The boom in e-commerce and its impact on the collection of VAT on business to consumer (B2C) supplies in the market jurisdiction was identified as a key tax challenge in the context of the OECD’s base erosion and profit shifting (BEPS) project.

The new guidance, mechanisms for the effective collection of VAT/GST where the supplier is not located in the jurisdiction of taxation, focuses on the implementation of the recommended approaches included in the 2015 final report on action 1 of the BEPS project, which is addressing the tax challenges of the digital economy.

The implementation guidance builds on good practice approaches deployed by jurisdictions when they require foreign suppliers to register and collect VAT on cross-border B2C sales in application of the solutions recommended in the BEPS Action 1 report. The implementation guidance was developed by the OECD with the active involvement of a wide range of jurisdictions beyond the OECD and with representatives of the global business community.

It does not aim at detailed prescriptions for national legislation, but consists of three elements: a response to the key policy questions and design issues concerning the collection of VAT/GST on supplies of services and intangibles in cases where the supplier is not located in the jurisdiction of taxation; guidance on a range of specific design questions related to the implementation of registration-based collection regimes; and more detailed guidance on the design and practical operation of a simplified registration and compliance regime for non-resident suppliers.

The guidance states: ‘Jurisdictions are sovereign with respect to the design and application of their laws. Rather, the report seeks to present a range of possible approaches and discuss associated policy considerations.

‘Its purpose is to serve as a reference point. It intends to assist policy makers in their efforts to evaluate and develop the legal and administrative framework in their jurisdictions taking into account their specific economic, legal, institutional, cultural and social circumstances and practices.

‘The report is evolutionary in nature and will be reviewed regularly in light of the rapid development of technology and online sales and delivery processes.

The OECD reports the early data on the impact of the recommended solutions is ‘very promising’. The EU, which was the first adopter of these collection mechanisms, has identified the total VAT revenue declared via its compliance regime, the mini one stop shop (MOSS) as in excess of €3bn (£2.68bn) in its first year of operation.

MOSS has also played a role in reducing the compliance burden of businesses that use the regime. Approximately 70% of the total cross-border B2C supplies of services and intangibles that are in scope of this regime are captured by this compliance regime.

The OECD says its new guidance will support enhanced compliance levels while limiting compliance costs for digital suppliers by promoting the consistent and coherent implementation of these collection mechanisms across jurisdictions.

Mechanisms for the Effective Collection of VAT/GST is here.

Report by Pat Sweet