A key tax reform for international digital trade
On May 21, 2024, the Economic and Financial Affairs Council of the European Union (ECOFIN), composed of the 27 Finance Ministers of the Member States, unanimouslyapproved anew Directive transforming the tax treatment of imports in e-commerce. This decision marks a milestone in the evolution of the European tax system, establishing the obligation for digital platforms to collect VAT at source on the sale of products from third countries.
The measure directly affects operators such as Temu, AliExpress, Amazon, Shein, as well as thousands of digital retailers selling to consumers within the EU bloc. It is part of the VAT in the Digital Age legislative package and its main objective is to level the fiscal playing field between European and non-EU suppliers, ensure revenue collection and reduce fraud on low-value imports.
In addition, the use of the IOSS (Import One-Stop Shop) system, which makes it easier for traders to declare VAT from a single point in Europe for all their cross-border sales, is reinforced.
A fiscal response in an environment of increasing global protectionism
The EU’s decision should be understood in the context of international trade increasingly marked by protectionist policies, in which taxation and tariffs have become key tools of economic regulation.
The United States represents a paradigmatic example. Since 2018, under Donald Trump’s administration, a trade war with China was launched, which resulted in massive tariffs on technological, industrial and agricultural products. What is relevant is that this strategy was not reversed, but maintained and expanded under the presidency of Joe Biden, especially in sectors considered critical such as electric vehicles, batteries and semiconductors.
In 2025, with Trump’s return to the presidency, the policy line has been further intensified, with new base tariffs on all imports, including additional increases for products from the European Union, China, Japan and North America.
Regardless of the identity of the governments, what is certain is that U.S. tariff policy has shown remarkable continuity over time, pointing to a shared vision of the need to protect strategic industries through direct trade pressure mechanisms.
The European approach: regulatory reform, not immediate reaction
Unlike the U.S. model based on generalized tariffs with immediate impact, the European Union opts for a regulatory tax strategy that is more technical, long-lasting and aligned with its model of legal and tax integration. The measure does not discriminate between countries or establish penalties, but applies uniform tax rules to all platforms selling on EU territory, regardless of their geographical location.
This is not, therefore, a trade war or a classic protectionist barrier, but rather an update of the VAT system to adapt it to global digital trade. In this sense, the EU is strengthening its fiscal sovereignty without altering its multilateral commitments or resorting to unilateral measures that could strain international trade relations.
Foreseeable impacts for platforms, companies and consumers
- Non-EU platforms must register their tax operations in the EU, update their invoicing systems and adapt to regulatory compliance.
- European companies, especially digital SMEs, are benefiting from a correction of the competitive inequality they have suffered until now.
- European consumers will see VAT reflected in the final price from the outset, gaining in transparency, although with possible slight upward adjustments.
How does this Directive affect the Canary Islands? Implications for digital commerce and the Canary Islands tax environment.
Although this new Directive is limited to the VAT area, its indirect impact on the Canary Islands is significant. According to Article 6 of Directive 2006/112/EC, the Canary Islands are excluded from the territory of application of the European VAT and are taxed through the IGIC (Impuesto General Indirecto Canario), which means that for tax purposes, the Canary Islands are considered a “third territory”.
▸ Sales from the Canary Islands to the EU
Sales from the Canary Islands to customers in the Peninsula or in other EU countries continue to be treated as exports exempt from IGIC. However, if such sales are made through digital platforms and products are stored outside the Canary Islands (for example, in the Peninsula or European logistics centers), the operation will become subject to Community VAT, and the new obligations of the Directive will fall on the platform or the seller, as the case may be.
This implies that Canary Island entrepreneurs using marketplaces or logistics warehouses outside the islands will have to assess whether they should register in the OSS/IOSS system, adapt their invoices, and carefully coordinate their tax obligations between VAT and IGIC.
▸ Imports from the EU to the Canary Islands
Purchases made from the VAT territory to the Canary Islands will continue to be subject to IGIC and customs intervention, through the presentation of DUA. However, the regulatory change may generate adjustments in the policies of the platforms:
- Some may restrict or eliminate the option to ship to the Canary Islands, due to the added tax complexity.
- Others could include VAT in prices applied to the Canary Islands, generating cost overruns or errors that make it difficult to claim or apply the destination exemption.
▸ An operational challenge for the Canary Islands’ import-export ecosystem.
The new Directive does not modify the legal situation of the Canary Islands, but it does make tax and logistics operations more complex, obliging operators to correctly differentiate between operations subject to IGIC and those subject to VAT. Companies must pay special attention to:
- The storage location of your products.
- The use of logistics intermediaries and applicable taxation at origin and destination.
- The correct invoicing and declaration according to the buyer’s territory.
Foreseeable impacts for platforms, companies and consumers
- Foreign platforms must adapt their internal processes, correctly apply VAT at the point of sale and, if applicable, register in the IOSS system or appoint a tax representative in the EU.
- European companies, particularly digital SMEs, are benefiting from a correction of the competitive inequality they have suffered until now.
- European and Canary Islands consumers will see VAT or IGIC reflected in the final price more clearly, although with possible upward adjustments for products previously exempt or with limited shipments.
Modern taxation and strategic tax collection in an unbalanced global environment
The European Union, through this Directive, has taken a firm step towards the modernization of the tax system applied to digital commerce, incorporating global platforms into its collection structure and closing historical tax gaps that favored non-EU operators.
From the regulatory point of view, this is a technically sound reform that reinforces tax traceability, homogenizes criteria between Member States and facilitates compliance through mechanisms such as the IOSS. This harmonization undoubtedly benefits the administrative efficiency of the European tax system.
However, it cannot be overlooked that this measure, although fiscally structured, pursues essentially the same goals as a tariff policy: to protect the economic interests of the bloc, balancing competition between local ecommerce and foreign platforms. The difference is that it does not apply to specific products or countries, but horizontally to any non-EU digital operator, which reinforces its regulatory nature but does not eliminate its structural burden in terms of market access.
In this context, Europe does not impose tariffs, but it does impose advance tax compliance as a condition of entry, a formula that, without breaking WTO rules or generating diplomatic tensions, also guarantees the defense of its tax sovereignty. Advixy considers it legitimate for a fiscally integrated block to demand tax equality among its operators, although we also note that this measure may pose a real operational barrier for many digital SMEs outside the EU, especially in regions without immediate technological adaptation capacity.
As for the Canary Islands, this reform does not directly affect the application of VAT, but it does have an impact on the model of logistics and fiscal relations with the EU. The status of third territory in terms of VAT obliges Canary Islands operators to navigate between two tax regimes -IGIC and VAT- and to carefully plan their operations according to the sales channel, consumer destination and point of dispatch.
The Directive does not modify the tax status of the Islands, but it accentuates the practical disconnection between the Canary Islands market and the large international platforms, which could be discouraged from operating or shipping to the Islands. This reinforces, once again, the need for specialized consultancy and strategic tax planning, both to protect the operations of Canary Islands companies and to ensure their competitiveness in an increasingly regulated environment.
💼 Does your company import from outside the EU or sell online in Europe?
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