New VAT rules for EU e-commerce – Explanatory Notes published

3 October 2020| CATEGORIES: e-Commerce, VAT| TAGS: e-commerce, EU, July 2021, VAT

The European Commission has published Explanatory Notes on the new EU VAT rules for e-commerce which come into effect on 1 July 2021.  The introduction of the rules has been postponed by 6 months due to the difficulties caused by the coronavirus pandemic, see our earlier blog article for further details.

The new VAT rules apply to cross-border business-to-consumer (B2C) e-commerce activities.   The aim is to simplify the VAT obligations for companies carrying out cross-border sales of goods or services (mainly online) to final consumers and to ensure that VAT on such supplies is paid correctly to the Member State in which the supply takes place, in line with the principle of taxation in the Member State of destination.

What is changing?

Under the new rules:

• Businesses operating electronic interfaces such as marketplaces or platforms will, in certain situations, be deemed for VAT purposes to be the supplier of goods sold to customers in the EU by companies using the marketplace or platform. Consequently, they will have to collect and pay the VAT on these sales.
• Building on the success of the Mini One Stop Shop for Telecoms, Broadcasting and Electronically Supplied (TBE) services, this concept will be extended and turned into a OSS:
  • The non-Union scheme for supplies of TBE services by taxable persons not established in the EU will be extended to all types of cross-border services to final consumers with a place of supply in the EU;
  • The Union scheme for intra-EU supplies of TBE services will be extended to all types of B2C services with a place of supply in the EU, as well as to intra-EU distance sales of goods and certain domestic supplies facilitated by electronic interfaces. The extension to intra-EU distance sales of goods goes hand in hand with the abolition of the current distance sales threshold, in line with the commitment to apply the destination principle for VAT;
  • An import scheme will be created covering distance sales of goods imported from third countries or territories to customers in the EU up to a value of EUR 150.

The import one stop shop scheme

Unlike today, when the import scheme is used, the seller will charge and collect the VAT at the point of sale to EU customers and declare and pay the VAT for all EU sales to the Member State of identification in the OSS. These goods will then benefit from a VAT exemption upon importation, allowing a fast release at customs.

The introduction of the import scheme goes hand in hand with the abolition of the current VAT exemption for goods in small consignment of a value of up to EUR 22. This is also in line with the commitment to apply the destination principle for VAT.

Where the import OSS is not used, a second simplification mechanism will be available for imports. Import VAT will be collected from customers by the customs declarant (e.g. postal operator, courier firm, customs agents) which will pay it to the customs authorities via a monthly payment.

What businesses need to do now

The Explanatory Notes which run to 99 pages contain extensive explanations and clarifications on these new rules including practical examples on how to apply the rules if you are a supplier or an electronic interface (e.g. marketplace, platform) involved in e-commerce transactions.

These are major changes that will affect most businesses involved in B2C cross-border trade with EU customers.  The VAT obligations of electronic marketplaces and platforms will increase significantly following the introduction of the rules. Businesses impacted by the changes should take particular care to understand the new rules and implement the necessary changes to systems and processes required to ensure they are able to comply from July 2021.  They should also ensure they register in time for any of the OSS schemes they wish to use.

Businesses involved in intra-EU distance sales and supplies of those services to which the OSS will be extended should review whether they will be able to reduce the number of their EU VAT registrations as a result of the changes.  Businesses involved in intra-EU distance sales also need to consider the impact of the abolition of the distance selling threshold.  Under the new rules they will now be liable to charge VAT based on the customer’s destination in countries where sales were previously below the relevant threshold.

Please get in touch if you require any assistance regarding the new rules.