Estonia is missing out on €145 million in VAT from foreign online shops every year. This is caused by insufficient legislation that, among other things, does not obligate the Tax and Customs Board (MTA) to compare foreign e-shops' declared VAT info to that of the Bank of Estonia.
Sworn lawyer Allar Jõks and his colleague Kaido Künnapas analyzed taxation of foreign online shops following a request from the Estonian E-Commerce Association. Jõks told ERR that the analysis was based on all publicly available data. The attorneys asked the Bank of Estonia for the ballpark figure for turnover of foreign e-shops in Estonia and the Tax and Customs Board for declared turnover.
"The difference we found suggests that Estonia is missing out on some €145 million in VAT receipt," Jõks said.
The sum could be used to reconstruct the Tallinn-Tartu highway to have four lanes or hike teachers' salaries, Aivar Kokk, chairman of the Riigikogu Finance Committee, said. Both Kokk and Jõks said that the tax hole suggests several problems.
Online shops registered in Estonia must pay VAT on purchases. However, many foreign online shops do not, which gives them a competitive edge, being able to offer lower prices.
"While it has been agreed on the level of legislation that VAT is due in the country where the service is offered once turnover exceeds €10 million, corresponding supervision is nonexistent," Kokk noted.
The analysis also pointed to shortcomings in legislation. Both Kokk and Jõks suggested that the tax board lacks access and a legal obligation to check which countries' e-traders sell to Estonia and the financial volume of these sales.
"Even if someone has the information, for example, when commercial banks report data to the Bank of Estonia – even if the data exists in a personified form, neither the central bank nor payment services providers can surrender it to the MTA because of tax secrecy. In other words, there are no legal levers with which to make sure the tax board gets the data," Jõks said.
"Because Estonian and international banks and payments providers must present the Bank of Estonia with specific data on which companies receive payments from Estonia, it could be used by the MTA to demand payment of outstanding VAT sums from foreign companies selling to Estonia," Kokk remarked.
The planned amendment to remedy the situation would also include adopting a corresponding EU directive. The latter providers that e-commerce data should be freely available to concerned parties from January 1, 2024. Kokk said the bill is in the works and could be passed before the year is out.
Editor: Marcus Turovski