European Commission Unveils Digital Single Market Strategy
The European Commission (EC) disclosed details of a 16-step strategy to create a digital single market that it believes will improve commerce for consumers and businesses.
The plan is to break down regulatory walls to facilitate a transition to one market from 28 separate markets. The move is expected to affect not only online providers of goods and services, but also the film, television and telecommunications industries. The strategy includes reducing the administrative burdens of complying with different value added tax (VAT) regimes on cross-border sales.
The commission says that only 15% of the economic bloc’s citizens make cross-border online purchases and only 38% feel confident doing it. That’s at least partly due to confusion about what consumers’ rights are and how to enforce them if, for example, they buy an e-book that doesn’t work. Only 7% of small and medium-size companies in the EU sell across borders, because it’s too complicated and too expensive for them to adapt to 28 different sets of rules. VAT rates vary not only with each member nation but also with different kinds of goods and services.
The EC plans to set clear rules for online sales of both physical goods (such as shoes and furniture) and digital content (such as e-books or apps). As a result, businesses are expected to take full advantage of the digital single market and sell with confidence across borders. At the same time, consumers should have more trust in online purchases, as they will have more solid and effective rights.
The digital single market strategy includes 16 initiatives under these three pillars:
- Providing better access for consumers and businesses to digital goods and services across Europe,
- Creating the right conditions and a level playing field for digital networks and innovative services to flourish, and
- Maximizing the growth potential of the digital economy.
Among the initiatives is a plan to reduce the cross-border administrative burdens. The EC plans to propose:
- Extending the current single electronic registration and payment mechanism to cross-border online sales of physical goods,
- Introducing a common EU-wide VAT threshold to help start-up e-commerce businesses,
- Allowing home country controls, including a single VAT audit of cross-border businesses, and
- Removing the VAT exemption on imports of small consignments from suppliers in third countries.
The EC said it has started to prepare a comprehensive initiative on reducing VAT compliance costs for small to medium-size businesses (for example, start-up businesses) in general. Moreover, the commission said that simplifying cross-border VAT rules would involve analyzing the VAT Mini One Stop Shop (MOSS), including the 2015 “place of supply” rules. The MOSS mechanism, which started on Jan. 1, 2015, provides telecommunications, broadcasting and electronic services companies the option of registering with the EU member state where they are identified, typically where they have a permanent establishment, rather than in each country where their services are consumed.
Finally, with respect to VAT rates for electronic services on e-books and other e-publications, the EC indicated that it will explore how to address the tax treatment “in the context of the work being undertaken on a definitive VAT regime.”
The commission has committed to delivering on all 16 initiatives by the end of 2016. It was on the agenda of the European Council meeting on June 25–26, 2015.