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Detailed rules online sales of goods

EU Member States agree detailed measures to improve VAT collection on online sales

Elizabeth Wilson 5 April 2019 No comments

On 12 March the European Commission (EC) announced that agreement had been reached by EU Member States on detailed measures required to simplify VAT rules for sales of goods online, ensuring that online marketplaces play their part in the fight against tax fraud.

Background

The decision taken in March by EU Economic and Financial Affairs ministers will ensure a smooth transition to the new VAT measures for e-commerce agreed in December 2017 and coming into force in January 2021.

These measures build on the Commission’s 2016 VAT Action Plan towards a single robust EU VAT area, leading to a more efficient and fraud-proof VAT system which is expected to help Member States recoup the estimated €5 billion of VAT lost on online sales every year.

The current position

Non-EU companies, including those who make use of warehouses (so-called ‘fulfilment centres’) in the EU, can sell goods to EU consumers through online marketplaces.

Often these goods are sold VAT free and it can be difficult for EU tax authorities to obtain the VAT that is due on the goods.

New VAT measures for e-commerce

The new measures agreed in December 2017, and taking effect from January 2021, aim to tackle such tax fraud on sales through online marketplaces. (See our earlier blog article here for further information).

The measures include:

  • online marketplaces being considered as the seller when they facilitate sales of goods with a value up to €150 to customers in the EU by non-EU businesses using their platform.
  • online marketplaces being considered as the seller when they facilitate sales of goods from ‘fulfilment centres’ in the EU, irrespective of their value, to customers in the EU by non-EU businesses.
  • requirements for online platforms to keep records of sales of goods or services made by businesses using the platform.

The detailed rules

The rules agreed on 12 March specify in more detail when online marketplaces are considered to facilitate such supplies or when they are not considered to do so, based on whether or not they are setting the terms and conditions of the supply as well as their involvement in the payment or ordering and delivery of the goods.

They also specify what kind of records have to be kept by platforms facilitating supplies of goods or services to customers in the EU.

Commissioner for Economic and Financial Affairs, Taxation and Customs Union, Pierre Moscovici, has said of the detailed measures:

“Step by step we are plugging the gaps through which tax revenues are lost, depriving EU countries of funds that could be used for public services and investment. At the same time we are bringing VAT rules into the 21st century, adapting them to an increasingly digital and globalised economy. Businesses should look forward to a smooth transition to the broader VAT system for e-commerce in 2021.”

A new VAT system for online sellers

Implementing rules introduce the building blocks for the new VAT system that will be required to allow online companies selling goods to take full advantage of the EU’s Single Market by 2021.

An extended electronic business portal for VAT, or ‘One-Stop Shop’, will enable companies that sell goods online to deal with all their VAT obligations in the EU through one easy-to-use online portal in their own language. The portal has been in place for e-service providers since 2015 and is working well.

Without the portal, VAT registration would be required in each EU Member State into which they want to sell – a situation cited by companies as one of the biggest barriers for small businesses trading cross-border.

Next steps

Final adoption of the new rules will be possible when the consultative opinion of the European Parliament becomes available. However, the EC advised in its March press release that the Member States can rely on the new rules from now to start extending their IT systems.

The new VAT rules will apply from 1 January 2021 with Member States having until the end of 2020 to transpose the new rules of the VAT Directive into national legislation.

Businesses wishing to make use of the extended VAT One Stop Shop can start registering in Member States as of 1 October 2020.