[Global IDT Insights] UK–US Trade Deal & EU’s New E-Commerce VAT Rules

Editorial Team – [2025] 175 taxmann.com 39 (Article)

Global IDT Insights provides a weekly snippet of tax news specifically related to Indirect Taxes from around the globe.

1. UK-US finalise trade deal to ease duties on goods & leave discussion on Digital Services Tax imposed by UK for future talks

On May 8, 2025, the United Kingdom and the United States signed a new trade agreement focusing on reducing tariffs in sectors such as automotive, steel, aluminium, and agriculture. The agreement lowers average tariffs on U.S. goods entering the UK to 1.8%, while maintaining a 10% tariff on UK exports to the U.S.

Notably, the deal does not address the UK’s Digital Services Tax (DST), a 2% levy on revenues earned by large digital companies operating in the UK. This tax, introduced in April 2020, primarily affects major U.S. technology firms such as Amazon, Google, and Meta, and generates approximately £800 million annually for the UK Treasury.

Despite U.S. opposition to the DST, the UK government has confirmed that the tax remains unchanged under the new trade agreement. Prime Minister Keir Starmer indicated that discussions with the U.S. regarding digital services are ongoing, suggesting that the DST may be a topic in future negotiations.

Until any changes are made, U.S. technology companies operating in the UK are required to continue reporting and paying the 2% DST on revenues generated within the UK.

Source – Official News

2. EU finance ministers agree on new VAT rules for e-commerce imports

EU finance ministers reached a political agreement on 14 May 2025 on new rules to modernise the Value Added Tax (VAT) treatment of e-commerce imports and distance sales of goods from non-EU countries. The agreement forms part of the broader VAT in the Digital Age (ViDA) reform package, aimed at enhancing VAT compliance and reducing administrative burdens for businesses engaged in cross-border e-commerce.

The new approach focuses on strengthening the Import One-Stop Shop (IOSS) mechanism, which allows suppliers to declare and pay VAT on distance sales of imported goods up to €150. Under the revised rules, a wider range of businesses, including more suppliers and platforms facilitating sales, will become responsible for collecting and remitting import VAT via the IOSS system. This expansion is expected to increase the number of goods processed through IOSS and improve the consistency of VAT collection on low-value imports.

Although the use of IOSS remains optional, the new rules introduce disincentives for non-participation. Suppliers who do not opt into IOSS may face the requirement to register for VAT in multiple EU Member States.

In 2024, approximately 4.6 billion parcels were imported into the EU from third countries, averaging around 12 million parcels per day. Data from 2023 indicates that VAT collected through the IOSS exceeded €26.3 billion, representing a 35 percent increase from the previous year. The new rules are expected to enhance the scope and efficiency of VAT compliance in this growing segment of EU trade.

Source – Official News

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