EXPLANATORY MEMORANDUM

1.CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

On 21 November 2019, the Council adopted Implementing Regulation (EU) 2019/2026 amending Implementing Regulation (EU) No 282/2011 as regards supplies of goods or services facilitated by electronic interfaces and the special schemes for taxable persons supplying services to non-taxable persons, making distance sales of goods and certain domestic supplies of goods.

The date of application of the bulk of the package of legislation on modernising VAT for cross-border B2C e-commerce (“VAT e-commerce package”), including the implementing provisions, was fixed to be 1 January 2021.

The Commission presented a state of play of the readiness of Member States on 14 February 2020, whereby most Member States confirmed that they would be in a position to apply the rules by due date. Two Member States raised concerns and requested a postponement for the entry into application by one year or more. The Commission offered assistance to those Member States encountering difficulties in order to help them overcome these hurdles and remained confident that Member States would be ready by 1 January 2021.

However, due to the unforeseen outbreak of the COVID-19 crisis and its major impact, Member States had to shift priorities and re-allocate resources from the implementation of the VAT e-commerce package to fighting this pandemic. Therefore, other Member States cannot guarantee anymore to be able to finalise the preparatory work to apply the new rules by 1 January 2021. The IT system at national level required for the implementation of the VAT e-commerce package seriously risks to be delayed and thus jeopardises several Member States to be ready to apply the new rules as of 1 January 2021. Similar concerns were raised by key economic operators, especially postal and courier operators, who urged the Commission to postpone the date of application of the VAT e-commerce package by 6 months due to the COVID-19 crisis.

The Commission held a meeting with Member States on 24 April 2020 to assess their readiness to apply the new rules as of 1 January 2021. The majority of Member States still confirmed to be ready to apply them on time, but stressed that the provisions on the functioning of the VAT e-commerce package are based on the principle that all Member States should be in a position to apply them correctly and would therefore be ready to support a postponement not exceeding 6 months.

The objective of this proposal is to postpone the dates of application of the implementing rules of the VAT e-commerce package laid down in Implementing Regulation (EU) 2019/2026 and scheduled for 1 January 2021 by six months. The new date of application shall thus be 1 July 2021. A postponement of six months is suggested, because the delay should be kept as short as possible to minimise additional budgetary losses for Member States.

•Consistency with existing policy provisions in the policy area

The general objective of this proposal is the smooth functioning of the internal market, the competitiveness of EU business and the need to ensure effective taxation of the digital economy. The VAT e-commerce package is consistent with the future application of the destination principle for VAT as set out in the recent VAT Action plan supported by Council.

In addition to the VAT Action Plan, the VAT e-commerce package has been identified as a key initiative in the Digital Single Market Strategy ('DSM Strategy') as well as the Single Market strategy and the E-Government Action Plan.

2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis

The proposal is based on Article 397 of Directive 2006/112/EC on the common system of value added tax (the 'VAT Directive'). This article provides that the Council, acting unanimously on a proposal from the Commission, shall adopt the measures necessary to implement the VAT Directive.

•Subsidiarity (for non-exclusive competence)

This proposal changes the date of application of the implementing rules of the VAT e-commerce package that have been adopted by Council in November 2019 insofar that date was fixed on 1 January 2021. This goes hand in hand with the proposal to postpone the date of application of the VAT e-commerce package, including thus all the legal acts affected. This proposal is made as a consequence of and reaction to the outbreak of the COVID-19 crisis, which confronts Member States with challenges at national level to tackle the current emergency situation and whichs causes some of them difficulties in guaranteeing to finalise the preparatory work to apply the new rules as of 1 January 2021. The provisions on the functioning of the VAT e-commerce package are based on the principle that all Member States should be in a position to apply them correctly.

The measures necessary to implement the VAT Directive are adopted by Council acting unanimously on a proposal from the Commission. A proposal by the Commission is therefore necessary to change the date of application of the already adopted implementing measures, which cannot be achieved by unilateral actions at national level.