New VAT rules for e-commerce will be introduced in the European Union (EU) as of January 1, 2021. The EU intends to modernize and simplify the VAT system for online sales of goods. This is a priority within the wider Digital Single Market Strategy of the European Commission. The new VAT rules also aim to combat VAT fraud. In this blog Max van de Ven, Andy van Esdonk and Giancarlo Stanco, of KPMG Meijburg & Co, each share their view on the impact of these new VAT rules.
If you are a business selling online, an electronic interface platform facilitating online sales of goods, or a customs agent or logistics services provider, the new VAT rules will probably impact you. The transition from the current to the new system will place a heavy administrative burden on businesses e.g. you will need to update your business models, ERP systems and VAT processes, policies and controls. You may also need to operate multiple VAT regimes in parallel going forward. “I expect the implementation of the new VAT rules to be a time-consuming and resource-intensive exercise for businesses operating in the EU e‑commerce ecosystem” says Max van de Ven, Head of Indirect Tax.
“I would like to point out the main features of the new VAT rules and share our views on these changes.”
B2C sales of goods within the EU
Under the current VAT rules, the cross-border sale of goods to consumers within the EU is VAT taxable in the EU Member State of arrival of the goods (if the distance sales thresholds are exceeded). This requires businesses to register for VAT purposes, collect and remit VAT and file VAT returns across multiple EU Member States.
Under the new VAT rules, the distance sales thresholds are abolished. The cross-border sale of goods to consumers will automatically be VAT taxable in the EU Member State of arrival of the goods. VAT compliance will be simplified by expanding the mini-one-stop-shop currently available for e-services (MOSS), into a broader one-stop-shop (OSS). As such, businesses will no longer be required to register for VAT purposes and file VAT returns across multiple EU Member States. In addition, VAT invoices for distance sales will be abolished under OSS and a threshold of EUR 10,000 will be introduced for SMEs.
B2C sales of goods from non-EU countries
Under the current VAT rules, all imports of goods into the EU are normally subject to VAT. An exception applies to the import of low value parcels (not exceeding EUR 22).
Under the new VAT rules, the low value parcel relief will be abolished for VAT purposes. A new import scheme - the import OSS or i-OSS - will be introduced. The distance sale of goods from non-EU countries with a maximum value of EUR 150, will be considered a VAT taxable sale in the EU Member State of arrival, with the import itself being VAT-exempt.
A special import arrangement will also be introduced. If the import OSS is not used, the special import arrangement allows customs agents or logistic services providers to collect and remit VAT.
Platforms deemed sellers of goods
Under the current VAT rules, sellers are responsible for collecting and remitting VAT on their sales to consumers via platforms.
“Under the new VAT rules, platforms will be responsible for collecting and remitting VAT on certain supplies of goods if they facilitate the transaction”, Giancarlo Stanco, tax manager, points out. This will apply to (i) distance sales of goods from non-EU countries to consumers in the EU (with a maximum value of EUR 150), and (ii) sales of goods by non-EU businesses to consumers in the EU. In these cases, sellers are deemed to supply the goods to the platform, and the platforms are deemed to supply the goods to consumers in the EU.
B2C sales of services within the EU
Under the current VAT rules, the cross-border supply of services to consumers within the EU that are VAT taxable in the EU Member State of consumption requires businesses to register for VAT purposes, collect and remit VAT and file VAT returns across multiple EU Member States.
As part of the major changes to B2C sales of goods, VAT compliance in relation to B2C sales of services will be simplified by expanding the MOSS currently available for e-services into a broader OSS. As such, businesses will no longer be required to register for VAT purposes and file VAT returns across multiple EU Member States.
Making things simple is complicated
Although some of the new VAT rules will simplify EU VAT for e-commerce businesses, such as expanding MOSS into OSS, other new VAT rules will not. For example, new recordkeeping rules and new liability rules for platforms will be introduced. Also, businesses will still have to manage their VAT position locally. Andy van Esdonk, senior manager, says: “This includes collecting VAT locally and keeping policies and controls in place to manage local VAT rules, such as local VAT rates. In addition, I expect that the transition from the current to the new situation will place a heavy administrative burden on many businesses and some businesses may need to run old and new VAT regimes in parallel. This may be impractical and give rise to new challenges.” The EU will probably publish explanatory notes in due course (not legally binding), to provide further guidance that could help address these challenges.
More change to follow
The VAT treatment of online sales of goods and services in the digital economy continues to be an area of challenge and change, affecting businesses around the world. In keeping up with this trend, the EU changed the VAT rules for e-services in 2015 and 2019. The VAT rules for online sales of goods will follow in 2021. The longer lead period for goods is needed in order to draft detailed implementing regulations and to ensure that the necessary administrative and infrastructural changes are in place in all EU Member States.
Modernizing the VAT system for e-commerce is a key part of the VAT Action Plan, a wider initiative by the European Commission to modernize VAT rules and strengthen the internal market. Nonetheless, new technologies as real-time VAT collection, split payment or block chain are not part of the new initiatives. This could thus be viewed as a missed opportunity to really modernize. Modernizing the VAT system for e-commerce also goes hand in hand with other important developments, such as the recent provisional agreement of the Ecofin requiring PSPs to keep sufficiently detailed records and share payment data with the tax authorities of EU Member States in order to combat VAT fraud with e-commerce, as well as the OECD/G20 ‘Programme of Work’ to deliver a long term solution to the tax challenges of the digital economy in 2020. In my opinion, more change is therefore inevitable.
“I would firstly recommend assessing whether the new VAT rules will impact your business, your VAT position and ERP-system(s). If, based on this assessment, you expect the impact to be significant, I would advise you to ensure that you promptly design, implement and test required updates before transitioning and going live on January 1, 2021”, thus Max van de Ven. Meijburg & Co can assist with streamlining the transition. Please contact Max van de Ven, Andy van Esdonk or Giancarlo Stanco for more information or advice.
Because of the major impact of these new VAT rules, Meijburg is hosting a series of round tables on this subject, to facilitate the discussion. The purpose of these round tables is to guide you through the level-playing-field, so that you understand what you need to do as a business in 2020 to be prepared.
The first round table is scheduled for February 13, 2020. Please register here.