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EU VAT law could kill thousands of online businesses

Selling knick-knacks? Register or face taxman's wrath

New EU tax rules that come into force on 1 January could kill thousands of mini and micro online businesses.

The new VAT rules have been on the cards for six years and are ostensibly aimed at preventing big companies (yes, we mean you, Amazon, Apple and Starbucks) from claiming that all their European profit is made in Luxembourg (or similar tax havens) where they benefit from paying hardly any tax.

To this end, online businesses will have to pay tax in the country of the consumer buying the goods, not the business. The side effect of this seems to be that many small businesses will find themselves having to unravel miles of red tape associated with complying with 28 different VAT regimes.

And it could disproportionately hit British online companies because the VAT-free threshold is much higher than in the rest of the EU, at £81,000. Some services are exempt: hotel booking services, supply of physical goods through electronic ordering processes and and real-time educational services.

However, that still leaves a lot of small businesses with a lot of extra work to do and would undermine new EU digi-veep Andrus Ansip’s plans for a true digital single market. He was, therefore, keen to point the finger of blame elsewhere: “Given that this change was adopted six years ago, member states should have helped businesses to prepare. But even if the concerns come late, they should be listened to. Companies should not be left alone. One practical aid should be the one-stop-shops that have been put in place.”

The mini-one-stop-shop (MOSS) idea is supposed to help micro businesses so that they don’t need to register in all 28 EU countries. They will, however, have to register for a VAT number for the first time, submit quarterly returns and ascertain where exactly all their customers live.

This last requirement also presents additional problems, since acquiring such sensitive data would render the business a data processor and subject to the EU’s strict data protection laws.

“Small innovative online companies matter to me. I want you to have the necessary space to grow into successful businesses and to trade across borders. But I also see the merits in the upcoming VAT change,” said Ansip in his blog. To be fair, tax isn’t his department, but with so much emphasis on the digital single market in the Juncker Commission’s plan for 2015 (announced on Tuesday), it is surprising that he would support such a move.

Meanwhile, campaigners are grasping at straws just a few weeks before the law comes into force, with a Twitterstorm centred on the #EUVAT hashtag aiming to draw more signatures to a petition to suspend the new laws for micro businesses and sole online traders. ®

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