Author: Gladys Cristiaensen (KPMG)
Date of publication: june 2018
Are you selling goods and/or services online? If yes, we can only advise you to read this article very carefully, especially if your company is an electronic interface (such as market places, platforms, portals, etc.) or is a postal operator, as new VAT rules are coming up. These new rules can save your company money, if the rules are applied correctly. If not, it can cost your company (a lot of) money.
The first wave of new rules applicable as of 2019: it is a start …
Currently telecommunication, broadcasting and electronic services are deemed to take place where the customer is established implying that VAT is due in the EU Member State of the customer. If the customer is a private individual or a non-legal taxable person without a VAT identification number (or in other words in a B2C-relation), the service provider will need to charge local VAT in the EU-country of the customer, via a local VAT identification number or via the MOSS-scheme.
As from 2019, the EU will introduce following changes:
- a threshold of €10,000 allowing EU service suppliers to charge VAT in the Member State where the supplier is established. If the threshold of €10,000 is exceeded, the supplier still needs to VAT in Member Stat where the customer is established (via a local VAT identification number of via the MOSS-scheme);
- the service supplier only needs to keep one piece of evidence (instead of two) if his annual turnover of cross-border B2C sales of telecommunication, broadcasting and electronic services does not exceed the EU wide threshold of €100,000. Examples of pieces of evidence are: the invoice address, the bank details used, the IP address used, etc.;
- the invoicing rules of the Member State of establishment will be applicable if the service provider makes use of the MOSS scheme;
- companies established outside the EU, not having a permanent establishment in the EU, will be allowed to use the MOSS scheme as well.
The second wave of new rules applicable as of 2021: real simplifications
From 1 January 2021, the MOSS scheme will be extended to the distance sales of goods and to all other B2C cross-border services of which the services are deemed to take place in the Member State of the customer.
Finally a real simplification: distance sales under the OSS scheme
Currently, if a company sells goods via an online shop to consumers (B2C) located in other Member States and the threshold of the distance sales is exceeded (in most Member States the thresholds are €35,000 or €100,000), the supplier is obliged to charge local VAT in the Member State of the customer. This implies that the supplier is obliged to request a local VAT identification number in the Member State of the consumer, which is for many companies an administrative nightmare.
To avoid high administrative costs, multiple VAT identification numbers and complex VAT legislations, the EU decided to bring the distance sales under the OSS scheme. This implies that the supplier of goods in a cross-border B2C relationship will, as from 2021, no longer require multiple VAT identification numbers for the (online) sale of goods. Instead, the supplier can use the OSS scheme to charge local VAT in the Member State where the customer is located. As for the telecommunication, broadcasting and electronic services, if the supplier applies the OSS scheme, the invoicing rules of the Member State where the supplier is established will apply. Finally some real simplifications which will in principle reduce the costs for the supplier.
The threshold of €10,000 which will be introduced as from 2019, will still be applicable but will, besides the telecommunication, broadcasting and electronic services, also need to take into account the distance sales of goods and the other B2C services which are deemed to take place in the Member State of the customer.
EU wants to stop the distortion of competition: abolishment of VAT exemption on imported goods
Currently the import in the EU of small consignments (with a few exceptions) with a value of less than €22 (in Belgium), is exempt from (Belgian) VAT. In practice, imported high-value goods such as smartphones and tablets are consistently undervalued or wrongly described in the importation paperwork in order to benefit from this VAT exemption. With around 150 million parcels imported free of VAT into the EU each year, this system is open to massive fraud and abuse, creating major distortions in the EU market.
1. Special OSS scheme if intrinsic value < €150
To stop the distortion of competition, the EU will abolish this VAT exemption as from 1 January 2021. As from that moment, a special OSS scheme for B2C imports will be applicable to the import of goods with an intrinsic value of less than €150.
