Frequently Asked Questions
Current state of play
1. What is the VAT One Stop Shop (OSS) and what does it cover today?
The VAT One Stop Shop is a central online VAT registration and reporting mechanism, allowing businesses to report and pay VAT on their activities across the EU through a single portal. The current VAT One Stop Shop (i.e. version 1.0) was introduced in July 2021 and can be used by businesses to pay VAT on distance sales of goods to all Member States through a single VAT registration and return process (NB: distance sales = retail sales shipped from one EU Member State to another). This was an important improvement from the previous system where distance selling above certain thresholds triggered separate VAT registrations in all 27 EU Member States.
2. Why is a reform of the OSS needed?
OSS 1.0 was an important step towards reducing the VAT compliance burden and costs particularly for small businesses that want to trade outside their EU Member State of establishment. However, neither movements of retail inventory across EU borders, nor the onward sale of that inventory, can be reported in the OSS, resulting in VAT registration and reporting requirements in every EU country where goods are stored. The existing OSS should be expanded to these supplies to bring the benefits of the OSS to an even wider range of businesses (i.e. implement OSS 2.0)
3. Is this just an issue for e-commerce?
No. Whilst e-commerce traders are amongst the most badly affected by EU VAT rules requiring them to register in every EU country in which they store and sell goods, the rules affect many other industries. A single EU VAT registration would help bricks and mortar retailers better manage their stock around the EU & move online to keep pace with digital trends; give manufacturers more tools to optimise their supply chains; and allow tradespeople to work seamlessly across the whole EU.
4. Where does the EUR 8.000 per VAT registration per year cost figure come from?
This figure comes from the European Commission itself. In a 2017 press release on the OSS version 1.0, they stated, “companies that sell goods online pay around €8,000 in VAT compliance costs for every EU country into which they sell. This is a significant cost which can prohibit growth for online traders, in particular SMEs”. Source: https://ec.europa.eu/commission/presscorner/detail/en/MEMO_16_3746
VAT in the Digital Age proposal
1. What has the EU Commission proposed in the VAT in the Digital Age proposal?
Amongst other VAT reforms, the VAT in the digital age proposal (ViDA) includes a workstream establishing a Single VAT registration concept for businesses trading across the EU to limit the need for business to register in multiple EU countries. More specifically, the proposal achieves this by 1) the introduction of a transfer module for the reporting of transfers of own inventory to remote storage hubs, 2) the extension of the Union One Stop Shop to domestic B2C sales and 3) an EU harmonised reverse charge mechanism for B2B onward sales.
2. What is the timeline for these changes?
The timeline of the entry into force is foreseen for 2025. However, the ViDA package requires unanimous approval by all EU27 countries to enter into force and will be subject to technical and political negotiations in Council which may delay the implementation date.
3. Why is it that small and medium sized enterprises (SMEs) are particularly advantaged by the Single VAT ID proposal?
The cost of VAT registration and compliance is roughly the same for all businesses regardless of size (approximately EUR 8.000 per country per year). The current system requires businesses to VAT register and suffer this cost in every Member State in which they store goods. Businesses with high volumes of sales are better able to absorb this cost and can afford to pay it to access to the whole EU market. Smaller businesses are not able to do so without threatening their profitability. As a result, they are not able to take advantage of the cross-border trade opportunities offered by the EU Single Market. The Single VAT ID pillar, as included in the VAT in the Digital Age package, removes this need for out of home country VAT registrations.
4. Will individual EU governments miss out on tax revenue as a result of this?
No. The expansion of the One Stop Shop will transform only the method of collecting VAT, not the amount of VAT payable or the countries to which it is paid. In fact, EU Member States would stand to gain by using this more efficient VAT collection mechanism, meaning a lower cost of collection for them.
5. Why would the a Single VAT ID improve VAT compliance?
Very simply, we believe that making tax rules simpler to comply with means fewer mistakes and better overall levels of tax compliance. A significant simplification like the transfer module and extending the VAT One Stop Shop to all intra-EU goods sales and movements, would bring a big dividend in this regard. Overall VAT revenue to governments would also improve as it will allow businesses (particularly SMEs) to grow and take full advantage of the EU Single Market.
6. How would EU consumers benefit from these VAT reforms?
The administrative burden and VAT compliance cost of trading, is a cost component of the prices that businesses charge to their customers. By reducing VAT compliance costs, prices will be lower. Equally, greater intra-EU trade means businesses can seamlessly expand across the EU and there will be healthier competition between businesses, which should mean lower prices and more choice for consumers.
7. Where can I find out more about the VAT in the Digital Age proposal?
You can find out more on the EU Commission’s website