VAT is a consumption tax, charged on most goods and services in the EU. It is levied on the value added to the product at each stage of production and distribution. The VAT system in the EU is currently governed by a common legal framework - the VAT Directive. In the EU, there is a minimum standard VAT rate of 15%, above which Member States are free to set their own rates.
The difference between the lowest and the highest VAT systems in the EU is 15% in Luxemburg to 25% in Sweden. Under the current rules, an online merchant has to deal with 28 different VAT systems if they want to go cross-border. Also, in many cases cross-border sales and digital services are subjected to double VAT taxation.
Harmonization of the system, cumulated with tax rules which do not make a distinction between the ‘real’ and the ‘digital’ economy, should lift current burdens for e-tailers.
The EU lost around EUR 177 billion in tax collection in 2012 due to an inefficient structure, and it also constitutes a barriers for e-tailers selling cross-border, according to recent findings.
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