July 17, 2025 — Value-added tax was, for most of its history, a tax on physical transactions. The framework that emerged in Europe through the post-1967 implementation of the First and Second VAT Directives, and that was progressively adopted by other jurisdictions, was calibrated to a world in which goods crossed borders through customs procedures and services were typically delivered through identifiable supplier-to-customer transactions in known locations. The development of cross-border digital services through the late 1990s and 2000s strained this framework. By the mid-2010s, the OECD had developed a new framework for VAT on digital services that has, since 2015 in the European Union and progressively in other jurisdictions, reshaped how digital businesses operate internationally.

This article reads the OECD's One-Stop-Shop framework, the European implementation, the parallel implementations in other major jurisdictions, and the operational consequences for cross-border digital businesses.

The pre-framework problem

The pre-framework problem was that VAT was due in the customer's jurisdiction for cross-border digital services, but the supplier had no practical means of complying with the VAT obligations of every jurisdiction where its customers were located. A US-based software company providing services to customers in fifty European countries could not realistically register for VAT in fifty separate jurisdictions, file fifty separate returns, and remit VAT to fifty separate authorities. The compliance burden was prohibitive, and many cross-border digital service suppliers operated outside formal VAT compliance, with significant revenue loss to the customer-state tax authorities.

The European Union addressed the problem incrementally through the early 2000s. The 2003 implementation of the VAT special scheme for non-EU suppliers of electronic services to EU consumers was the first significant step, allowing non-EU suppliers to register in a single Member State and remit VAT for all EU sales through that registration. The scheme covered a narrow range of services and was used principally by US technology companies serving European consumers.

The 2015 expansion of the scheme to intra-EU supplies of digital services to consumers, through what became known as the Mini One-Stop-Shop or MOSS, was the more significant development. The MOSS allowed EU suppliers selling cross-border digital services to consumers in other Member States to register in their home Member State and remit VAT for all EU sales through that registration. The MOSS reduced the compliance burden substantially and brought a much larger share of cross-border digital activity within formal VAT compliance.

The 2021 expansion: One-Stop-Shop and Import One-Stop-Shop

The 2021 reform of the EU VAT framework expanded the One-Stop-Shop scheme materially. The expansion, in force from July 1, 2021, replaced the MOSS with a broader OSS that captures all intra-EU supplies of services and certain intra-EU supplies of goods to consumers. A separate Import One-Stop-Shop applies to supplies of low-value imported goods to EU consumers.

The expanded OSS captures essentially all cross-border supplies of services to EU consumers, and most cross-border supplies of goods to EU consumers below specified thresholds. The supplier registers in a single Member State, files quarterly returns covering all EU sales, and remits VAT to the registration Member State, which distributes the VAT to the relevant Member States according to where the customers are located.

The expansion has been generally regarded as successful. The compliance burden on cross-border digital businesses has been reduced compared with the pre-2015 framework, and the share of cross-border digital activity within formal VAT compliance has increased materially. The framework has been the subject of refinements through subsequent legislative action, with adjustments to thresholds, scope, and procedural details.

The OECD framework and non-EU implementations

The OECD's parallel framework, set out in the International VAT/GST Guidelines published in 2017, provides principles for VAT collection on cross-border services and intangibles that have been adopted by jurisdictions outside the European Union. The framework has been implemented in different forms by Australia, New Zealand, Singapore, Japan, South Korea, and a growing number of other jurisdictions.

The Australian implementation, in force since 2017, applies a registration-and-collection regime to non-resident suppliers of digital services and low-value imported goods to Australian consumers. The threshold for registration is AUD 75,000 of annual sales to Australia, with non-resident suppliers above the threshold required to register and collect Australian GST.

The New Zealand implementation, in force since 2016, applies a comparable regime to non-resident suppliers of remote services to New Zealand consumers. The threshold is NZD 60,000 of annual sales.

The Singaporean implementation, in force since 2020, applies the regime to non-resident suppliers of digital services to Singapore consumers. The threshold is SGD 100,000 of annual sales, and the regime has been extended in subsequent years to capture additional categories of supply.

The Japanese implementation, in force since 2015, was an early adopter of the framework outside the European Union. The Japanese regime applies to non-resident suppliers of digital services to Japanese consumers, with specific procedural requirements that differ from the European model.

The convergence around the registration-and-collection model is now substantial. By 2025, more than 75 jurisdictions operate frameworks based on the OECD principles, with continuing additions as further jurisdictions implement.

The platform liability extensions

An important extension of the framework has been the introduction of platform liability provisions that make digital platforms responsible for VAT collection on supplies made by third-party sellers through their infrastructure. The extensions address the practical reality that platforms have better visibility of cross-border transactions than the underlying sellers do, and that placing the VAT obligation on the platform reduces compliance gaps.

The European framework includes platform liability provisions for certain categories of supply, including the marketplace facilitator regime that makes platforms responsible for VAT on certain imports of goods. The platform liability provisions have been refined through subsequent legislative action and continue to evolve.

The Australian, New Zealand, and Singapore frameworks include comparable platform liability provisions for digital marketplaces. The convergence around platform liability is part of the broader trend toward placing reporting and collection obligations on digital intermediaries that have visibility of cross-border transactions, paralleling the trend in income tax that DAC7 represents.

The operational realities

The operational realities for cross-border digital businesses operating under the One-Stop-Shop and parallel frameworks have stabilised over the past several years.

The principal operational requirement is the determination of customer location. VAT is due in the customer's jurisdiction, and the supplier must determine where each customer is located for VAT purposes. The frameworks specify the criteria for customer location determination, typically including a combination of billing address, IP address, payment instrument issuing country, and other indicators. The supplier must collect and retain evidence supporting the location determination, with the evidence subject to audit by relevant tax authorities.

