Recent changes to EU rules on value added tax (VAT) are putting huge pressure on small digital businesses. Most recently, the European Court of Justice (ECJ) ruled that ebooks cannot benefit from the same rate of reduced VAT as physical books because they should be considered a “digital service” and not a product. For some countries, such as Luxembourg, this could mean a jump of almost 15% in the VAT rate charged for ebooks.

The new rules are part of a raft of reforms aimed at making it harder for large international companies such as Amazon, Apple and Starbucks to exploit tax loopholes, including basing their headquarters in an EU country (such as Luxembourg) with a low rate of VAT but selling products to customers from across Europe.

As of 1 January 2015, companies selling digital services must charge VAT rates based on their customer’s location within the EU, rather than where their own business is based. Small businesses – such as web designers, online publishers and independent authors and musicians – complain that these new rules are strangling them in red tape.

There is no minimum threshold for the rules, meaning that even micro-businesses are now required to validate their customers’ location using two pieces of non-conflicting evidence (such as a billing address and a matching IP address), something which could present additional problems because processing such data would also make them subject to strict EU data protection laws.

The European Commission has tried to ease the burden of compliance by setting up VAT Mini One Stop Shops (or VATMOSS) as a way for businesses to register and submit VAT returns in one place for all 28 Member States. However, the Commission is coming under increasing pressure to reform the rules, particularly given that Commission President Jean-Claude Juncker has placed such an emphasis on the importance of the Digital Single Market.

How can the EU close tax loopholes without crushing small businesses? Let us know your thoughts and comments in the form below, and we’ll take them to policy-makers and experts for their reactions!

IMAGE CREDITS: CC / Flickr – Zhao !

21 comments Post a commentcomment

What do YOU think?

  1. avatar
    Luigi Monteferrante

    Tax loopholes are the reign of big business who can afford top accountants or lawyers, don’t go offshore. Truth is big business gets legislatures to write in the loopholes they lobby for.

  2. avatar
    Paul X

    “complain that these new rules are strangling them in red tape”

    Welcome to the EU, that’s is exactly what it does to everything it sticks it’s fanatical, bureaucratic nose into…….

  3. avatar
    Ferenc Lázár

    The VAT should be the same in all E.U. countries, should have done that long time ago! That is the main reason why so many frauds are being done, transporting the goods from France to Austria or from Poland to Hungary on papers only!..Than they can claim back VAT-s like 7-8 % difference between member countries- I wonder how noone in European banks are realising that?!

  4. avatar
    Ivan Burrows


    Dragging the mastermind of it all (your unelected president Juncker) before the courts would be a good place to start.

    Rule without consent is not a democracy, it is a dictatorship.

  5. avatar
    Luís Bernardino

    If the only thing keeping small businesses afloat in the EU is tax loopholes then deeper changes are needed.

  6. avatar
    Alexander Grech

    Vat is the most iniquitous,unjust,and immoral tax,because it does not consider your income.If you are a millionaire or the porest guy in town,you still have to pay the same amount of vat,for the same product or service.

  7. avatar
    Anastasia Christakos Gritzalis

    What is VAT? Well vat is the small business doing the tax collecting job for the government. In short, job descritption = worker without wages, paid benifits, holidays,etc. Plus if you don’t do it correctly, your boss …..well you know what happens. Therefore, the small business becomes the serf of the goverment.

  8. avatar
    Geoffrey Howard

    A Flat Tax. No exceptions, no variations. Just a Flat Tax. One for Individuals, one for Families, one for Small Businesses, and one for Corporations.

    Refocus the tax income to useful things for society and humanity: science and arts, R&D, environmental regeneration, advanced infrastructures, etc. NOT for overpriced military budgets, for example.

  9. avatar
    catherine benning

    How many small businesses hold their accounts off shore for tax purposes? Any company or individual with off shore accounts are not small in any shape or form. So stop pretending they are.

    If the money men want to take their profits off shore, to eliminate their tax liability whilst leaving the ordinary man to bank roll their fancy, then they must follow their money to the land of their commitment.

    It costs every one of us a great deal of our income to maintain the infrastructure of a civilised society and if these off sure lovers don’t want to pay their share at the same percentage rate of the rest of us then they must leave Europe for life outside it. It’s a big world out there and European tax money cannot force it to stretch and cover the world of ‘useless eaters’ unless every single earner pays his/her full share. This includes all business men from top to bottom.

  10. avatar
    Yiannis Bournous

    Tax evasion of small & medium enterprises is a drop in the ocean comparing to (most often “legalized”) tax avoidance of big sharks. Forbid triangle transactions, tax big capital flows, delegalize tax heavens. All this cannot be done under the current political balance of power, because neoliberalism is actually the school that nursed tax avoidance.

  11. avatar
    Tarquin Farquhar

    The EU = loopholes.
    The EU = corruption.
    The EU = Business Before Being.

    The EU is too corrupt and too fragile to be involved in such matters. The EU should keep its nose clean!

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