Forthcoming EU VAT Changes In 2015 The main aim of the EU’s 2015 VAT changes is to make ecommerce less complicated. Time will tell if this will actually happen. Of course the changes also herald a new source of revenue for tax authorities across the 28 EU member states, lets not forget that. The changes that will come into effect on January 1, 2015, will only affect B2C online sales of broadcasting, telecommunications and electronic services. The changes that are set out in the VAT Directive can be distilled down to one simple detail: from January 1, 2015, onwards all digital goods and download sales will be vatable based on where there end consumer is located or where they ‘consume and enjoy’ the services. This - according to the EU’s Taxation Commissioner Algirdas Semeta - will create a level playing field for all companies in the digital market. Currently a non-EU company can route all its EU VAT through the country where it is headquartered, more often than not Luxembourg with its low VAT rate (15% - but that is changing too).
So, VAT – what is it? VAT (value added tax) is charged at every stage of a product’s cycle (from manufacturing to wholesale to retail).
The 2015 VAT changes to broadcasting, telecommunications and electronic services return VAT to a tax on the consumption of these services within the EU. In the US, on the other hand, the common sales tax is a tax on the purchase of a product by the consumer: the finished product is taxed. Each EU member state sets its own VAT rates. For example. current VAT rates within the EU range from 15% in Luxembourg (and lower for certain products/services) to 27% in Hungary (full list of EU VAT rates here). Luxembourg has already estimated that it will lose 1% of its GDP as a direct result of the 2015 VAT changes. Larger economies with a high volume of online consumers stand to benefit from a VAT windfall: the UK’s HMRC has already estimated a return of £300m per year between 2015 and 2018.