The SAO and the German Bundesrechnungshof summarized the findings of the coordinated e-commerce tax audit: the system has a number of shortcomings, the collection of VAT is complex
Press release – 11 July 2019
The Supreme Audit Office and the German Bundesrechnungshof scrutinized the VAT collected from e-commerce. Both SAIs were the first to audit the taxation of the internet market, which has multi-billion turnover and is expected to grow further in future. It is also an area with high risk of VAT evasion from the point of view of audit institutions. According to the findings of the two SAIs, the special regime introduced by the EU for the VAT collected from e-commerce has a number of shortcomings. Due to these errors, it is more difficult to correctly levy tax to electronic services.
In 2015, the EU introduced new taxation rules of e-commerce. Accordingly, these services are subject to taxation in the consumer´s country of residence (Member State of consumption). Companies would have to register for taxation in each Member State where they provide digital services. This would impose a great administrative burden and, therefore, the EU has introduced a new non-compulsory taxation system (MOSS). Thus, an EU internet service provider can meet his tax liability in his country of residence.
Both Czech and German auditors found that the conditions for applying this new tax system were controlled insufficiently by the tax authorities. Outstanding taxes were also not recovered in both countries. Tax authorities did not recover the tax payment because they had a problem with matching VAT payments to the respective tax returns. Tax returns were largely checked under formal aspects, only in isolated cases tax authorities checked whether data stated in the tax returns were accurate.
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 together with all other turnover. However, it is not possible to determine from domestic tax returns whether or not e-commerce transactions are included. At the same time, the special tax return contains very little information. As a result, there is a limited control from tax authorities, and potential tax losses cannot therefore be ruled out. Tax authorities in the Czech Republic and Germany failed to systematically look for unknown tax cases.
Supreme Audit Office