Tallinn University of Technology

Starting from 1 July this year, EU citizens who wish to order goods online from a non-EU country must pay VAT per the tax rates applicable in the country of destination. Nothing complicated about that, you might be thinking. In actuality, however, it will require a wild amount of declarations to be submitted. So, who is going to do that? A myriad of newly trained accountants? No – a machine, of course!

Work on the VAT declaration system started two years ago, when the newly established company Eurora Solutions OÜ contacted TalTech’s Department of Software Science. They wanted to develop a system that would enable e-commerce operators to calculate the tax amount at the moment of purchase, prepare a customs declaration after payment, and transmit the latter electronically to the customs authorities of the country of destination – all of this automatically. The system also had to be able to handle the fact that different EU countries have different VAT rates, ranging from 17 to 27 percent. 

According to Ingrid Pappel, the head of the Next Gen Digital State Research Group, the most ambitious part of the project was the task to develop and implement a model based on machine learning that could determine the correct commodity code on the basis of a description of the goods. In addition, there are not only differences in the software and procedural rules of the customs systems of different European countries, but also in local laws regarding what can be ordered online from abroad in the first place. “In Latvia, for example, consumers are allowed to order truncheons online, but in Estonia it is prohibited by law. Eurora’s system must be able to account for such differences, but the input must be provided by each country’s customs agency,” claimed Pappel.

Despite the fact that the project as a whole took 8,800 hours of collaborative work and two research articles and a handful of master’s theses were published on the topic, the differences between the datasets of EU countries and non-EU countries still pose a major problem. “Obtaining the information from the tax authorities of the various countries was quite difficult, but fortunately we received a great deal of support and assistance from the Estonian Tax and Customs Board,” noted Pappel.