International taxation rules were agreed in the 1920s and do not take into account the internet-related problems we are facing now, according to Kaja Kallas, an Estonian member of the Alliance of Liberals and Democrats for Europe (ALDE) Group in the European Parliament. She says this is a big issue for online companies in the European Union.

As explained in her blog, there is a solution. It’s the creation of a pan-European technical solution through which businesses can pay their VAT without the current complexities.

“They would just have to enter the necessary data, and the system would calculate the required tax itself. At the end of the day, information required is the same for all companies. The base rate is the same for everyone. This would also be a logical step towards a more integrated single market. Currently, entrepreneurs often fail to declare their cross-border sales, or refuse to sell to the citizens of another member state. If the payment of taxes were simple, this would also increase tax revenue.”

To figure out how to do this, Kallas suggests tapping into the creative energy of emerging startups in Europe. She says it would be “terrific” if the startups furnish policymakers with solutions that policymakers “cannot even think of”.

“It would be a win-win situation, where the European startup community could come up with creative ideas, and when the platform is already running, all online companies would benefit from it. It would also improve the collection of VAT,” she added.

Last week, Kallas organised a breakfast debate with the European Internet Forum to discuss taxation in the digital economy.

“When we talk about the reasons why businesses don’t want to sell cross-borders online, the most cited obstacle is often the declaration, calculation and payment of VAT,” she explained. “The process is far too complicated due to the different sets of rules that companies face in each Member State – in one MS you must have a bank account in order to pay taxes, in another all declarations must be filled out in the local language and so forth. There is little information in English about what businesses need to do to be law-abiding.”