Global VAT Revolution in E-commerce and Digital Services Tax – November 2024 Update!

Recent developments in global VAT taxation of e-commerce activities and digital services tax in November 2024

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Highlights

ViDA Package: Platform Economy Pillar and VAT Rules for Small Businesses

Political Agreement: A political agreement has been reached on the platform economy pillar of the ViDA package, which aims to extend deemed supplier rules to platforms, addressing VAT application challenges for small businesses.
Deeming Provision for Platforms: Platforms will be deemed the suppliers of goods or services, making them liable for VAT payments on transactions. This includes short-term rentals (up to 30 nights) and passenger transport services unless the original supplier provides a VAT number and declares VAT liability.
Flexibility for Member States: EU Member States can set specific criteria and conditions for taxing short-term rentals, which must be communicated to the VAT committee by July 2028. They can also opt out of the new rules for suppliers using the 2025 SME special scheme until 2030.
Key Changes: Significant changes from the December 2022 proposal include reducing the definition of short-term rentals from 45 days to 30 nights and excluding rules for transfers of own goods via platforms. The VAT exemption for supplies to platforms will count towards SME thresholds.
Next Steps and Timeline: The European Parliament will be reconsulted on the updated proposal. Key implementation dates include July 1, 2028, for the new rules and January 1, 2030, for the end of the opt-out period for SMEs. The directive will undergo legal checks before being formally adopted and published. The new rules will increase VAT liability and administrative burdens for platforms and suppliers.

Philippines Introduces New VAT Obligations for Foreign Digital Service Providers

Introduction of VAT on Digital Services: The Philippines has proposed a 12% VAT on all digital services, including those provided by foreign digital service providers (DSPs), following the enactment of Republic Act No. 12023, which was signed into law on October 2, 2024.
Definition of Digital Services: Digital services encompass any service supplied over the internet or electronic networks, including online search engines, e-marketplaces, cloud services, online media, advertising, platforms, and digital goods. These services are considered performed in the Philippines if consumed there.
Liability and Registration Requirements: All DSPs, regardless of residency, must assess, collect, and remit VAT on services consumed in the Philippines. Both resident and non-resident DSPs are required to register for VAT, with the Bureau of Internal Revenue (BIR) establishing a simplified registration system for non-residents.
Compliance and Invoicing: Non-resident DSPs must issue digital invoices for transactions, including specific mandatory information (transaction date, reference number, consumer identification, description, and total amount inclusive of VAT). Communication with non-resident DSPs will be conducted via email.
Exemptions and Implementation Timeline: Certain educational services and transactions with accredited institutions are exempt from VAT. The BIR has the authority to suspend digital services from non-compliant providers. The implementing rules are to be issued within 90 days, with a 120-day transition period before VAT is enforced for non-resident DSPs.

New Compliance Obligations for E-commerce in Switzerland from January 1, 2025

Strengthened VAT Obligations: Starting January 1, 2025, Switzerland will enhance VAT obligations for online marketplaces and sellers, aligning with existing practices in the European Union and the UK to ensure tax fairness between Swiss and international businesses.
Marketplace Registration Requirements: Online marketplaces that facilitate sales to Swiss customers must register with Swiss tax authorities if their revenue exceeds 100,000 CHF. Registration is voluntary for smaller platforms that want to collect VAT and enhance customer experience without customs fees.
Responsibilities of Marketplaces: Registered marketplaces will be responsible for collecting, reporting, and remitting Swiss VAT on all sales made through their platforms. Non-compliance could result in customs authorities refusing entry to imported goods or destroying non-compliant items.
Exemptions for Small Shipments: Goods valued below 5 CHF are exempt from import VAT, and this exemption remains after the 2025 reforms. Small shipments (valued below 62 CHF, or 200 CHF for reduced-rate goods) will continue to benefit from simplified VAT treatment.
Preparation for Compliance: Merchants and platforms must prepare for compliance by the January 1, 2025 deadline, which includes registering or deregistering with Swiss tax authorities and adjusting systems for new administrative requirements. A comprehensive service is offered to assist with registration, VAT reporting, and compliance procedures.

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