That has nothing to do with this change in VAT rules. If that loophole actually existed Amazon would already be using it.
US businesses are actually required to charge VAT, but smaller operations get away without doing that. At Amazon's volume it makes sense to set up tax entity in the EU to avoid import duty.
For example for amazon.com selling to a consumer in Ireland sees 17% import duty + compunded 23% VAT on the item cost and the shipping cost.
That's not what he means. US businesses selling to European consumer customers should be charging VAT and sending it to the relevant government.
For small ones it doesn't matter because they're in the US and so beyond the reach of the EU states. Large ones however very much are and so have to comply with the law. Amazon couldn't decide to just run all its business through the USA to avoid charging VAT to consumers, they would be sued into oblivion.
US/non-EU companies selling digital products and services to the EU is most certainly NOT exempt, and it wasn't exempt before these recent changes - it's been a requirement that US/non-EU businesses selling digital services register to charge VAT to EU customers at their local VAT rate since 2003!
Rather than registering in each EU country, they could register in one country and use the VoES system to submit their returns.
It was because of this ruling that big companies like Amazon found a workaround by setting up subsidiaries in countries with low VAT rates like Luxembourg and sold their goods from there. This meant they could charge Lux VAT instead of the customer country's VAT rate.
This obviously gave them an unfair advantage not only over local businesses but also non-EU businesses that used the VoES system.
In effect these new rules change little for non EU businesses. The VoES system is being retired in favour of the new MOSS system which is effectively the same sort of thing, only now, ALL businesses including those in the EU, have to charge local VAT when selling digital services to the EU.
For e big companies like Amazon, this closes a loophole. For those who were correctly charging VAT under the VoES system, nothing much changes. For those non-EU companies who were chose not to comply with the 2002 rules, well I'd imagine they will continue to not bother. And those who were ignorant of them (many I'm sure) might now be a bit more aware.
But of course the businesses it affects the most are small EU businesses who now have to charge different rates of VAT or use MOSS when they didn't before.
Customs in the customer's country may intercept the package and charge VAT and duty for it. That has happened to me from time to time with Amazon as far back as 1998.
My experience has been that this happens pretty infrequently if your packages are relatively small. I think it's only happened to me once in fact and that was a long time ago.
On digital goods and services. I'm pretty sure the liability to pay VAT on physical goods, along with any import duty, is the customers when the item is imported.
For the record, here's the HMRC (UK revenue service) explanation of the special VoES scheme that's been around for ages:
US companies need to comply with these rules, but many of them don't.
I think the main issue here is enforcement. I don't think it's reasonable to expect the IRS to enforce foreign legislation on US companies. And that's exactly the reason why US companies often don't comply.
Edit: I'm talking about digital downloads and digital services. If you're shipping goods then there might also be import duty liabilities, not sure.
Enforcement makes the whole process utterly impractical.
The EU's VAT and tax authorities are barely keeping up with work as it is. And the idea that companies with five or six figure turnovers are worth chasing for a few percentage points of extra VAT is nonsensical when there's so much other VAT and tax fraud in the EU.
I'm not convinced taxation is the real point. To me this seems more like a ham-fisted attempt to force businesses to keep records for surveillance purposes.
I wonder if at some point in the next decade we'll see companies having to make their online sales records visible to the tax authorities for "automated verification", so they can find out who's been buying machetes and bomb chemicals.
Yes, absolutely. There are cases where hundreds of millions have gone missing in carousel frauds. I'd assume those take precedence over small VAT cases.
Not sure on the second part, but I do know some tax authorities are already using various data mining techniques to flag certain behaviours.
Because selling products to the US is VAT-exempt, and US companies selling to EU customers is also VAT-exempt.
I'm betting the first company doing this will be amazon.