The OECD released implementation guidance on the effective collection of VAT and goods and services tax on cross-border sales of services and intangibles. Mechanisms for the effective collection of VAT/GST where the supplier is not located in the jurisdiction of taxation. This guidance should help to achieve the consistent implementation of internationally agreed standards for the VAT treatment of cross-border trade and is of particular relevance given the rapid and ongoing digitalisation of the economy.

The new guidance focuses on the implementation of the recommended approaches included in the 2015 Final Report on Action 1 “Addressing the Tax Challenges of the Digital Economy” of the BEPS project (BEPS Action 1 report). These recommended approaches, which are also included in the International VAT/GST Guidelines, have already been implemented by a number of countries. The guidance does not provide detailed prescriptions for national legislation.

The implementation guidance builds on good practice requiring 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 early data on the impact of the recommended solutions is very promising. The European Union (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 or MOSS) as in excess of EUR 3 billion in its first year of operation. The MOSS has also played an important 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.”