VAT Compliance as Challenge for Chinese Ecommerce Sellers

VAT Compliance as Challenge for Chinese
Ecommerce Sellers
Dr. Jörg Brettschneider
Rechtsanwalt
desk@ecomvat.com
2019 5 13
Shenzhen, May 13th 2019

“ “
German Attorney-at-Law for German Chinese Business, especially
Ecommerce.
Consulting and representing leading companies.
My Books about VAT in ecommerce:
For further information:
www.ecomvat.com

Overview
A.
Legal Situation (with the new German Law)
B.
Policies of Platform Operators
C.
Cases Studies
D.
Risks for Ecommerce Logistic Companies
E.
Customer Expectations concerning VAT
F.
A Look Beyond VAT
G.
Conclusion

Seller
Customer
Direct Sending
Customer 1
Customer 2
Customer 3
Direct Sending
Direct Sending
Legal Situation: Direct Sendings
DECN

- 22 22
potentially import-VAT, low consignment rule 22 EUR
- 150 150
potentially customs, low consignment rule 150 EUR
- -DDP
potentially “normal” VAT, if “Delivery Duty Paid - DDP”or the delivery
runs not within the Universal Postal Convention via Deutsche Post AG.
( 3 Abs. 8 UStG ).

•
, ,
In case of delivery within the Universal Postal
Convention via Deutsche Post AG the customer is customs
declarant, if not DDP. In case of DDP the seller is customs
declarant.
•
The customs declarant needs to be based within the EU
in general.
•
If the seller is customs declarant and he has to do a
customs declaration, it is inconvient and sevice providers are
expensive.

Seller Customer
1
Fufillment-Center
1
2
Customer
2
2
Customer
3
2
VAT
Import-VAT
Customs
Legal Situation: Fulfillment
CN DE DE

- 19%
import-VAT 19 % of the customs value
-
potentially customs depending on the good
- 19%
German VAT 19 %when selling goods.
-
import-VAT can be deducted as input tax in general
Legal Situation: Fulfillment

Overseas sellers need choose a customs declarant based in the EU.
(under product safety law they need EU-based importer too).
Just using an address in EU is not sufficient. That may lead to
problems of deducting import VAT later
The customs declarant is liable for customs and import VAT. It has to
be avoided that the customs values are declared too low.
Legal Situation

Deadline for monthly declarations very short.
Some sellers expected that we hand in declarations
based on estimations. That is not possible.
We face the problem of unfair competition of sellers who
declare too low German VAT in their declarations.
Legal Situation

Arrest warrants were issued against directors
of sellers because of VAT evasion and because of
evasion of import VAT and customs. Chinese
sellers were sentenced to prison in Germany.
Self denunciations and repayments of big
sums are rare. Crucial is blocking of inventory and
freezing funds.

Seller Fufillment-
Center
Fufillment-
Center
Customer
Customer
Customer
Legal Situation
2
1

35000 100000
Delivery thresholds from the viewpoint of the destination country
(35.000 EUR to 100.000).
Intra community transfers: changing of Warehouses location EU x-
border.
Legal Situation
1
2

Risk:
Most seller do not declare intra community transfers
and tax advisors do not assist sellers to do so.
A lot of sellers cannot declare as they do not have
the VAT No. of other member states from where the goods
are send.
Legal Situation

Although the VAT can be deducted as input
tax not declaring intra community transfers can be
considered as VAT evasion.
There is the risk that the tax authority for
investigation Berlin looks at the evaluations and
asks platform operators to suspend accounts
without considering the VAT transaction reports.
(a case later).

Legal Situation: New German Law
New German Law to Combat VAT Evasion in Ecommerce: Boad liability rule in
Section 25e I UStG:
Section 25e ||
But the liability of the platform operator is excluded according
Section 25e II, if the platform operator can provide a certificate
according to Section 22f I sentence 1f., unless the platform operator had
knowledge about tax evasion of a delivering business or should have
learnt of it.
“The operator of an electronic marketplace is liable for taxes from deliveries of a
company that are based on its platform”.

If the seller do not comply with the tax obligations in
substantial manner, the tax authority is allowed to inform the
platform operator, if other measures are not promising.
After receiving this notice, the platform operator is liable
for the evaded tax of transactions that were completed after
receiving the notice.

This liability is excluded, if the platform operator suspends
the delivering business from offering goods on the platform.
Therefore, operators of electronic marketplaces will
shutdown the respective sellers’ accounts immediately when
they get these information from tax authority.

->
-> Serious consequences for sellers
Legal remedy? No explicit legal remedy in the law.
Is the Informing the platform operator is an admistrative act (?)
The seller has the right for objection, law suit, interim relief.

Relevant changes:
Delivery Threshold : In the case of not exceeding the delivery
threshold, platform operators do not have the obligation to store the
certificate according to Section 22f UStG. In this case storing of the VAT
No. is enough. If there is no VAT No., it can be proved in other way that
there is no VAT obligation, for example a written confirmation of the
respective seller.

