Accordance, a Brighton based organisation that works with cross-border businesses trading within the EU to assist them with VAT and wider tax compliance issues, hosted a roundtable event recently that centred on the challenges e-commerce businesses face in regards to VAT rate compliance, supply chain management and customer relationships.
It found that a ‘conflict of interest’ exists between cross-border e-commerce organisations and EU member states. The majority of businesses are of the opinion that they should be allowed to base themselves strategically in a country of their choosing, so as to take advantage of a low local VAT rate (for example, in Luxembourg or Netherlands) that will have less of an impact on profitability. On the other hand, member states’ tax authorities are keen to maximise their income from VAT and so want to clamp down on home-grown businesses moving away from their borders.
The panel consisted of Accordance’s Nicholas Hallam, chairing the discussion, alongside Andy Spencer, Anna Higgins and Mallory Wood. They were joined by esteemed members of the VAT and wider business community such as Eloise Walker, partner at Pinsent Mason’s and Jane Tchan of entrepreneurial business podcast SmallBizPod.
Luxembourg is favoured by e-book providers such as Amazon for having a low VAT rate, meaning that up until now they have been able to supply products across the EU whilst incurring little impact upon their VAT returns. This has created the so-called conflict of interest between businesses and the member states.
“Member states have one concern, which is ‘give us our (VAT rate) money’, whereas businesses are of the mind-set ‘let’s all go to Luxembourg’”, highlighted Hallam.
According to Martyn Gulliver, group VAT manager of The Pentland Group, this conflicting point of view could be solved with a little common sense. “The concept where you pay the VAT rate applicable to the country in which you enjoy a service, that’s how it should be. Companies providing products across borders from Luxembourg throws the system a little. If we had harmonised rates, the issue would go away.”
The panel were quick to point out however that the harmonisation of which Gulliver spoke will most likely never happen, another conflict of interest that exists between businesses, member states and amongst the states themselves. Businesses would love a uniform VAT rate across Europe; however the question of who gets what is a key one, according to Walker. “Even if you harmonise across the board, you’d still have the problem of how the member states divvy up the income from VAT returns. With electronically supplied services in particular it’s very hard to know in which country the liability should be accounted for.”
IMRG, the e-retail industry association, supplied a statement backing up this final point that explained how “we might expect to see a raft of changes come in as regulators try to get a grip on digital industries.”
The panel agreed that whilst VAT rate discrepancies that exist from country to country are a headache for all types of businesses, it is the e-commerce side of things that is behind member states pushing ahead with the proposed legislations of which IMRG speak.
