The OECD releases new implementation guidance to promote the effective collection of consumption taxes on cross-border sales. This guidance will support the consistent implementation of internationally agreed standards for the VAT treatment of cross-border trade and is of particular relevance given the rapid and ongoing digitalisation of the economy.
The boom in e-commerce and its impact on the collection of VAT on business to consumer (B2C) supplies in the market jurisdiction was identified as a key tax challenge in the context of the OECD/G20 Project on Base Erosion and Profit Shifting (the BEPS project).
The new guidance Mechanisms for the Effective Collection of VAT/GST Where the Supplier Is Not Located in the Jurisdiction of Taxation(implementation guidance) focuses on the implementation of the recommended approaches included in the 2015 Final Report on Action 1 "Addressing the Tax Challenges of the Digital Economy" of the BEPS project (BEPS Action 1 report). These recommended approaches, which are also included in the International VAT/GST Guidelines, have already been successfully implemented by a large number of countries.
The implementation guidance builds on good practice approaches deployed by jurisdictions when they require foreign suppliers to register and collect VAT on cross-border B2C sales in application of the solutions recommended in the BEPS Action 1 report. The implementation guidance was developed by the OECD with the active involvement of a wide range of jurisdictions beyond the OECD and with representatives of the global business community.
The early data on the impact of the recommended solutions is very promising. The European Union (EU), which was the first adopter of these collection mechanisms, has identified the total VAT revenue declared via its compliance regime (the Mini One Stop Shop or MOSS) as in excess of EUR 3 billion in its first year of operation. The MOSS has also played an important role in reducing the compliance burden of businesses that use the regime. Approximately 70% of the total cross-border B2C supplies of services and intangibles that are in scope of this regime are captured by this compliance regime.
The new implementation guidance will support enhanced compliance levels while limiting compliance costs for digital suppliers by promoting the consistent and coherent implementation of these collection mechanisms across jurisdictions.
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