In a previous edition of Indirect Tax Matters we looked at the new VAT e-commerce measures that will enter into force from 1 July 2021. These new rules are reflected in the increased scope of the One Stop Shop (OSS) scheme and the introduction of the Import One Stop Shop (IOSS) regime which aim to simplify VAT obligations for businesses engaged in cross-border e-commerce thus ultimately deepen the EU single market.

With the go-live of 1 July approaching, Revenue has since published several guidance documents that provide more insight into the new OSS and IOSS schemes which we will consider further in this article. In particular we will look at what’s new, what’s changed and what’s stayed the same with the new measures being introduced.

What’s New

• IOSS

The Import One Stop Shop (IOSS) is a new special scheme for reporting the supply of goods dispatched on behalf of the seller from a non-EU country to a private individual in the EU, as VAT will be chargeable on all goods imported into the EU regardless of their value from 1 July 2021.

IOSS concerns goods only and can only be used for goods in a consignment of an intrinsic value of €150 or lower and that are not subject to excise duty.

Generally import VAT is collected at point of entry into the EU. However, under IOSS the supplier will charge VAT at the point of sale to the customer and declare and pay this VAT via a monthly IOSS return. VAT will be charged at the appropriate rate based on the country that the goods will ultimately be shipped to. The goods will then not be subject to VAT at the time of importation.

Both suppliers established in and outside the EU can apply for IOSS through slightly different processes. Irish established businesses can register directly for IOSS in Ireland. Non-EU businesses who wish to register for IOSS in Ireland must do so through an Irish intermediary, unless they are established in a country that has a mutual assistance agreement with the EU and the goods in question are supplied from that country.

From a practical perspective such a non-EU business may consider appointing an Irish side entity (if any) in the corporate family as its intermediary in respect of IOSS. The intermediary will have responsibility for the payment of the VAT due and the fulfilment of the VAT obligations of the supplier under the scheme. Such obligations include the filing of returns and record-keeping obligations.

An intermediary firstly has to register to be able to act as such. Upon registration they will receive an Intermediary Number beginning with ‘IN’ and an Intermediary TAIN number which will then allow them to register the non-EU businesses for IOSS.able to act as such

The use of IOSS is optional and where IOSS has not been availed of suppliers may alternatively opt for a special arrangement where postal operators, express carriers or other customs agents collect VAT at the standard rate from the customers and remit it to Revenue. This arrangement also only applies to goods in consignments with a maximum value of €150 that are not subject to excise duty.

Digital Platforms

The new e-commerce rules also introduced measures for electronic interfaces such as online marketplaces and platforms established both inside and outside the EU.

A digital platform will be a deemed supplier where they facilitate (a) the sale of goods of value not exceeding €150 imported from outside the EU to an individual customer located in the EU, regardless of where the underlying seller is established or (b) the intra-Community distance sales of goods and domestic supplies of goods by sellers established outside the EU, regardless of the value of such goods.

Being a deemed supplier means the digital platform effectively receives a supply from the underlying seller and subsequently makes a B2C supply to the individual customer. Depending on the location of the seller and the movement of the goods that B2C sale can either be: an importation of low value goods or an intra-Community distance sale of goods; or a domestic sale of goods.

Marketplaces established both in, or outside, the EU can report the deemed distance sale of imported goods under the IOSS scheme, and the intra-community distance sales and domestic sales may be declared via the Union OSS scheme as further explained below. Where they facilitate both types of sales they can opt to register for both the IOSS and the Union OSS schemes.

What’s changed

• Increased scope of OSS

From 1 July 2021, the scope of transactions that can be reported through the OSS scheme will be increased to include not just TBE services, but also other B2C services to individuals in the EU and distance sale of goods in the EU.

While Revenue guidance includes a reference that OSS covers all cross-border supplies of services on a B2C basis, it is important to note that the principle of taxation has not changed in that the general place of supply rules remain the same. B2C supplies of services are still typically taxable where the business is established with the usual exceptions such as services connected with immovable properties, passenger transport services and B2C transport of goods.

