Understanding the new e-Commerce VAT package
Online sales in the EU reach approximately EUR 550 billion annually, with approximately EUR 96 billion coming from cross-border sales. One of the major consequences of the development of online commerce is that VAT legislation must keep pace and adapte to business developments.
As from 1st of July 2021, all B2C supplies of goods to customers in the EU should be taxed at destination as a principle. As a major change regarding the taxation procedure of e-commerce sales is that the origin of goods, whether it is EU or NON-EU, will no longer be relevant.
The major changes, in general, are the following:
- Goods coming from outside the EU – current import exemption for values <22 EUR will cease to exist;
- Goods coming from the EU – distance selling regime – with the obligation to register for VAT purposes if the celling of 35,000 / 100,000 EUR is exceeded – depending on the country (approx. RON 118,000 for EUR 35,000) in the Member State of destination will be replaced of the obligation to apply VAT in the client’s country from the moment when the intra-community sales (cross-border) exceed the value of 10,000 EUR;
- VAT reporting under these new measures will be simplified by using the various “One Stop Shop” reporting systems to report all cross-border B2C sales through a tax portal in a Member State;
- A specific role is provided for the online market or the platforms that, in certain situations, will be responsible for paying VAT on the B2C sales they facilitate.
A last directive in this regard was on 12/05/2017 – Council Directive (EU) 2017/2455 amending Directive 2006/112/EC and Directive 2009/132/EC and amending certain obligations regarding VAT for the provision of services and the sale of goods at a distance. The main objective of this Directive is to adapt the relevant provisions of Directive 2006/112/EC and Directive 2009/132/EC.
Together with the VAT Action Plan approved by COM (2016) 148 final – “Towards a single space for VAT in the EU – the time of the decision”, this regulation, known as the “VAT Directive for e-commerce”, has been identified as a key initiative in the EU strategies on the digital single market – COM (2015) 192 final – and the single market – COM (2015) 550 final – as well as in the eGovernment Action Plan – COM (2016) 179 final.
Many of the provisions of this directive have been effective since January 1, 2019, respectively those relating to special VAT collection regimes for taxable persons who provide non-taxable persons with telecommunications, broadcasting and television services or services provided electronically, introduced on January 1, 2015.
- A threshold of EUR 10,000 or the equivalent of this amount has been introduced at Community level in the national currency up to which the provision of such services is still subject to VAT in the Member State of establishment. This measure has the effect of reducing the burden imposed by compliance with VAT obligations in Member States other than their Member State of establishment, in particular on small companies which occasionally provide such services to other Member States.
- In support of these amendments to the VAT Directive which applies from 1 January 2021, the “Implementing Regulation (EU) 2017/2459 of the Council of 12/05/2017 amending the Implementing Regulation (EU) no. 282/2011 establishing the measures for the implementation of Directive 2006/112 / EC on the common system of VAT. The role of this regulation is to lay down detailed implementing rules necessary for the proposed amendments.
In Romania, these provisions were introduced in the legislation by Law no. 60/2019 of April 15, 2019 for the amendment and completion of Law no. 227/2015 on the Fiscal Code, in force since April 20, 2019.
With regard to the second part of the amendments to the VAT Directive, in this context of explosive growth in electronic commerce and, consequently, in the sale of distance goods, both from one Member State to another and from third territories, or third countries to the European Community, it was concluded that the special arrangements applicable to services should be extended to the intra-Community sale of distance. The opportunity to introduce a similar special regime for the distance selling of goods imported from third countries or third territories was also identified.
How will compliance work?
Staring with January 1, 2021, the provisions of the second part of the VAT Directive for electronic commerce will take effect, among which we mention:
- Extending the scope of the one-stop shop to all cross-border services provided by taxable persons to non-taxable persons (business-to-consumer), as well as to intra-Community distance sales of goods and distance sales of goods imported from third territories or from third countries, turning the mini One Stop Shop into a One Stop Shop.
The operation of the one-stop shop is based on an EU-wide computer system, which allows the electronic exchange of information between Member States on VAT registration and VAT return, and which must be supported by harmonized detailed legal provisions.
This computer system for recording and declaring and paying VAT, known as one-stop shop, is an important simplification for the providers / suppliers concerned, with the advantage that it allows VAT to be declared and paid in one Member State for all services. carried out by them to customers in other Member States.
This is particularly relevant for small companies, for which the cost of complying with VAT obligations, or the cost of a possible VAT registration obligation in each Member State where those services are subject to VAT, is, in relative terms, more important than for larger companies.
- Introduction of special provisions applicable to taxable persons that facilitate certain deliveries made by other taxable persons through the use of an electronic interface, such as an online marketplace, a platform, a portal or other similar means.
- Elimination of the exemption for imports of goods in small consignments of negligible value (maximum EUR 22, limit currently provided for in Directive 2009/132 / EC), in order to avoid distortions of competition between suppliers inside and outside the Community, and to avoid loss of tax revenue.
- Limitation of the scope of the special arrangements for distance sales of goods whose intrinsic value does not exceed EUR 150, imported from third territories or third countries to sales of goods shipped directly from a third territory or from a third country to a client from the European community.
- Application of the invoicing rules applicable in the Member State of identification of the supplier using the special arrangements. This measure stems from the fact that the obligation to comply with the billing requirements of all Member States in which the services are provided is very burdensome, with its adoption leading to a minimum reduction in the burden on the taxable person.
- Introducing the possibility for taxable persons who are not established in the community, but are registered for VAT purposes in a Member State, to use the special regime for taxable persons who are not established in the community. Registration in a Member State may be due, for example, to the fact that the taxable person carries out occasional transactions subject to VAT in that Member State.
- Extension of the deadline for submitting the VAT return related to the special regime (currently 20 days from the end of the fiscal period) until the end of the month following the end of the fiscal period. This change resulted from the assessment that the original deadline is too short, especially when it is considered that the services provided through that network, interface or portal are provided by the network, interface or portal operator, who must collect the information necessary to complete the VAT return from each service provider in part.
- Changing the way of rectifying the VAT returns already submitted, by submitting a subsequent return, and not in the returns for the tax periods to which the adjustments refer, as currently provided. The measure is intended to correct a number of reported deficiencies, such as the complexity of how taxable persons make rectifications of VAT returns.
Companies involved in B2C sales should assess the impact of the e-commerce VAT package on their current operations in terms of:
- VAT computation
- New inquiries regarding VAT registration and reporting
- Opportunities to reduce VAT compliance obligations
- Relationships with logistics service providers, marketplaces and other stakeholders.
How can Tax Representation help?
First of all, we will make sure that you have a complete understanding of how the new rules will impact your customer value proposition and your business, internal processes and systems setup.
Being up to date with all current tax regulations, Tax Representation will be able to assess the risks in terms of money, to streamline current operations and prevent certain delicate situations. Our dedicated consultants tirelessly look for optimal solutions so that the business does not suffer.
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Andreea is a Tax Consultant specialized in Environmental Fund , VAT compliance and Intrastat reporting. She holds a BA in Finance and International Economic Relations from the Academy of Economic Studies in Bucharest and she is fluent in English. Andreea assists the clients in the process of VAT registration, VAT compliance and Environmental fund issues as well as other various advisory matters.