Modernising VAT obligations for B2C E-Commerce in the single market

Abstract

Purpose: The main purpose of this study is to assess how the new VAT rules relating to e-commerce will affect local cross-border B2C e-commerce businesses providing goods and services. This study also analyses the importance placed on VAT by local B2C e-commerce businesses whilst evaluating their familiarity and knowledge in relation to cross-border VAT obligations and compliance. Lastly, this research attempts to identify the value and growth potential from modernising VAT. Design: Apart from the examination of relevant literature, the objectives of this study were satisfied through a series of twenty-three semi-structured interviews with twelve selected businesses providing goods and services, ten tax practitioners, and a high-ranking official from the VAT Department. Findings: The findings of the study emphasise that the initiatives put forth by the European Commission to tackle the shortcomings of the VAT system are expected to leave a positive effect on businesses engaging in B2C e-commerce, especially due to the importance placed on VAT, through more certainty and lesser compliance costs and risks. However, due to the lack of the required cross-border VAT knowledge by businesses and the persisting difficulties encountered in e-commerce, the value and growth benefits that can be gained from rebooting the VAT system may be impaired. Conclusions: Although the modernisation of the VAT system will bring about simpler and more adequate rules suited to the digital age, the European Commission is refining a mechanism that was intended for another era. The study therefore concludes that a reconsideration of the VAT system would be more suitable to help and sustain businesses, especially smaller ones, have a stronger foothold in the digital economy. Moreover, authorities should support entities, particularly SMEs, by having dedicated resources to sustain their innovation and participation in the digital economy. Value: This study is of value to all those stakeholders who are involved in B2C crossborder e-commerce by enhancing their knowledge on the modernisation of the VAT mechanism, given the local initiatives to promote e-commerce as a way of making Malta more future-proof. Moreover, as a result of the lack of representation of crossborder B2C e-commerce businesses supplying goods and services in local studies, this research sought to fill in this gap.