Recent changes to Value Added Tax

Law 47/2020 was published on 24 August to implement articles 2 and 3 of Council Directive (EU) 2017/2455 of 5 December 2017, and Council Directive (EU) 2019/1995 of 21 November 2019, modifying the operation of the Value Added Tax (“VAT”) system in intra-EU and international e-commerce. This legislation enters into force on 1 January 2021.

The aim of these Directives is to modernise the VAT applicable to e-commerce by essentially ensuring the neutrality of the system and the proper functioning of the internal market. The Directives are also intended to guarantee the effectiveness of taxation of the digital economy, while striving for consistency in applying of the VAT principle of taxation at destination.

These objectives are increasingly important as we are witnessing a boom in distance sales of goods to end consumers supplied by operators established in other Member States and by operators in third countries. They are also important because, until now, there has been no effective taxation in the Member State of consumption.

In addition to these specific objectives, efforts have also been made to introduce mechanisms to simplify processes and cut red tape in meeting the VAT obligations that arise from these transactions. However, the degree of simplification has varied according to way the rules have been implemented by each Member State.