New VAT rules for e-commerce: already room for improvement | Deloitte Nederland

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New VAT rules for e-commerce: already room for improvement

Deloitte perspective

In December 2017 the EU Member States adopted new VAT rules for e-commerce. A small part of these rules will apply as of 1 January 2019, while the most significant change will be effective as of 1 January 2021.

21 June 2018

Suppliers both within and outside the EU supplying goods to consumers as well as entrepreneurs facilitating such supplies must prepare themselves for a major change in the VAT treatment of their supplies. I have studied these rules intensively and see already room for improvement. Please read my findings in this perspective.

The 2019 changes

The changes that will become effective as of 1 January 2019 are changes to provide some relief on the VAT treatment of telecommunications, broadcasting and electronic services (hereinafter: tbe-services), particularly for small enterprises. As of 1 January 2015 tbe-services are subject to VAT in the country of the customer regardless whether the customer is a consumer or a business.

The changes effective as of 1 January 2019 are:

  1. A relief for small enterprises established in one Member State. When they provide tbe-services to consumers established in other Member States for no more than € 10.000 a year they can still pay VAT in their own Member State instead of the Member State of their customer.
  2. Invoicing rules of the Member State of identification apply if the Mini One Stop Shop (hereinafter: MOSS) is used to report the VAT on tbe-services. The Member State of identification is the Member State of establishment for EU businesses and a Member State of choice for Non-EU businesses.
  3. Currently suppliers of tbe-services must collect two non-contradictory pieces of evidence to prove where the customer lives or is established. For suppliers that supply tbe-services to consumers for no more than € 100.000 a year one piece of evidence will be sufficient. This piece of evidence must come from a party involved in the supply of services, but not the customer or supplier. This means that, for example, the invoice address provided by the customer cannot be used as the piece of evidence. Instead, the supplier must rely on for example the bank account information (provided by the bank) or the IP address (provided by the internet provider).
  4. Non-EU businesses with a VAT registration within the EU can currently not use the MOSS to report the VAT on their tbe-services. This was an omission when the MOSS was introduced in 2015 and has now been corrected.

Distance selling within the EU (as of 1 January 2021)

Under the main place of supply rules goods are subject to VAT in the country of departure if they are dispatched or sent in relation to the supply. When goods are sold to consumers within the EU and the supplier arranges the transport or this is arranged on his behalf, the supply of the goods is subject to VAT in the Member State of arrival (distance selling rules). Currently, thresholds are in place of €100.000 or € 35.000 depending on the Member State. Below those thresholds suppliers pay VAT in the Member State of dispatch. When the threshold is crossed they pay VAT in the Member State of arrival. As of 1 January 2021 the thresholds will be abolished and in case of distance selling VAT will always need to be paid in the Member State of arrival. Only in case the entrepreneur is established in one Member State and its distance sales within EU and tbe-services to consumers in other Member States than its Member State of establishment are no more than € 10.000 a year, he can still report VAT of his own Member State (see above).

The MOSS is extended to cover distance selling within the EU, but only for EU businesses. This allows those businesses to report their distance sales in their own country. Tax authorities from that Member State will sent the VAT return and payment to the Member States where VAT is due. Non-EU businesses are not eligible to report distance sales in MOSS and are thus required to register for VAT in each Member States where they have distance sales. In my opinion this is an omission to the system and they should also be allowed to report distance sales. In this respect it should be noted that in a document of the VAT Expert Group it is mentioned that the MOSS Union scheme can be applied by non-EU businesses as well. However the text in the VAT Directive suggest that it cannot be applied. For both EU and non-EU businesses MOSS will (also) be extended to cover other B2C services than tbe-services.

Distance selling of goods from outside the EU (as of 1 January 2021)

Currently, if a consumer purchases goods in a non-EU country and the goods are imported in the EU an exemption is in place for goods with low value (€10-€22 depending on the Member State). This exemption will be abolished in 2021, meaning that VAT needs to be paid on each importation of goods regardless of the value. What is more, in case the transport of the goods takes place by or on behalf of the supplier or if the supplier indirectly intervenes in the transport, the supply is subject to VAT in the Member State of final destination of the goods, i.e. the Member State where the consumer lives. In case a Chinese supplier supplies iPhone cases to Dutch and German consumers and the goods are imported in the Netherlands this means that at the outset Dutch import VAT will have to be paid because of the import of all the iPhone cases in the Netherlands and that Dutch or German VAT on the supply of the iPhone cases to German consumers will have to be reported by the supplier.


Simplifications

There are however two simplifications in place. The supplier may choose to report its distance sales of goods from outside the EU in a MOSS-like VAT return. If he chooses to do so he will get an exemption for the import VAT and must then report VAT on the supplies in this MOSS like VAT return including supplies to consumers in the Member State of importation. The scheme only applies to goods with an intrinsic value of € 150 max. Both EU and non-EU suppliers are eligible to apply the scheme. However, non-EU suppliers must appoint an intermediary in the EU unless the EU has concluded a treaty for mutual assistance in VAT matters. The European Commission will publish a list with countries that have such a treaty with the EU.

Another simplification is aimed mainly at postal operators and couriers who import the goods on behalf of the person for whom the goods are destined. It allows them to file monthly returns for import VAT instead of paying the import VAT each time an importation takes place. They are responsible for paying the VAT but they can collect that VAT again from the party that is destined to receive the goods.


