As the digital economy is constantly challenging the agreed concepts of international tax rules, rules designed for the traditional economy, the European Council of Financial Affairs (ECOFIN) has adopted a new set of rules regarding VAT on electronic commerce.

According to the European Council, the new rules will facilitate the collection of VAT when consumers buy goods and services online. The package adopted, aims to simplify VAT rules for start-ups, micro-businesses and SMEs selling goods to consumers online in other EU member states. The ministers agreed that VAT on cross-border sales under €10,000 a year will be handled according to the rules of the home country of the smallest businesses.

The finance ministers of the block agreed to allow all e-commerce companies to deal with their VAT obligations through an electronic platform, avoiding VAT registration in each EU member state into which the companies would sell.

The new rules hold large e-marketplaces responsible for ensuring VAT is collected on sales on their platforms that are made by companies in non-EU countries to EU consumers., including sales of goods that are already being stored by non-EU companies in warehouses within the bloc.

Problems that were caused as misused Tax-free goods valued at under €22 coming from outside the EU and the distortions caused are now solved with fraudsters not being able to mislabel high-value goods in small packages anymore. This practice caused a VAT gap of €1 billion in revenues.

The European Commission welcomed Tuesday’s agreement on the above on a ministerial level. Following the agreement, Andrus Ansip, Vice-President for the Digital Single Market, said that this important decision comes just a few days after the Council ended the unjustified geo-blocking for EU citizens that shop online. Now, “companies selling abroad online will deal with VAT in the same way as they do for sales in their own countries,” allowing public services to be more efficient increasing cross-border cooperation.

EU’s Tax Commissioner Pierre Moscovici, said that “brick by brick and piece by piece, a new VAT system is being built that is fit for purpose and within which internet companies operating across borders can thrive.” Moscovici added that Tuesday’s agreement will not allow further preferential treatment when selling to EU consumers both directly and through online marketplaces.