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2019 Special Report - on the coordinated audit carried out by NKÚ and BRH on VAT under the mini one-stop shop scheme

Jul 11, 2019

Symbolgrafik - Verfahren Mini-One-Stop-Shop

long version (pdf)Executve summary of the findings of the coordinated audit


As from 1 January 2015, new taxation rules apply to companies providing digital services to private consumers in the European Union. Accordingly, such services are subject to taxation in the consumer’s country of residence (member state of consumption). As a consequence, companies would have to register for taxation in every member state where they provide digital services. In order to reduce such administrative burden for service providers a new, non-compulsory taxation system (MOSS) has been implemented. Companies may submit their VAT return covering all digital services to consumers in other EU member states in the country where these companies are established (member state of identification) and pay the VAT due. BRH and NKÚ audited the MOSS system and looked into the legal bases and practical implementation in terms of organisation and procedures. The audit revealed the following weaknesses:

  • Eligibility to register for MOSS not adequately checked
    The MOSS system can be applied only for specific digital services and for turnover in those member states where the company neither resides nor has a fixed establishment. While the Czech tax authorities examined which kind of services the company provides, their German counterparts only checked formal aspects (cf. 6.1.1 to 6.1.3). Without relevant data provided by the company, none of the two tax authorities could reliably identify the existence of fixed establishments in other member states (cf. 6.1.4).
  • No reminders sent by member states of consumption in case of outstanding tax returns
    Being member states of consumption, tax authorities of the two member states did not send reminders in case of outstanding tax returns. This was due to the fact that in MOSS it is very cumbersome for the member state of consumption to verify whether companies fulfilled their duty to submit a tax return (cf. 6.2.3 to 6.2.5).
  • Provision of records on turnover under MOSS not clearly defined
    Requesting records from the companies and analysing them accordingly is cumbersome for the member state of consumption. Therefore, tax authorities of the two member states requested such records in isolated cases only in order to verify indications made in the tax returns by the companies. In addition, there are no EU provisions in place as to record-keeping and provision of documents (cf. 6.3).
  • Outstanding taxes not recovered
    Being member states of consumption, tax authorities of the two member states did not send reminders in case of outstanding taxes as matching payments to the respective tax returns was difficult. In addition, there were only few requests for recovery addressed to the member state of identification as recovery is governed by a threshold of at least €1,500 and many companies declared turnover below that threshold. MOSS does not provide for the member state of identification to recover outstanding taxes for the member states of consumption unless on the basis of a request for recovery. Each member state of consumption is to send reminders and requests for recovery itself although outstanding taxes may arise from a tax return submitted in the member state of identification (cf. 6.4.3 and 6.4.4).
  • Tax returns checked under formal aspects only
    Only in isolated cases tax authorities of the two member states checked whether data stated in the tax returns were accurate. There were only few cases of field inspections at the companies’ premises. While the German tax administration carried out investigations only as member state of consumption, the Czech tax authorities investigated as member state of identification in one case. In addition, in two cases the Czech authorities were informed about proposed inspections to be carried out by another member state of identification (cf. 6.5.1). The Czech tax administration as member state of identification also checked formal aspects of tax returns submitted and requested the companies for corrections in case of need (cf. 6.2.1).
  • Risks of tax losses not identified
    Both in the Czech Republic and in Germany companies need to declare their turnover under MOSS twice: in a special tax return in the MOSS system and in the domestic tax return containing also all other turnover. These returns were not compared systematically as different authorities were responsible for processing the returns in the two member states and data were not linked accordingly. On the basis of domestic tax returns, the two tax authorities cannot identify whether and to what extent these include turnover under MOSS. However, according to NKÚ, such information is crucial as companies in the member state of identification are entitled to claim refund of input tax as to this turnover. Data stated in the special tax return for turnover under MOSS provide only little information to the member state of consumption. Therefore, the automated risk management of the two tax authorities identified few cases only (cf. 6.6).
  • No systematic search for unknown tax cases
    Tax authorities of the two member states failed to systematically look for unknown tax cases. They assumed that the companies complied with their tax obligations and duly registered in the system, submitted tax returns and paid the VAT due. However, audit findings developed so far proved that such assumptions were not realistic in case of e-commerce (cf. 6.7).


Therefore, the two SAIs hold that reducing the companies’ administrative burden must not go at the expense of tax revenues. The two SAIs make the following recommendations:

  • Considerations to make the MOSS system more effective in practice should be made at EU level. On the basis of their audit findings the SAIs hold that the member state of identification should be much more involved in the taxation procedure.
  • Companies registered to MOSS need to be more controlled. Irrespective of how member states of identification and member states of consumption will cooperate in future, more tax inspections should be carried out. The member states must aim at correctly assessing VAT due throughout the European Union.
  • Tax authorities of EU member states should enhance cooperation and coordination in order to identify companies not complying with their VAT obligations.

The SAIs’ recommendazions may be helpful to remedy structural shortcomings of the MOSS system. This is of specific importance in view of the system’s greater scope (OSS) as from 1 January 2021.

In addition, NKÚ recommends assigning more competences to the member state of identification across all procedural steps and thus help reduce the administrative burden both for companies and tax authorities.

 

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Symbolgrafik - Verfahren Mini-One-Stop-Shop

 

Enhance European cooperation in collecting VAT on digital services

 

“In the European Union, we need to do more to collect Value added tax on digital services. Member states should be committed to assessing VAT due in the accurate amount throughout the EU. For this purpose, member states need to work together much closer than before”, said Kay Scheller, President of the German SAI when a joint report developed by the German SAI and the Czech SAI was published. The audit report studied the new VAT mini one-stop shop (MOSS) scheme.

Since 1 January 2015, the MOSS scheme has been effective across the EU. The scheme serves the purpose of taxing digital services that traders supply to consumers. A German company providing such services within the EU may submit a single VAT return to the German tax authority and pay the VAT due in Germany. This VAT return covers all cross-border supplies of digital services to consumers in other EU-member states. Foreign companies may submit their returns in their respective member states. As a result, this scheme simplifies VAT compliance for online traders within the EU.

Seen from the tax authorities’ perspective, the MOSS scheme has not yet been a full success. This is the conclusion that the Czech and the German SAIs have drawn. They found structural shortcomings in Germany and the Czech Republic that impede effective VAT management under the MOSS scheme and may result in flawed VAT assessment and collection. To take an example: Tax authorities checked a few individual cases only to verify whether the companies had fully and accurately declared their turnovers under MOSS. The reason for that was the high administrative burden for gathering the relevant information needed. Coordinated audit work has illustrated that the shortcomings the SAIs found equally affect the two member states. In the future, the member states need to work more closely together than before.

Based on their national audit work, the two SAIs have developed joint recommendations for improvement. They recommend strengthening VAT inspection of traders under the MOSS scheme and making use of novel cooperative tools for tax authorities. The impact of these recommendations will depend on whether for the sake of European tax revenues, EU member states actually put their national interests in second place.

© 2019 Bundesrechnungshof