The pandemic boosted e-commerce sales by 30-40% last year, and the EU will boost prices for the smallest ones this year: from 1 July, even purchases under €22 on non-European sites will have to pay VAT.
In Luxembourg, this will increase the bill by 17%, according to the European Consumer Centre in the Grand Duchy, which says that "the impact of this new system should be positive for European citizens".
At €23.40 from 1 July, compared with €20 plus taxes payable on delivery until now, the gain is impossible to measure. That’s what the European Court of Auditors said in a study on the subject. Instead of the commonly accepted figure for these losses, €7 billion, the Court sets the bar at €5 billion, before indicating that no member state is able to give its own addition to get a correct overall picture at European level.
Large companies such as Amazon, Rakuten and eBay are already registering their transactions on the mini one-stop shop (Moss), a platform that has been emulated in Canada, Australia and New Zealand, with 76 Europeans registered in Luxembourg under the EU system and 24 under the non-EU system. According to Patrice Pillet, head of the VAT unit at the European Commission's Directorate-General for Taxation and Customs Union, Moss has already enabled the recovery of €5.6 billion in 2019.
Declarations closer to consumption
To be fair, this figure should be compared with the €50 to 170 billion lost each year in VAT fraud, which does not only concern non-EU vendors. Because the issue at stake in this reform, presented in light of the tax justice called for by the OECD, hides a huge scam in multiple forms, which takes advantage of the fact that the European single market is not single enough. As a result, thanks to the mini one-stop shop, companies should be able to declare their VAT from their country of residence and free themselves from all the formalities without having to fall under the spell of the tax administrations of other Member States.
Beyond €10,000 of sales in another country, the seller will also have to register in that other Member State and pay his share of VAT on the basis of a quarterly return. But it will not be possible to deduct VAT in the Member States of supply, he will have to continue to claim an internet refund if he is identified there or follow the procedure for foreign traders not established locally if he is not, and he will have to continue to keep a specific register. Operations are even more complicated for distance sales of imported goods or for distance sales through platforms.
And it will not necessarily be the success expected, said the European Court of Auditors, which says that undervaluation remains to be solved, that administrative cooperation arrangements between Member States and third countries are not fully exploited, that controls carried out by national tax authorities leave something to be desired and those of the European Commission are insufficient, that customs clearance systems are weak and the EU risks not being able to prevent abuses by intermediaries, and that the application of measures for the collection of value added tax (VAT) and customs duties is not effective.
€400 million estimated shortfall in 2020
In 2020, the Registration and Domicile Administration collected €5.63 billion in VAT, an increase of €14.77 million compared to 2019. The impact of the crisis is particularly clear in the second quarter, where revenues fell by 18.5% compared to the same quarter of the previous year (-€246 million). This decline was offset by the other three quarters. However, the EDA estimates a shortfall of more than €400 million in 2020.
Of the amounts collected, the administration refunded €1.78 billion, of which €1.57 billion to the 82,312 Luxembourg taxpayers. 52% of them have a turnover of less than €112,000 per year, 29% between €112,000 and €620,000 and 19% more than €620,000.
In Luxembourg, the anti-fraud service carried out 151 VAT controls before proposing an additional collection of €5.7 million, participated in 207 European requests for assistance and requested other Member States in 23 cases and 48 information on cross-border transactions.
While the European Court of Auditors' report did not look specifically at the situation in Luxembourg, it says that controls are insufficient and communications between administrations not clear enough to shed light on the grey areas that benefit both well-informed and unscrupulous entrepreneurs.