignments from non-EU suppliers
  • Introduce a common EU VAT registration threshold for small businesses and special schemes for small retailers
  • Introduce single country audits of cross border business.

KPMG observations

If the Commission adopts these proposed changes to the "One Stop Shop" mechanism, Canadian suppliers with EU VAT registration obligations may benefit from reduced compliance obligations since they will be able to file a single EU-wide VAT return that reports VAT collected in various EU Member States. However, removing the VAT exemption for imports of low value consignments from non-EU suppliers could trigger VAT registration and collection obligations for certain Canadian suppliers.

VAT rates

The Action Plan also identifies options to provide greater autonomy to Member States to set VAT rates.

KPMG observations

The proposed amendments to the VAT rate regime should only affect Canadian businesses that are registered for, and required to collect, VAT on supplies of goods and services within the EU.

B2B supplies

To increase the efficiency of collecting VAT, the Action Plan proposes changes to the treatment of cross-border B2B supplies of goods. Under the current system, where a VAT-registered person (the seller) makes a cross-border B2B supply of goods, that supply is generally zero-rated in the country of origin, and the VAT-registered business (the purchaser) must self-assess VAT. The Commission proposes subjecting all cross-border supplies of goods to VAT in accordance with the "destination" principle (i.e., VAT would apply in accordance with the VAT rules of the country where the recipient is located but is collected by the supplier). Specifically, the Commission proposes to:

  • Extend the One Stop Shop to cover the cross-border supply of goods between VAT-registered persons, so that businesses will only need to register in the Member State where they are established
  • Allow businesses that are certified as being compliant by their tax administration to continue to acquire goods from suppliers in other EU countries tax free and require them to reverse-charge any applicable VAT.

KPMG observations

A Canadian VAT-registered supplier that provides supplies across various EU Member States may benefit from the proposed changes to the One Stop Shop rule, since the supplier will be allowed to file a single VAT return for these goods, thereby reducing the Canadian supplier's compliance burden.

Tax administration

To address concerns over the current levels of the “VAT gap” (i.e., the difference between expected revenue and revenue collected), the Commission proposes to strengthen Member States’ tax administrations in order to tackle fraud.

KPMG observations

The proposed changes to strengthen Member States' tax administrations and improve co-operation with international organizations would likely affect Canadian businesses that have some activities in the EU Member States, regardless of whether they are VAT-registered.

For more information, contact your KPMG adviser.

Disclaimer

Information is current to May 03, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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