VAT is indeed one of the most complex aspects of single market and, needless to say, issue of great sensitivity to national treasuries.
The Commission envisages quite a substantial reform aimed at simplification and better enforcement of VAT rules as of 2013. Details can be found in the Communication adopted in December 2011: http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/ke...

Let's hope for a positive impact on development of cross-border online services!

In case you are not minded to read 17 pages on VAT:

The public consultation yielded frustration with the fragmented 27 different VAT regimes in the EU creating complication and therefore cost to doing business in the EU which is either passed on to citizens, or is a barrier to SMEs doing cross border business. Some responses noted that it is in fact easier to deal with non-EU countries.

Meanwhile VAT represents about 20% of revenue for governments on average, so they are sensitive to change.

Regarding VAT reform, a uniform VAT EU rate is recognised as unworkable (just as there is no uniform sales tax in the US). But equally the principle of taxing at the origin (seller) rate is moving to the destination (buyer) rate - also I believe this system used in the US (though for a while there was no sales tax on online purchases).

The destination base model would remove the obstacle mentioned by Laurence affecting where businesses locate. Retailers generally prefer the origin system as it is much simpler for them - but it penalises retailers in high rate countries.

(Much) more detail in the report: http://ec.europa.eu/information_society/digital-agenda/daa/images/Have-y...

In their paper, "Tax considerations of cross-border,
multichannel retailing", PWC make some good points:
- pricing products, to account for the widely different VAT rates that apply to an online customer’s home country
- some retailers can’t build an indirect tax team
- double paying customs duties
- unawareness of consumer rights in different countries (typical return rates around 30%)

In their paper, "Tax considerations of cross-border,
multichannel retailing", PWC make some good points:
- pricing products, to account for the widely different VAT rates that apply to an online customer’s home country
- some retailers can’t build an indirect tax team
- double paying customs duties
- unawareness of consumer rights in different countries (typical return rates around 30%)

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These kind of taxes help the government to generate the income and in return they could help the general public by providing various facilities.
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Very useful tax insight. Not a very pleasant subject though :( http://jojust.com

"I believe that businesses should be making their decision not based on tax but on other fundamental business practicalities". I agree with your statement. Actually, Alexa von Tobel, founder of financial-planning site LearnVest.com, said, “If you have debt, pay down debt; if you don’t have it, fund your emergency savings.” However, reducing debt comes first. Tobel went on to say that contributing to savings is futile if you are still accumulating a high percentage of interest on old credit card debt.She added a good rule of thumb: “Anything you can’t remember what you spent it on [soon after spending it], isn’t a good idea.”

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I agree with you to a certain point that businesses should not make their decision on taxes, but there are several countries who do not make it easy for clients to start a new business. The financial burden is therefore especially during the first stages of business creation the main reason why decisions are made on taxes.
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