New legal framework requires companies to rethink their approach

(DGAP-Media / 16.10.2014 / 09:46)

New legal framework requires companies to rethink their approach

Changes to VAT rules pose difficulties for companies with online shops

Karlsruhe/Germany - October 16, 2014 - The European Union's change in VAT
rules regarding the taxation of individual areas of eCommerce within EU
member states will take effect on January 1, 2015, creating major
challenges for many companies. asknet, a provider of eCommerce solutions
based in Karlsruhe, is extremely familiar with the upcoming changes, which
is why it is assisting its customers in organizing their online shops so
they comply with the directive.

Beginning next year, VAT for private individuals' online purchases of
electronically supplied services (e.g. software downloads) will be charged
in the country where the buyers live, and not in the country where the
company selling them is registered. This change is expected to increase
revenues for most governments of EU countries, though it will have
tax-related and monetary consequences for the companies that are affected.
So what do companies need to do to be equipped for the reform?

According to Dr. Louisa Specht, an attorney and specialist in IT law, it is
key that companies deal with the requirements in a timely fashion so that
they can implement all necessary changes before January 1, 2015. "There are
many consultants and companies that know what one needs to keep in mind
when adapting business processes to meet the requirements of the VAT
directive to ensure that no loss is made during the changeover." Dr. Specht
recommends creating a checklist with specific tasks and then tackling each
one in order so that nothing is overlooked. "The first thing companies
should do is determine whether they even offer cross-border services
affected by the directive and whether they are directed at private
individuals." The reason for this is that according to the VAT directive,
tax is to be levied at the beneficiary's place of residence only for
services rendered to private individuals. Services provided to businesses
are still subject in the EU to the mechanism of reverse charging.

Companies are required to list the final price − including VAT − when
customers make purchases in online shops. However, a company does not
always know in which country delivery will occur. "Companies looking to
make things easier for their customers can, for example, show a single
gross price on the webpage, and list the VAT applied only after the
potential buyer has entered all purchase information. In such a case, VAT
is calculated out of the gross price shown," Specht says.

People such as Specht and her colleagues, as well as the specialists of