Overview

The table below gives an overview of the VAT consequences in the new system and includes both the standard position (no simplification is used) and the situation where the MOSS like VAT return for distance sales of goods from third countries is used. The example shows that there is a case of double taxation if the consumer imports the goods and those goods are imported in another Member State than the Member State of destination. What is more, the table shows that if goods are imported by or in the name of the consumer and the simplification is used by the supplier the consumer must have the OSS-number of the supplier in order to be granted an exemption upon importation of the goods. My suggestion would therefore be to allow the consumer to get a refund of the import VAT in case he provides proof that the supplier has paid the VAT on the supply in the Member State of arrival of the goods.

Platforms

In our perspective of 11 January 2018 we already extensively discussed the provision where platforms will be responsible to report the VAT on distance sales by deeming the platform to be the supplier. In this perspective I would like to add that the B2B-transaction created by this provision (i.e. the transaction between the supplier and the platform) needs to be given some thought as well. As a result of the fact that the platform is deemed to receive and supply the goods we have a B2B-transaction to the platform and a B2C-transaction from the platform. This B2B-transaction could be subject to VAT in the Member State of importation if the goods are imported by the supplier. If the goods are subsequently transported to another Member State the B2B-supply will qualify as an intra-Community supply requiring the platform to report intra-Community acquisitions in each Member State of destination. These acquisitions cannot be reported in the MOSS or MOSS-like VAT return and requires a VAT registration of the platform in each of these Member States. I can imagine that this has been overlooked when introducing the provision. In order to relief the platforms they should be allowed to report the intra-Community acquisitions in their MOSS like VAT return for distance sales from third countries and they should also be allowed to deduct the VAT in the same return.

Other changes

As of 1 January 2021 some other amendments will be made to the MOSS as well. These are changes that require some technical adaption of the system and therefore cannot enter into force in 2019. These changes are:

  1. The deadline for filing the MOSS VAT return and paying the VAT due is extended from 20 days after each tax period (calendar quarter) to the end of the month following each tax period.
  2. Corrections must now be made by correcting the original MOSS VAT return. As of 1 January 2021 corrections can be made in the upcoming MOSS VAT return. Corrections must still be made within three years after the original MOSS VAT return was filed.

Administrative cooperation

The adopted proposals include a regulation amending Regulation 904/2010/EC on administrative cooperation as well. The main changes in that regulation that are relevant for businesses are:

  1. If a taxable person does not fully pay the VAT amount that he is due to the Member State of identification, this Member State will transfer the VAT that has been paid to each Member State in the proportion that it is entitled to this VAT. This will result in the taxable person not having met his payment obligations in all those Member States, most likely resulting in VAT assessments and penalties.
  2. To avoid unnecessary administrative obligations and compliance costs requests for information and VAT audits are coordinated by the Member State of identification. However Member States may still take their own action if they feel this is necessary.

Room for improvement

Although the new rules have yet to come into force there is, in my opinion, already room for improvement. I recommend to make the following changes even before the rules will come into force:

  1. Abolish the obligation to issue invoices for distance sales within the EU also when the supplier does not use MOSS. The obligation was intended to monitor the thresholds of €100.000 and €35.000 per Member State, but because they are no longer relevant as of 1 January 2021 this obligation could be abolished in all situations, not only in case MOSS is used.
  2. Open up MOSS for non-EU suppliers that make distance sales within EU. They could be required to appoint an intermediary established in the EU to use the MOSS.
  3. Open up the possibility for consumers to get a refund of import VAT if they can prove that the supplier has paid VAT in the Member State of destination to avoid double taxation.
  4. Allow platforms to report and deduct VAT on intra-Community acquisitions in the MOSS like VAT return for distance sales from third countries.

Annex

 

 

Member State of importation

Member State of arrival

Importation by:

VAT-consequences standard

VAT consequences simplification MOSS like VAT return

1

Netherlands

Netherlands

Supplier

  • Importation in NL by supplier
  • VAT deduction of import VAT for supplier
  • Taxable supply subject to VAT in NL

 

End result: NL VAT by supplier

  • Importation in NL exempt
  • Taxable supply subject to VAT in NL

 

 

End result: NL VAT by supplier

2

Netherlands

Netherlands

Consumer

  • Taxable supply subject to VAT in China
  • Importation in the Netherlands, VAT due by consumer

 

 

End result: NL VAT by consumer

  • Taxable supply subject to VAT in NL
  • Importation in NL is exempt assuming the consumer has the OSS-number to show customs officers in NL that the supply will be reported in the MOSS like VAT return used for distance selling from third countries

 

 

End result: NL VAT by supplier

3

Netherlands

Germany

Supplier

  • Importation in NL
  • VAT deduction of import VAT by supplier
  • Taxable supply subject to VAT in Germany

 

 

End result: German VAT by supplier

  • Importation in NL is exempt
  • Taxable supply subject to VAT in Germany

 

 

End result: German VAT by supplier

4

Netherlands

Germany

Consumer

  • Taxable supply subject to VAT in Germany
  • Importation in NL, VAT due by consumer

 

 

End result: German VAT by supplier and NL import VAT by consumer (double taxation!)

 

  • Taxable supply subject to VAT in Germany
  • Importation in NL is exempt assuming the consumer has the OSS-number to show customs officers in NL that the supply will be reported in the MOSS like VAT return used for distance selling from third countries

 

End result: German VAT by supplier

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