EU VAT e-commerce package impacting cross-border B2C e-commerce activities comes into force on 1 July 2021

EU – ECOMMERCE

The EU VAT e-commerce package impacting cross-border B2C ecommerce comes into force on 1 July 2021. The VAT e-commerce package brings about major changes including rolling out a single EU VAT return for e-commerce distance selling and making electronic interfaces the deemed supplier of goods in some circumstances. 

Key date(s)

• 6 May 2015 - The European Commission adopted its Digital Single Market Strategy for Europe (“DMS”), including an intention to overcome barriers to cross-border online sales.
• 5 December 2017 - The European Council adopts the VAT e-commerce package by way of Directive 2017/2455.
• 21 November 2019 - The European Council adopts implementing measures for the VAT e-commerce package by way of Directive 2019/1995.
• 12 February 2020 - The European Commission adopts the Commission Implementing Regulation (EU) 2020/194 laying down details on the new EU VAT rules.
• 1 July 2021 - EU VAT e-commerce package comes into force

Status

• Barriers to cross-border online trade were raised as a potential area of focus as part of the DMS and introducing a comprehensive and simplified VAT e-commerce package was one of the European Commission’s 16 targeted actions to create a connected Digital Single Market.
• Furthermore, the success of the 2015 scheme called the Mini One-Stop-Shop (‘MOSS’) highlighted the need for broader change. MOSS successfully trialled a simplified mechanism to declare and pay VAT for business to customer (“B2C”) sales of telecommunications, broadcasting, and electronic services in the EU, whereby entities could register in one Member State, and account to it, for all sales across Member States.
• The European Council in December 2017 then adopted a broader set of measures (with further implementing legislation in November 2019 and February 2020) which extended the simplified MOSS process to distance sales of goods as well as to any type of cross-border service supplied to final customers taking place in the EU, known as the VAT e-commerce package.
• The VAT e-commerce package will bring significant changes to VAT obligations for B2C e-commerce sellers and marketplaces. The rules were supposed to take effect across the EU from 1 January 2021, however the rules were postponed by six months to apply as of 1 July 2021, due to practical difficulties created by measures taken to contain the coronavirus pandemic.

 What it hopes to achieve

• The aim of the VAT e-commerce package is to boost cross-border online trade and to promote trade across the EU’s digital single market by reducing compliance obligations. The VAT e-commerce package intends to simplify VAT obligations for companies carrying out cross-border B2C sales of goods or services. The reforms will mean that some sellers will be able to report all their pan-EU sales on a single VAT return in their registered Member State rather than having to make multiple VAT registrations across the EU, a One Stop Shop (“OSS”). The reforms will also ensure that VAT on supplies are paid correctly to the Member State in which the supply takes place.
• The VAT e-commerce package also seeks to deal with the e-commerce VAT fraud gap. One of the reasons for the VAT fraud gap is the deliberate mislabelling of high value goods coming from outside the EU (as having a value under €22 making the goods exempt) thereby creating unfair competition and a VAT revenue gap. The changes will require online marketplaces to collect VAT where they “facilitate” the sale of goods to consumers in the EU. The EU has defined “facilitating” as “electronic platforms assisting sellers and consumers to come together and strike a contract for the supply of goods on a cross-border basis”.

Who does it impact? 

• Electronic interfaces (e.g. online platforms) which “facilitate” sale of goods or supply of services to consumers in the EU may be impacted by additional VAT record-keeping requirements.
• Online retailers who sell goods to EU consumers which either: (i) come from outside the EU; or (ii) are cross-border within the EU.
• Postal and logistics operators which handle the import and delivery of goods to consumers in the EU.
• Member States who should see an increase in the VAT revenues that they receive.

Key points 

1. A single EU VAT return for e-commerce distance selling

• • Sellers shipping goods from their home Member State to customers across the EU may opt to use the OSS to report all their pan-EU sales on a single VAT return, substantially reducing the administration burden for businesses.

2. Electronic interfaces become the deemed supplier

• • Electronic interfaces (e.g. marketplaces or platforms) which “facilitate” cross-border sales to consumers in the EU via third parties will become the deemed supplier of goods in certain cases for VAT purposes. They will then have to collect and pay the VAT on these sales.

3. Closing the import VAT exemption loophole

• • The current VAT exemption for goods under a value of €22 which are imported into the EU for delivery to consumers will be abolished. VAT at the appropriate rate will become due on all such imports.

4. VAT on consignments imported from outside the EU
   • VAT on consignments with a value not exceeding €150 and imported from outside the EU must be charged at the point-of-sale. This VAT may be declared and paid via a new submission, the ‘Import One Stop Shop’ or ‘IOSS’.
5. Postal and logistics operators
   • Postal and logistics operators handling imports of goods for consumers will not have to collect VAT on packages where the VAT has been accounted for using the IOSS. However, they will still have to collect VAT for other packages.

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