New VAT rules for eCommerce businesses

The EU has recently declared new rules to help eCommerce businesses simplify how they account for VAT.

These new rules apply to businesses selling both goods and services on a B2C basis and are intended to effect business at various stages up to 2021. They are part of the EU’s ‘Digital Single Market’ strategy.

According to the EU, approximately €5 billion of VAT revenue is lost each year because of non-compliant eCommerce businesses, an amount that will likely continue to grow as the eCommerce sector increases in size. The EU consequently intends to make changes to help eCommerce companies enjoy simplified compliance burdens, but also to tackle VAT fraud.
Below is an outline of these changes:

1. Online marketplaces will be liable for collecting VAT

The likes of Amazon and eBay will have to account for VAT on supplies made by non-EU companies to EU consumers. This will take away from those suppliers using these marketplaces the requirement to register in countries where they make their sales (something that often doesn’t happen, the reason the VAT gap exists).

Interestingly, Australia will be rolling out a comparable provision in July 2018, so it will be possible to see how well this works in practice, albeit on a much smaller scale and with just one tax administration handling the relation with the online platforms.

2. B2C supplies of electronic services and goods simplified

Supplies of B2C electronic services and goods by businesses are presently subject to VAT in the EU country where the customer belongs. For services, this rule applies from the first supply that is made (i.e. there is no threshold to breach) but for goods, there are altered thresholds set by each EU Member State which must be surpassed before they apply.

From the 1st January, 2019 a €10,000 threshold will be enforced for supplies of electronic services which will allow businesses trading below it to remain applying the VAT rules of the Member State where they established. This means that only businesses making greater levels of supplies will be required to account for VAT in the location of the customer and all being well, will reduce compliance burdens for small enterprises. The same level of threshold will be applied to goods from 1st January, 2021.

3. The ‘One-Stop-Shop’ for supplies of goods extended

‘One-Stop-Shop’ (OSS) approach has been determined by the EU creates a simpler and more effective system for VAT reporting when it comes to eCommerce businesses. At present, businesses supplying electronic services to individuals in the EU can submit VAT due via the ‘Mini-One-Stop-Shop’ (MOSS). The EU proposes to extend MOSS and allow EU businesses selling goods to also utilise it (by way of the more extensive OSS), thus possibly reducing the VAT registration obligations of these businesses.

Furthermore, an additional portal will be established to permit businesses from third countries making B2C supplies of goods with values below €150 to register and account for VAT on their supplies. This is because such businesses will be considered to have both imported and made a local supply of the relevant goods. The rollout of both these schemes is not scheduled until 2021.

4. The elimination of VAT exemption for small consignments

At present, goods imported into the EU with a value of less than €22 are exempt from VAT. This has been a major source of frustration for EU based companies, in that the value of goods is often under-reported to benefit from the exemption. This leads to businesses from outside the EU benefitting from a one-sided tax advantage, as they are not required to charge VAT on their sales. Eliminating the exemption should consequently “level the playing field” and hypothetically provide more revenue to EU Member States, although increased compliance costs and checks may also arise.

These alterations will have a substantial impact for both eCommerce companies and tax authorities. This is particularly the case given the short time scales currently foreseen before execution, although these may be subject to change if EU Member States cannot reach a settlement on how the OSS for goods will operate. In particular, it will be fascinating to see how country-specific compliance obligations (i.e. SAF-T returns, Spesometro, etc) are incorporated into the OSS. This is because the supply of goods is, by its nature, considerably more complex than that of digital services and hence the existing MOSS template will probably need fundamental change. All this means is that the timescales currently set out could well be extended for an unlimited amount of time.

Irrespective, it will be significant for businesses to fully understand the implications of these changes on their activity in the EU to make sure that they remain compliant. This will predominantly be the case when activities and structures above and beyond the simplified delivery of goods from one country to another take place (i.e. warehousing, vouchers, returns, etc). Although the changes are some way off and may still be subject to change, please do not hesitate to contact amavat® if you have any questions.

amavat^® provides a one-stop-shop solution for VAT Compliance within Europe. We assist clients with a single point of contact that speaks their language and handles all VAT related issues with a standard and cost efficient approach.

If you have any queries or questions, please do not hesitate to contact amavat^®.

To find out more information please visit www.amavat.eu