A taxable person established outside the EU making use of this special scheme will be obliged to appoint an intermediary, unless he is established in a country with which the EU has concluded an agreement on mutual assistance. Also a taxable person established in the EU making use of the special scheme for distance sales of goods imported from third territories or third countries will be allowed to appoint an intermediary to fulfil the VAT obligations which come along with the use of the special OSS scheme. The vendor as such will be granted a special VAT identification number, a so-called IOSS VAT identification number (Import One-Stop Shop).
Under the special IOSS scheme, the vendor needs to charge VAT to the customers. This VAT will not become due on the moment of importation of the goods into the EU, but will instead become due on the moment of supply. The goods shall be regarded as having been supplied at the time when the payment has been accepted. This implies that the consignments will be VAT exempt upon importation of the goods into the EU (under the condition that the vendor provides its IOSS VAT identification number to the customs authorities).
The vendor (or its intermediary) should submit monthly VAT returns by the end of the month following the month in which the VAT became due.
2. Special arrangement if intrinsic value < €150
If the special scheme for distance sales of goods imported from third territories or third countries is not used (e.g. the seller fails to apply the IOSS scheme), the Member States should allow the use of special arrangements for the declaration and payment of import VAT for goods with an intrinsic value of less than €150. A special arrangement will be that a third party (like a postal operator) will, on behalf of the final customer, take care of the import formalities and the payment of VAT. The special arrangement will only be applicable under the condition that the final customer is established in the Member State where the goods are imported.
An important remark is that the third party (the declarant) only needs to pay VAT to the customs office of importation if the VAT has effectively been collected from the final customer.
Making use of the special arrangement includes that the Member State where the goods are imported is allowed to subject these transactions to the standard VAT rate (even if the goods are in principle subject to a lowered VAT rate).
3. Intrinsic value > €150 or application of reduced VAT rate
If the intrinsic value of the imported good is more than €150, a full customs declaration will be required.
Also in case the Member State of importation does not provide for the application of the reduced VAT rate under the special arrangement, the final customer will be able to opt for the standard import procedure allowing him to benefit from the reduced VAT rate.
The future role of electronic interfaces: they will be deemed to be the supplier
What will have a massive impact are the new rules the Commission foresees for electronic interfaces.
Concretely, where a taxable person facilitates distance sales of goods imported from third territories or third countries in consignments with an intrinsic value of less than €150, through the use of an electronic interface such as a marketplace, platform, portal or similar means, that taxable person shall be deemed to have received and supplied those goods himself. In this respect it is irrelevant whether the goods are supplied by EU or non-EU suppliers.
Also where a taxable person facilitates the supply of goods within the EU whereby the vendor of the goods is established outside the EU (including a non-EU supplier with an EU VAT identification number) and the customer is a non-taxable person (B2C), that taxable person who facilitates the supply shall be deemed to have received and supplied those goods himself.
In both cases it is irrelevant whether the electronic interface is established in the EU or not.
The aforementioned implies that if supplies are facilitated through the use of an electronic interface, two supplies will be deemed to take place: i) a B2B supply between the seller and the electronic interface, and ii) a B2C supply between the electronic interface and the final customer.
Regarding the place of supply rules, the Commission indicates that the first supply (between the seller and the electronic interface) will be a supply without transport and the second supply (between the electronic interface and the final customer) a supply with transport. In case goods are imported from outside the EU, the sale between the seller and the electronic interface will be deemed to take place outside the EU and will be outside the scope of VAT. In case the goods are already located in the EU, the sale between the non-EU seller and the electronic interface will be deemed to take place in the Member State where the goods are located and will be subject to local VAT. In the latter case, the proposal of the Commission might not seem viable given the tax burdens involved.
The new legislation offers real simplifications and also a more level playing field for EU businesses. On the other hand, the new rules will have a huge impact on electronic interfaces and third parties such as postal operators. It will be challenging for them to keep the responsibilities and costs as low as possible. They will anyhow need to make sure that their procedures are tight.
We are happy to discuss the impact of the new EU VAT legislation on your business with you. Don’t hesitate to reach out to us!