On Wednesday, the European Commission will suggest changes to the way sales taxes are levied in the European Union. The goal is to tackle fraud and limiting firms’ excessive tax-planning, a change that may affect U.S. online retailer Amazon.
The plan is part of a much larger campaign after finding that many companies misuse loopholes in the EU’s single market to guarantee they pay little or no tax. The EU’s executive Commission will suggest to add a value-added tax (VAT) in a cross-border trade. This tax would be charged at the rate set by the country where the buyer is located instead of which country the seller is located. The goal is to decrease billions of euros of tax revenues lost to EU states annually.
“With goods and services being taxed in the member state of destination, suppliers derive no significant benefit from being established in a lower-rate member state,” stated by the Comission.
Luxembourg and Malta both have the lowest VAT “standard” rates on most products in the 28-country EU. Some countries charge a reduced VAT rate for certain goods. Countries can exempt certain goods from VAT, like food and medicines. Although, this needs to be approved by the Commission. The EU executive stated that these changes would eliminate the need for a standardized VAT rate policy.
Amazon, based in Luxembourg, will likely have to increase tax bills for the EU market. This would contribute to the company’s griefs in Europe as they face an investigation for an illegal tax deal in Luxembourg. EU also wants to inflict higher corporate taxes on the company.
Under the reform, the VAT remains to be paid to the countries where the company is located, but will be charged by the states of destination of the goods.
This will force a routine exchange of tax revenues among the EU states. For this reason, a “One Stop Shop” instrument will be needed for controlling the flow of money.
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“It will be essential the elements of the One Stop Shop are properly developed and tested before deployment,” stated by Chas Roy-Chowdhury, head of tax at a global accounting firm.
Legislative proposals involving tax issues require the support of all 28 EU states to become law.