Digital Single Market Proposed in EU to Stimulate E-Commerce Growth

This month saw the European Commission unveil its plans for a Digital Single Market, which it hopes will stimulate e-commerce across Europe by making it easier for businesses and consumers to buy and sell from other EU countries online.

Statistics show that while 44% of consumers in the EU made an online purchase in 2014, only 15% bought something online from another EU country and only 7% of SMEs in the EU engaged in cross-border sales. Proponents of the Digital Single Market claim that it will help to remove the barriers that are currently restricting cross-border e-commerce and add an extra €415 billion to the EU economy.A computer keyboard with an image of the EU flag on one of the keys.

The UK is well placed to take advantage of such a proposal as it already has one of the most developed e-commerce markets in the EU and the world. Online sales in the UK now account for around 15% of all spending, compared with an EU average of 8% and figures as low as 2.5% and 3.5% in Italy and Spain respectively.

Central to the plans for a Digital Single Market in the EU are the implementation of 16 different measures within the next year, including:

  • Replicating rules on customer protections, such as the right to return goods, across the EU so consumers get the same experience wherever they buy from
  • Reducing the cost of parcel delivery, which is seen as the biggest barrier to cross-border sales by both businesses and consumers
  • Ensuring that businesses offer the same prices to digital consumers irrespective of what country they live in
  • Updating copyright laws so that digital media products, including films, music and games, that are bought in one country can be more easily moved to, and used in, any other EU country
  • Improving broadband speeds and security and data protection measures to make buying online quicker and safer

Google under the microscope

Already the subject of an EU investigation into alleged antitrust violations, Google is likely to come under further scrutiny in a Digital Single Market because of existing reservations over some of their services. The EU has already let it be known that they do not like the way Google promotes its own price comparison services (Google Shopping) at the top of search results. They allege that this attracts consumers to websites who pay Google at the expense of those who don’t, resulting in a distorted and unfair marketplace.

Running parallel to the Digital Single Market initiative will be a separate antitrust investigation into the e-commerce sector. While giving nothing away on whom it is likely to target, the existing investigation into Google practices means it should come as no surprise if they’re on the EU’s radar in this case too.

The VATMOSS conundrum

The proposed Digital Single Market has also brought the subject of VATMOSS back into sharp focus. The much derided scheme that was introduced in January of this year and was quickly dubbed VATMESS by its opponents was originally introduced by the EU in a bid to make it harder for big online corporations to avoid paying taxes. Companies like Amazon had for a number of years strategically located their base for EU sales in places such as Luxembourg, where there was either no VAT liability or very low VAT to pay on sales. This gave them the opportunity to undercut businesses selling in other parts of the EU by as much as 20%.

VATMOSS brought about a change whereby VAT would now be payable in the country where a purchase was made rather than where it was sold from, therefore removing the loophole that big businesses were only too happy to exploit. Unfortunately the initiative came at a cost to thousands of start-up businesses, who had previously operated under the VAT threshold but would now need to register for VAT and manage the paperwork and costs that go with it. Small traders were quick to voice their anger at the scheme which they claimed could make their businesses so unprofitable that they would have to close down.

The VATMOSS plot has seemingly thickened somewhat with the unveiling of the Digital Single Market plan, in particular the eighth proposal:

  • To reduce the administrative burden businesses face from different VAT regimes: so that sellers of physical goods to other countries also benefit from single electronic registration and payment; and with a common VAT threshold to help smaller start-ups selling online

VATMOSS stands for VAT Mini One Stop Shop and it was announced amid claims by the UK government that anyone using it won’t have to register for VAT in every EU member state where they sell digital services.

On the face of it this measure bears a striking similarity to the VATMOSS scheme that has already been met with such opposition from small traders. It’ll be interesting to see the reaction in the months ahead.

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