VAT & Taxes – Need for a single VAT registration for Europe

In the past two years, retailers have gained a lot of experience in digitalisation. This acceleration was significantly pushed by the pandemic, during which e-commerce and retail played an essential role. The rise of omnichannel retail and the acceleration of the digital transformation of many businesses as a consequence of the COVID-19 crisis has further stressed the importance of continuing to remove single market barriers, making it easier and cheaper to do business cross-border in the EU.

In this context, minimising the administrative costs of VAT compliance for businesses is a priority. The complexity of VAT obligations across the European Union makes it costly, time-consuming and burdensome for e-merchants to engage in EU cross-border trade and comply with the different VAT duties. This means that the single market cannot be fully exploited yet by many businesses, especially by SMEs, which are the backbone of Europe’s economy.

A reduction of the VAT-related barriers to cross-border trade in the EU is hence much needed. A single VAT identification number will be a huge simplifier in reducing the need for costly and time-consuming multiple VAT registrations that are today still required despite the 2021 changes introduced by the VAT E-commerce Package.

The One Stop Shop is already operational

The VAT One-Stop Shop (OSS), which became operational on 1 July 2021, has been an enabler of new business opportunities for European companies. It provided a first fundamental and concrete simplification for businesses, as it consistently simplified the VAT compliance for companies, especially the SMEs willing to trade on an EU cross-border basis. The OSS allows, in fact, registering for VAT, filing VAT returns and paying for the VAT due in multiple EU countries via just one EU country. This is a fundamental and concrete simplification of the overall complex VAT system for businesses.

Limits of the current VAT OSS system

However, the OSS is not yet a game-changer. The OSS can only be used for sales of goods or services to final consumers (B2C) by those EU businesses that sell cross-border within the EU and not by those that store and fulfil stock locally in several EU states. Achieving shorter delivery times to consumers and reducing shipping costs are paramount for EU businesses. That is why these sellers often need or decide to stock merchandise in multiple EU storage facilities (either owned by the e-merchant or via a third-party warehouse provider) outside their home country and ship from these remote distribution hubs to the final consumer. Storing inventory in the different EU Member States allows responding to consumer demands for faster delivery while reducing the logistical and environmental footprint.

In the current system, neither movements of retail inventory across EU countries, nor the onward sale of that inventory, are eligible for the VAT OSS system, resulting in VAT registration requirements in every EU country where goods are stored. This means that, despite the 2021 changes introduced by the VAT E-commerce Package, businesses will still be required to register for VAT in every country in which they store goods (even in situations where sales activities are not undertaken in the storage location). Obtaining multiple VAT registration numbers is proven to be a significant burden for businesses, requiring them to go through lengthy and costly processes in the various Member States, where they need a VAT registration number for each country. These complexities have an adverse and damaging effect on EU cross-border trade.

Without this change, the single market will continue to have administrative borders and burdens. Currently, a business must file an average of 13 documents to complete one VAT registration process, wait for 100 days on average to receive a VAT number, submit up to 60 VAT & statistical filings per country yearly, and spend thousands of Euros in compliance costs. 

The importance of this matter to European businesses, particularly small and medium-sized enterprises (SMEs), is also highlighted in a dedicated campaign on this topic that we launched to raise awareness of the need for this reform: https://simplify-vat.eu/.  

The solution for all

To address these shortcomings, the One Stop Shop should be extended to all shipments of merchandise where the seller of record is not located in the EU country of taxation, and in particular to:

1. cross-border movement of own inventory across the EU,
2. domestic sales from distribution hubs by a seller that is not established in that EU country.

What are the benefits of an extended OSS?

Simplifying VAT registration and extending the VAT OSS system in the way proposed above will have major positive effects for companies selling goods online, as this will lower their compliance costs and reduce administrative burdens. Businesses would find it much easier and faster to register and pay VAT throughout the EU, getting better access to intra-EU trade and becoming more competitive in an increasingly globalising and omnichannel retail environment. With online shopping demand growing, this will greatly help SMEs exploit the untapped e-commerce business opportunities in the EU single market. 

Furthermore, EU Member States’ tax administrations would also benefit from improved VAT compliance and a simple solution to ensure all cross-border goods movements can be easily reported and audited within a single OSS scheme. This is expected to lead to an increase in trade and, consequently, additional VAT revenues and a more competitive market in the EU. Ultimately, end-consumers will also be able to benefit from a larger choice of products and more competitive prices when shopping online. Last but not least, the advantages of a Single VAT Registration also extend to environmental concerns. For example, a regime covering pan-EU inventory storage in e-commerce would encourage bulk inventory placements close to customers. Bulk movements cause considerably lower CO₂ emissions than orders individually shipped for long distances and also reduce the burden on our customs authorities compared to many individual packet shipments from third countries.

How do we ensure that the OSS will be extended? With the EU Commission’s VAT in the Digital Age initiative, there is now a significant opportunity to build on the 1 July 2021 reforms by expanding the OSS. Ecommerce Europe is working to make the voice of its 150,000 companies heard.

Do not hesitate to reach out to Ecommerce Europe for more information on future regulations and on how to get involved (info@ecommerce-europe.eu)!