The 27 Member States of the European Union are introducing E-Commerce VAT reforms that will change tax obligations for various B2C marketplaces and sellers on the 25th of July 2020. Some of the major changes include making marketplaces deemed supplier VAT, ending low-value import VAT exemption and new IOSS return, and launching the One-Stop-Shop EU VAT return mechanism. It might significantly improve global VAT compliance for some vendors as they will be able to report all their pan-EU sales in their home country with a single VAT return. Here’s a brief overview of the three major reforms that will take effect in July 2021.
Single EU VAT return for E-Commerce distance selling
With previous changes “Distance Selling Thresholds” have been simplified quite a lot over the years to make cross-border transactions and VAT obligations easier for sellers. This specific reform withdraws these changes, and instead, proposes a single EU VAT return solution – One-Stop-Shop or OSS for short.
Companies shipping products from their home countries to other European Union nations can choose to report all their pan-EU sales via OSS. It is a more convenient and time-saving option than having to register for VAT in each country a business operates in after the distance selling threshold is passed. Essentially, this is an extension of 2015’s MOSS or Mini One-Stop-Shop that trialled single EU returns for B2C digital services quite successfully.
While OSS may prove to be useful for independent sellers, marketplaces and those who use fulfilment centres to cater their goods across Europe will run into issues. When a vendor uses such services as Amazon Pan EU, they transfer their stock in what is called intra-community transfers and intra-community acquisitions. These are B2B transactions that, unfortunately, can’t be reported on the OSS. Further global VAT compliance issues might arise as you can’t report some sales locally and others via One-Stop-Shop. Because of this, businesses are strongly advised to seek guidance from tax advisors and prepare for major changes in how they file VAT from July 2021.
Closing the import VAT exemption loophole
The EU still has a 22 Euro VAT exemption for small parcels imported into the European Union. Starting in July 2021, it will also be withdrawn. The main reason behind this change is that this exemption is quite heavily abused by sellers by deliberately or mistakenly under-declaring the value of the products just to avoid VAT.
From now on, VAT will be charged at the point-of-sale for consignments not exceeding 150 Euros, and it can be declared and paid via Import One-Stop-Shop or IOSS. Essentially, an efficient fast-track “Green Channel is being opened to make customs clearance quick and easy.
Businesses have to take note and get well acquainted with these new global VAT compliance rules. From July 2021, non-EU sellers will have to charge VAT on ALL imported goods and register for IOSS in at least one EU Member State to declare VAT on shipments bellow 150 Euros. They will be required to complete a regular VAT registration in at least one country, as well. If a seller chooses not to use the IOSS system, their customers will have to pay delivery/customs agents to access their goods.
Marketplaces will become the deemed seller & VAT collector
In some cases, marketplaces that facilitate cross-border sales to consumers via third parties will be obliged to become the “deemed seller”. Some have taken to calling this the full liability regime. It should be noted, though, that marketplace VAT reliability does not include product liability.
Currently, the EU is defining “facilitating” as “digital platforms helping sellers and consumers to strike deals for the supply of goods on a cross-border basis”. This supplier regime only applies to two cases when a marketplace is facilitating a B2C sale:
- Imports that don’t exceed 150 Euros, and
- Distance selling domestic or cross-border transactions of any value for non-EU sellers.
There are ways, though, for marketplaces to opt-out of this. VAT obligations then fall unto the delivery company of the seller. This whole reform will make global VAT compliance for both EU and non-EU sellers much easier, but other parties in the supply chain will have to take up more Value-Added Tax commitments.
These reforms are quite ambitious. While they aim to boost digital cross-border trade by reducing compliance obligations, they’re also trying to tackle the 5 billion Euro E-Commerce VAT fraud gap by co-opting online marketplaces into collecting VAT instead of sellers. This E-Commerce VAT package is changing the EU single market, and sellers have many things to look forward to.