• Threshold for the place of supply

Currently for TBE services an annual threshold of €10,000 applies to benefit micro-businesses which only occasionally make these supplies to customers in other Member States. For intra-Community distance sales of goods Member States currently set their own registration thresholds which can be anywhere between €35,000 to €100,000 per calendar year.

With the scope of OSS being extended, a new threshold of €10,000 will apply to the total value of both TBE services and distance sales of goods. If the business’s cumulative annual sales of these types of supplies exceed this threshold they must either use OSS or register in each of the Member States of consumption to account for the VAT due on these supplies. If the threshold is not met then they continue to be seen as domestic supplies and OSS will not be required. It is worth noting that the threshold does not apply to B2C services other than TBE services or to the sales of imported goods as there is no registration threshold in respect of these types of supplies.

Expansion of the OSS Union scheme

The Union and non-Union schemes currently available under the MOSS regime will continue under the OSS regime albeit with an expanded scope.

EU businesses can continue to avail of the OSS Union scheme for both B2C supplies of services to customers in the EU and intra-Community distance sales of goods. They can declare the B2C supply of imported goods in the IOSS scheme which is separate from OSS.

Non-EU businesses who wish to use the OSS/IOSS schemes would need to register for Union OSS in respect of intra-Community distance sales of goods (when the goods are within the EU) and non-Union OSS to account for the supply of B2C services. The Union OSS registration must be submitted to the Member State where the dispatch or transport begins. Where there are multiple such Member States, the supplier may decide which Member State they wish to register in and will be bound by that decision for the current and the two following calendar years.

What’s stayed the same

• General place of supply rule for B2C services

As mentioned above, B2C services within the scope of the new OSS are confined to services that would have been taxable in the EU country where the customer is located under the existing place of supply rules. The new OSS changes the way to declare sales and pay VAT to various jurisdictions by providing a centralised portal however it does not amend the principle of taxation in respect of B2C supply of services.

• Optional use of OSS / IOSS

As with the current MOSS scheme, use of the OSS or IOSS schemes is not mandatory and businesses may continue to register in each Member State of consumption to declare VAT on these supplies if they so wish.

Also similar to MOSS, when choosing to use an OSS or IOSS scheme businesses must apply the scheme to all supplies falling under this scheme in all relevant Member States and cannot opt to use the OSS scheme just for supplies in some Member States and not for supplies in other Member States.

• Filing frequency
  

Under the extended OSS scheme businesses will continue to file returns and make payments on a quarterly basis. IOSS returns will be submitted on a monthly basis to enable suppliers to declare and pay VAT due on the B2C sale of imported goods.

Registrations

Businesses established in the EU who are registered in Ireland may continue to use their Irish Revenue Online Service (ROS) account in particular in the “VAT OSS section” of the “Other Services” panel for the registration of OSS or IOSS schemes.

For non-EU businesses the registration of OSS for both Union and non-Union schemes will continue to be available from a specific Non-Union Registration portal as provided by Irish Revenue.

Conclusion

The new VAT measures mark an important milestone for the European Commission’s continued effort of modernising VAT for cross-border e-commerce. In particular the OSS scheme aims to significantly reduce the administrative burden and the VAT compliance cost for taxpayers by offering a much wider scope of supplies businesses may declare centrally on a quarterly basis.

The rules around the digital platforms and B2C sale of import goods on the other hand give rise to additional VAT due on the supplies and new compliance obligations. Suppliers whose businesses are affected would need to consider the impact from a commercial perspective and to manage the VAT obligations going forward.

With the start date of 1 July 2021 fast approaching Irish Revenue have updated their online system to facilitate the OSS and IOSS pre-registration for EU and non-EU businesses. Taxpayers who would like to shift to these schemes should take action to ensure the appropriate registrations are in place effective from 1 July. Non-EU businesses established in a country that does not have a VAT mutual assistance agreement with the EU should also consider appointing a VAT intermediary for IOSS purposes.

This article provides only a high level overview of some of the implications involved. We are happy to discuss how this impacts your business more specifically.