The postal delivery industry faces additional processing costs of €1 billion if the 'VAT de minimis exemption' – a long-established provision for imports of low value items – is removed on e-commerce items, a recent study claims.
Undertaken by consultancy firm, Copenhagen Economics, and entitled, 'Effects of removing the VAT de minimis on e-commerce imports,' the study was commissioned by Posteurop, a trade group of European postal operators.
In a statement, Posteurop said it welcomed the study's findings, underlining that the removal of the VAT de minimis exemption would also “create a disproportionate administrative burden for national customs and tax administration, e-sellers – all of which will ultimately affect EU consumers, thus hampering the growth of e-commerce in Europe.”
It argued that this contradicted the Commission's aim to modernise VAT rules for improving cross-border e-commerce from companies to consumers.
“Therefore, postal operators urge that the European Commission seriously reconsiders this element of its package of VAT policies and defers the removal of the VAT de minimis exemption until a better solution can be found.”
Posteurop noted that in principle, postal operators welcomed the overall approach of the Commission “to modernise the VAT rules for cross-border e-commerce, avoid situations of VAT fraud and reduce the administrative burden on businesses and suppliers as outlined in their December 2016 proposal, which in theory should also benefit their customers, including SMEs.”
However, the Commission's intention to remove of the VAT de minimis exemption would have a negative effect on the growth of e-commerce in Europe.
"We are concerned that the (Commission's) proposal may put at risk the role of postal operators as a key player in the e-commerce chain, in terms of providing an affordable and reliable delivery offer to ensure the smooth functioning of the e-commerce market,” said PostEurop's chairman, Jean-Paul Forceville.
“This will also have an impact on customs and tax authorities alike, who are now expected to handle a much larger volume of dutiable items with current insufficient resources in terms of staff and IT equipment, which may lead to unequal customs and tax treatment all around the European Union and create distortion of competition," he added.
Posteurop's statement concluded: “Therefore, postal operators strongly urge the Commission and the Member States to take into account the findings of Copenhagen Economics' study, defer the removal of the VAT exemption and co-operate in order to find a balanced approach that can work for all stakeholders.”
The study noted that the key component of the Commission proposal is to extend the Mini One-Stop-Shop (MOSS – a solution for collecting VAT on digital services) into a new One-StopShop (OSS), which will also cover online retail (i.e. ecommerce of goods).
“We find that the proposed removal of the VAT de minimis will cause major and disproportionate costs on the delivery industry, on national customs administrations and on e-sellers – costs that all flow towards EU consumers. Besides, the additional VAT revenue raised by removing this exemption is significantly smaller than the induced additional costs,” it said.
Furthermore, the OSS system potentially introduces significant implementation challenges for both custom authorities and delivery operators. This could result in substantial one-off costs that are largely undocumented in the impact assessment, the study claimed.
It's own 'sensitivity test of assumptions' found an even more negative outcome of the cost-benefit analysis of removing the VAT de minimis.
“The cost savings from introducing the OSS system are highly uncertain and depend not only on processing costs per item in the system but also on whether third country esellers opt-in or out and the average value of the items. These uncertainties could call for a more cautious way forward.”
The study concluded that the existing evidence “unequivocally shows” that removing the de minimis threshold would have large, negative effects.
The delivery industry will be “significantly affected” and face additional processing costs of €1 billion.
“European consumers are likely to suffer a significant loss due to higher prices, less choice and less efficient markets. Further research is needed before the Commission can demonstrably and safely conclude that removing the VAT de minimis is justified on a cost-benefit basis.”
Logically, only by first introducing the OSS – without changing the current de minimis rules- would it be possible to confirm empirically whether the key assumptions on adoption of OSS and related cost savings hold, it emphasised.
“This is strictly necessary to establish clearly the impact of the specific de minimis proposal.”
Without this information, the Commission has no supportive evidence available, the study added.
