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New EU VAT Rules and their Impact on Businesses

July 29, 2021, 7:00 AM

The EU’s e-commerce market is growing steadily. Recent data from Eurostat shows that 32% of European consumers shopped online one or two times in the last three months; 17% did this six to 10 times in the same period, and 87% bought from national e-commerce websites in the last year. Over a third of consumers ordered from sellers from other EU countries.

The Covid-19 pandemic has caused a further shift in consumer behavior and the use of e-commerce and online marketplaces is expected to increase following this shift, both in terms of revenue and number of users. As millions of people continue switching from high-street shops and retail parks to online shops, Europe’s e-commerce revenue is set to reach a new record. It has been predicted that the revenue of the European e-commerce market will hit $465 billion this year, 30% more than before the pandemic.

The EU E-Commerce VAT Package in Brief

From July 1, 2021, the value-added tax (VAT) rules on cross-border business-to-consumer (B2C) e-commerce supplies have changed. The aim of these changes is to overcome the barriers to cross-border online sales and address challenges arising from the distance sales and importation of low-value consignments regimes.

The previous thresholds for distance sales of goods within the EU have been abolished and replaced by a new EU-wide threshold of 10,000 euros ($11,800). Below this 10,000-euro threshold, supplies of telecommunications, broadcasting and electronic (TBE) services and distance sales of goods within the EU may remain subject to VAT where those goods are located at the time of dispatch, or transport begins, or the supplies of TBE services are made in the member state where the taxable person is established.

To ease the administrative burden of businesses having to register in each EU member state where they have customers, there is a new opt-in online One-Stop Shop (OSS) VAT reporting and payment system. This means that businesses falling in scope of the new rules are no longer required to VAT register in each of the EU member states of their customers.

The VAT exemption at importation for small consignments of a value up to 22 euros has also been removed. This means all goods imported into the EU will now be subject to VAT. However, a new special scheme, the Import One-Stop Shop (IOSS) has been created for distance sales of low-value (of an intrinsic value not exceeding 150 euros) goods imported from third (non-EU) countries to simplify the declaration and payment of VAT.

Simplification measures for distance sales of imported goods in consignments not exceeding 150 euros have also been introduced from July 1, 2021 where the IOSS is not used.

How Does the One-Stop Shop Work?

Online sellers, including online marketplaces and platforms, can register in one EU member state and use this registration for the declaration and payment of VAT on all distance sales of goods and cross-border supplies of services to customers within the EU. Registration will be with the OSS.

The Union OSS can be used by the following:

  • a taxable person established in the EU (who is not a deemed supplier) for:
    • supplies of business-to-consumer (B2C) services taking place in a member state in which it is not established;
    • distance sales of goods within the EU;
  • a taxable person not established in the EU for:
    • distance sales of goods within the EU;
  • an electronic interface (established in the EU or outside the EU) facilitating supplies of goods (deemed supplier) for:
    • distance sales of goods within the EU;
    • certain domestic supplies of goods.

If you are an electronic interface facilitating supplies of goods to customers in the EU and the underlying supplier for all your sales is not established in the EU, you will be the deemed supplier in all cases and will need to account for the VAT accordingly.

What is the Import One-Stop Shop?

The IOSS is the electronic portal businesses can use from July 1, 2021 to comply with their VAT e-commerce obligations in respect of distance sales of imported goods.

The new VAT e-commerce rules abolished the 22-euro VAT exemption as of July 1, 2021. Therefore, from July 1, 2021, all commercial goods imported into the EU from a third country, for example the U.K., are subject to VAT irrespective of their value.

From April 1, 2021, businesses have been able to register on the IOSS portal of any EU member state. For businesses not based in the EU, it is normally necessary to appoint an EU-established intermediary to fulfill the VAT obligations under the IOSS. The IOSS registration is valid for all distance sales of imported goods to buyers in the EU and came into use for goods sold from July 1, 2021.

For both the OSS and IOSS, businesses should keep records of all eligible sales and/or sales facilitated over 10 years.

Practical Issues

For electronic interfaces making supplies of goods both under and over the 150-euro threshold, they may be a deemed supplier for some supplies and not others. This can be difficult to monitor and also result in customers having a different experience depending on how much they spend.

The U.K. also introduced new e-commerce rules on January 1, 2021; these rules will therefore need to be considered for businesses selling to U.K. customers.

Norway and Switzerland also have their own e-commerce rules to consider if a business has customers in these countries.