The second operational requirement is the application of the correct VAT rate. Each customer jurisdiction has its own VAT rate, and the supplier must apply the rate of the customer's jurisdiction to each transaction. The rates vary widely — from zero in jurisdictions that exempt certain digital services to over 25 percent in some Member States. The supplier must maintain accurate rate tables and apply them correctly across transactions.

The third operational requirement is the periodic filing of returns under the One-Stop-Shop registrations. The European OSS requires quarterly filings; the parallel non-EU regimes have varying filing frequencies. The filings must reconcile to the underlying transaction data and must accurately allocate VAT to each customer jurisdiction.

The fourth operational requirement is record-keeping. Suppliers must maintain transaction records sufficient to support the customer location determinations, the rate applications, and the One-Stop-Shop filings. The records must be retained for periods specified by the relevant jurisdictions, typically ten years.

The cumulative compliance burden is substantial but manageable. Major cross-border digital businesses have built dedicated VAT compliance functions and integrated tax determination engines into their billing systems. Smaller businesses rely more heavily on third-party service providers that handle VAT compliance as a managed service.

The competing view: the burden remains too high

An alternative view, held by some smaller cross-border digital businesses and by some commentators, is that the One-Stop-Shop framework, while reducing the compliance burden compared with the pre-2015 alternative, remains burdensome relative to the pre-2003 baseline when cross-border digital services were largely outside VAT scope. The argument is that small cross-border digital businesses face fixed compliance costs that are disproportionate to their VAT obligations and that may operate as a barrier to cross-border activity.

The argument has merit for the smallest cross-border suppliers. The fixed costs of VAT compliance — software, professional advice, internal processes — do not scale linearly with sales volume, and a supplier with low sales to multiple jurisdictions may face compliance costs that exceed the VAT collected in some jurisdictions. The frameworks have addressed this through registration thresholds in some implementations, but the thresholds vary and are not always adequate for the smallest suppliers.

The counterview is that the pre-framework architecture was unsustainable because of the revenue loss to customer jurisdictions and the competitive distortion it created with domestic suppliers who did collect VAT. The compliance burden, while real, has been substantially reduced by the One-Stop-Shop architecture compared with multi-jurisdiction registration. The framework reflects a reasonable balance between revenue collection and compliance practicality.

The current trajectory of the framework includes continued refinements to address the smaller-supplier concern, including possible threshold adjustments and simplified compliance regimes for very small cross-border suppliers. The framework is unlikely to be fundamentally redesigned, but incremental adjustments are likely.

The interaction with broader digital economy taxation

The VAT framework for digital services interacts with the broader debate over the taxation of the digital economy, including the OECD's Pillar One framework that addresses corporate income tax on digital economy profits. The two frameworks operate independently — VAT on digital services is a consumption tax that operates regardless of where the supplier's profit is reported, while Pillar One addresses corporate income tax on digital economy profits.

The two frameworks have, however, common origins in the broader policy concern about the taxation of cross-border digital activity. Both reflect the proposition that the customer jurisdiction has legitimate claim to tax revenue from digital activity occurring within its borders, with the framework choices differing principally in the type of tax (consumption vs income), the timing of collection (transaction-by-transaction vs annual), and the institutional architecture (registration-and-collection vs reallocation of taxing rights).

The VAT framework has been substantially more successful in operational terms. The Pillar One framework, addressed at corporate income tax, has been delayed and remains in significant respects unimplemented. The VAT framework, addressed at consumption tax, has been progressively implemented across the OECD and is now operational in most major jurisdictions. The contrast reflects, in part, the structural simplicity of consumption tax compared with the more complex coordination required for corporate income tax reallocation.

Implications for cross-border digital businesses

For cross-border digital businesses, the operational implications of the One-Stop-Shop framework are now substantially internalised. Major businesses have built dedicated VAT compliance functions, smaller businesses use third-party services, and the compliance burden is treated as an ordinary cost of cross-border operation rather than as a strategic consideration.

The principal residual considerations are: ensuring that customer location determinations are accurate and supportable; maintaining current rate tables across the relevant jurisdictions; managing the periodic filing obligations under the One-Stop-Shop registrations; and addressing audits when they arise. Each of these is a routine operational matter rather than a strategic one.

The strategic implications, where they exist, relate principally to the choice of registration jurisdiction within the European OSS. The choice has implications for the supplier's interactions with the registration tax authority, for the local language of administrative correspondence, and for the practical operation of the framework. Most major cross-border digital businesses have made these choices and have stabilised their operational position; new entrants face the choice as part of their cross-border launch.

Forward-looking observations

The trajectory of the VAT framework for digital services through the second half of the 2020s is one of continued operational refinement rather than fundamental change. The European OSS will continue to operate with periodic adjustments. The non-EU regimes will continue to expand to additional jurisdictions and to additional categories of supply. The platform liability provisions will continue to evolve as digital intermediation patterns change.

The framework's effect on cross-border digital activity has been to increase the share of activity within formal VAT compliance and to reduce the competitive distortion between cross-border and domestic suppliers. The effect has been substantially achieved, and the marginal returns from further framework development are diminishing. The framework's success is, in some respects, measured by its invisibility: cross-border digital businesses now operate under the framework as a matter of routine, with VAT compliance integrated into ordinary commercial operation.

For the practitioner working in cross-border digital business, the framework is a known operational requirement rather than an evolving area of doctrine. The maintenance of compliance is more important than the analysis of doctrine, and the principal advisory function is operational rather than strategic. The framework has, in this sense, succeeded in becoming infrastructure: present, functional, and largely outside daily attention.