The EU VAT e-commerce package is due to be implemented on 1 July 2021. These measures will result in significant changes to the VAT rules for e-commerce transactions, in particular the online sale of goods. I consider below how the changes will affect different types of business.

Online sellers of goods within the EU

The current distance sales thresholds in each EU Member State, which apply to cross-border B2C sales of goods, will be abolished. Online sellers within the EU will therefore be required to charge local VAT in the EU Member State to which the goods are shipped. However, sellers will be able to register for the One Stop Shop (“OSS”) and remit the VAT due on such supplies through an EU-wide OSS return, rather than being required to VAT register in other Member States. For smaller online sellers, VAT can continue to be charged in the EU Member State where the supplier is established if the total value of cross-border B2C sales of goods and services within the EU is less than €10,000 per annum.

Online sellers of goods coming from outside the EU

The current relief from import VAT on “low value consignments” of goods imported into the EU, where the value does not exceed €22, will be abolished. As a result, all goods imported into the EU will be subject to VAT at the appropriate VAT rate.

An Import One Stop Shop (“IOSS”) will be introduced in order to allow sellers and marketplaces (see further below) to remit VAT on such sales through a monthly return, rather than having VAT collected at the point of import. This is intended to help expedite imports passing through Customs and avoid the consumer being asked to pay an additional amount of VAT when receiving the goods. However, IOSS will only apply to consignments of goods with a value not exceeding €150. Where that value is exceeded, a full customs declaration together with any VAT and customs duty payable will arise at the point of import.

If IOSS is not applied, the postal and freight operators will typically be responsible for the collection and payment of import VAT on goods which they will collect from the consumer before releasing the goods to them. Certain special arrangements will be introduced to allow such operators to pay VAT to the relevant tax authorities on a monthly basis.

Online marketplaces

The changes will also affect electronic interfaces (e.g. online platforms and marketplaces). Where an electronic interface “facilitates” sales of goods from a seller to a buyer on their platform, they will be deemed to have bought and sold those goods for VAT purposes in two scenarios: first, where the goods are shipped from outside the EU to a consumer in the EU and the consignment has a value not greater than €150, and, second, where goods are shipped within the EU to a consumer and the seller of those goods is established outside the EU. As a result of being deemed to buy and sell the goods, the electronic interface will in many cases be responsible for VAT reporting in respect of those sales. However, they can use the OSS and IOSS set out above to assist with reporting and paying VAT.

In addition, electronic interfaces that facilitate supplies of goods or services on their platform will be required to maintain detailed records in respect of their suppliers for a period of 10 years. This record-keeping requirement will apply regardless of whether the electronic interface is deemed to supply the underlying goods or services or not.

Extension of OSS for services

Currently, the “mini” one stop shop (MOSS) only applies to cross-border B2C supplies of telecom, broadcasting and electronically supplied services in the EU. From 1 July 2021, VAT arising on all B2C supplies of services may be accounted for through the OSS return where the supplier is not established in the Member State in which the VAT arises. For example VAT charged on B2C admissions to certain events, certain hiring and transport services taking place outside the supplier’s country of establishment.

Preparing for the changes

Businesses affected by the changes should begin preparations as soon as possible. In particular, retailers will need to identify the appropriate rates of VAT on their products in each EU country into which they sell and prepare their systems to be able to calculate this.

Author:

David Duffy

FCA, AITI Chartered Tax Advisor, Indirect Tax Partner at KPMG