The EU e-commerce VAT package was delayed for six months until July 1, 2021. The Netherlands and Germany requested a further delay until January 1, 2022, and the postal service agents also requested further time for preparations. However, Austria, Bulgaria, France and Malta blocked this further delay.

The six-month delay was proposed by the European Commission as a result of the Covid-19 pandemic. However, as explained above, certain countries did not feel their digital infrastructure would be ready in time.

I caught up with my EU colleagues in the Netherlands and Germany to see how things were going, now that the rules are in force:

Germany

Since April 1, 2021, German taxpayers have been able to register with the Federal tax office (Bundeszentralamt für Steuern) to apply for the OSS procedure with effect from July 1, 2021. Companies that already use the Mini One-Stop Shop (MOSS) do not have to register again. The registration and all subsequent filings are done via a web platform and we are not aware of any technical problems at this time.

From a practical perspective, the biggest drawback seen by my colleagues in Germany is that it is not possible to use the OSS for sales from a foreign fulfillment center. This means that companies must establish two-fold compliance structures for (a) sales from domestic warehouses and (b) sales from fulfillment centers (or foreign warehouses).

The Netherlands

The difficulties with the technical platform in the Netherlands have not yet been resolved. However, according to the website of the Dutch tax authorities, businesses can report distance sales with the Dutch tax authorities through the regular portal.

Fiscal Representatives

A U.K. business registering for VAT in the EU for the OSS or IOSS, depending on where it registers for VAT, may need to appoint a fiscal representative.

Since the end of the Brexit transition period on December 31, 2020, when the U.K. left the EU VAT regime, U.K. and EU e-commerce sellers may have the obligation to appoint VAT fiscal representatives for their nonresident VAT returns.

The Brexit free trade agreement was announced on December 24, 2020 and included a VAT mutual assistance protocol providing for cooperation on outstanding tax liabilities between the U.K. and EU member states. Under this agreement, U.K. businesses will not require a VAT fiscal representative in some EU member states that normally mandate this.

The area of fiscal representation is still a moving playing field; for example, whilst Poland initially indicated that U.K. companies with a local VAT registration had to appoint a fiscal representative by January 1, 2021, it has since reversed this decision and a U.K. business is no longer required to appoint a fiscal representative in Poland.

Countries which still require a U.K. company to appoint a fiscal representative following the conclusion of the EU-U.K. Trade and Cooperation Agreement include Austria, Bulgaria, Denmark, Estonia, Greece, Hungary, Portugal, Romania and Slovenia. However, Denmark is expected to drop the requirement for a fiscal representative shortly.

The conditions vary from one EU member state to another and there are some exceptions to the rule; for example, some countries require a U.K. company to have a fiscal representative for special schemes. Therefore, businesses should check the latest requirements based on their specific scenario before VAT registering.

From a practical perspective, it may be possible to register for VAT in a country which does not require a fiscal representative depending on the business model and transactions. Alternatively, there are a number of companies which offer global fiscal representation as part of their services.

In order to ensure compliance with the new requirements, we consider some key planning points below.

Planning Points

  • Map out your transactions and consider which of these rules, if any, will affect your business. Consider which rules will apply for which customers, which suppliers, and if there will be a difference depending on the value of the supply.
  • Keep good records and ensure that systems are correctly set up in order to be able to deal properly with the challenges of goods coming to and from multiple countries and in consignments both above and below the threshold.
  • Ensure that you have systems in place to determine what VAT, if any, is due and under which VAT registration.
  • Ensure the correct information is included on consignments for customs authorities to be able to identify the consignment as low value to avoid delays and double taxation.
  • Take advice if required, and make sure you register for the OSS and/or IOSS prior to making sales which trigger these registrations, if required.
  • Each EU member state has an online OSS portal where businesses (including electronic interfaces) can register for one or both schemes as required. This single registration is valid for all sales to consumers in other EU member states. Choose which member state works best for you, taking into account any language barriers and fiscal representation requirements.
  • If you require an IOSS registration, you can register on the IOSS portal of any EU member state. Consider if you need to appoint an EU-established intermediary to fulfill your VAT obligations under the IOSS and choose the best member state for your business requirements. The IOSS registration is valid for all distance sales of imported goods to buyers in the EU.
  • If you hold stock within the EU, ensure that you have the appropriate local VAT registrations in place.

Whilst the rules have been introduced to simplify the declaration and payment of VAT, they are complex, and a single business can be impacted by a number of the different rules (even sometimes within the same customer purchase). Make sure you are ready for the changes and seek advice where required.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Sarah Shears is head of the VAT Group at Andersen in the U.K.

The author may be contacted at: sarah.shears@uk.andersen.com

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