When European Union finance ministers rubber stamped in February new legislation that will require online payment service companies, such as Paypal and Amazon Pay to transfer all VAT data to tax authorities in order to clamp down on fraud, the implementation date was delayed. Instead of taking effect in 2021 as originally called for, it will now happen in 2025.

  To put it mildly, that did not make the European Commission happy. It proposed the legislation in 2018. The delay to 2025 occurred after the payment services companies and banks waged an intensive last-minute lobby campaign to block the deal. While they failed in their original mission, they did win an important consolation prize with the implementation delay.

   With that in mind, it is no surprise that the European Commission is waging an intensive effort to fend off the requests of some EU member states to delay the implementation of the VAT one-stop-shop for e-commerce law that is due to take effect on 1 Jan. 2021.

  The push for a delay to 2024 is being led by the Netherlands and Germany. The primary reason for the call for a delay relates to another component of the EU VAT ecommerce package, which was approved in 2017. It revolves around a requirement that VAT be charged on low-cost imported goods purchased online in countries such as China and the United States. Due to undervalued invoices EU governments are losing billions of euro in fraud.

  However, for countries such as the Netherlands and Germany, through which 50 percent of the low-cost imported goods arrive in the EU, custom authorities have struggled to have their IT systems ready for the change. 

  Determined to prevent another major delay such as the online VAT payment transfer legislation, the European Commission tried March 3 at a meeting of EU tax experts to head off the ecommerce postponement. It insisted that it could provide all the assistance needed to Netherlands and Germany to ensure that custom authorities and IT systems are ready to go.

  For the European Commission there is more at stake that just the VAT Ecommerce package. Moreover, it believes the launch of the expanded one-stop-shop system will unfreeze the pending VAT legislative overhaul to a destination-based system. This change, would among other things, give EU member states more flexibility to set rates on specific products or sectors. 

  Commission tax officials have been insisting the reason the pending overall VAT proposal, put forward in 2018, has been put on the back burner in the Council of Ministers relates to EU countries waiting to see how the expanded one-stop-shop for ecommerce “beds down”. 

  That Commission analysis may be partially accurate. After all the key component of the pending overall VAT reform law is a switch to an even grander one-stop-shop system for processing VAT payments.

   And it is no secret that a number of EU member states led by Germany and the Netherlands are, to put it politely, sceptical of an overall switch to a VAT one-stop-shop. As one VAT expert from the Netherlands recently put it “there are billions of euros at stake. The change poses huge risks“.

 Another VAT expert working in the private sector put it more bluntly: “the bottom line is that EU government do not trust each other. The switch to a one-stop-shop system for all EU cross-border VAT payments will never happen“.

  Despite the skepticism and bold predictions, the new European Commission does not seem to be backing off. On the 6th of March, new European Tax Commissioner Paolo Gentiloni outlined the the EU executive body’s tax policy priorities. Completing the VAT overhaul was one of them.

  Down in the Commission bureaucratic bunker, where legislation is drawn up, they know that the chances of getting the VAT overhaul approved as it stands is not good. That is especially true in the face of real-time VAT reporting schemes and split systems in EU member states that have made major inroads in reducing fraud.

 But if there is any chance for the move to a VAT destination-based system, it is crucial that the VAT ecommerce plan begins in 2021.

  That is why it is fighting an intensive rear guard action. How successful, it is remains to be seen in the coming months.