It is unclear how platform operators like
Amazon will deal with that rule. This leads to
legal uncertainty for the ecommerce sellers.

Relevant changes:
Direct sendings: In the case of direct sendings with no
VAT obligation in Germany, platform do not need to store the
certificate according to Section 22f UStG. The platform
operators should store another prove that the seller does
direct sending business and has no VAT obligations in
Germany.

Transition period was extended.

It is unclear how platform operators like Amazon will
deal with that rule. This leads to legal uncertainty for
the ecommerce sellers. Amazon‘s lawyer writes in an
article that it is more practical for platform operators to
demand a certificate.

2017
Until end of 2017: Amazon stated the sole responsibilty of Sellers
concerning VAT again and gain.
Amazon‘s standard terms says that the sellers have the sole
responsibility for VAT.
Change of Amazon‘s policy: Amazon feared criminal liability of
responsible persons, escpecially for aiding tax evasion by the sellers.
(
Information requests and notifications of Amazon by tax authority:
Here is an example:
Policy of Platform Operators

•
“1. The owner/shareholder of the company with the date of birth, address, telephone
and fax of the company
• 2. Information, if the company or responsible persons of the company are active under
other accounts (worldwide)
• 3. Does the seller have a seller-account (or more) at the Amazon Payments Europe
S.C.A.? In this case information about the customer number, the provided bank account
and information about addresses.
• 4. Information about further bank accounts and credit card numbers, if available.
• 5. Did the seller use Amazon FBA before since registration as seller?
• 6. List of all sales separated by account names since registration. The following
information should be included: date of sales, description of article, sales price, turnover
per year per shop, if the customers’ address is in Germany. If Fulfillment by Amazon (FBA)
is used, information about the location of the warehouse is requested. Information about
Amazon’s payments to the seller is requested too.
• 7. In which warehouse are the goods of the sellers stored at the moment”.

• “On the basis of this request for information your client [Amazon] gets knowledge about the tax evasion
of the attached companies.
•
• [...]
•
• The tax authority expects that your client [Amazon] blocks the respective sellers immediately and will not
allow them to sell in the future. In our opinion, the blocking follows from your client’s standard terms
already.
•
• Aiding and abetting of tax evasion
•
• The offering of the marketplace platform for sellers, which are known as tax evaders or are recognizable
as tax evaders (for example due to a missing tax number/missing VAT-ID-No. and trade from Germany or
other EU member states to Germany) can the punishable as aiding and abetting according to § 27 StGB
[German criminal code]. The provision of the platform enables the respective sellers to evade taxes.
•
• Aiding and abetting after crime [Begünstigung] (§ 257 StGB) [German criminal code]
•
• If payments would be made from Amazon or Amazon Payments Europe S.C.A. to the [...] [Seller] after
knowledge about the tax evasion a criminal liability according to § 257 StGB [German criminal code] is
possible.
• [...].”

Immediate suspension of Amazon-
accounts, freezing of funds and
blocking of goods.

Problem: Sellers face two sovereigns: The Federal Republic of
Germany and the platform operators.
Platform operators enforce VAT law for authorities.
But: How do the platform operators do?
-> The enforcement becomes stricter because the indirect enforcement
of VAT law and there is legal uncertainty about the platorm operators’
policies.

We will discuss 3 Cases
What can we learn?
Findings
Case Studies

Case 1:
A little repayment from Shenzhen
# Account Suspension, Repayment

2017:
Beginn of selling activities in Germany via Amazon.
2018:
Suspension of the Amazon-Account on behalf of the tax authority for taxes and
investigation, Berlin.
1st month: Neukölln
Application for tax number at tax authority Neukölln. and VAT No.
2nd month:
Neukölln
VAT-declarations for the past, repayment, we handed in the payment
confirmation to tax authority Neukölln, question concerning interests as we didnt
not want to make mistake here.
Neukölln
-> Nothing happened: The tax authority for taxes and investigation, Berlin, was not
informed about the payment by tax authority Neukölln.
Suspendierungsnachricht

3rd month:
Tax Number, VAT. No.
Repeated requests to the authority to suggest Amazon to activate
the account.
4th month:
The transferred money was undetectable.
Neukölln
The tax authority for taxes and investigation, Berlin, was not able to
contact tax authority Neukölln for searching the payment.
Proposal of the tax authority for taxes, Berlin, and investigation to
pay the sum again!

4th. Month:
We paid the sum again for the client to achieve an
account recovery quickly.
proposal to lift the suspension to Amazon by the tax
authority for taxes and investigation Berlin.

1) Neukölln Neukölln
The tax authority Neukölln has problems to assign book the payments. The tax
authority for taxes and investigation, Berlin, needs to ask the tax authority Neukölln
concerning payments.
2) Neukölln
The communication between the tax authority for taxes and investigation, Berlin, and
the tax authority Neukölln is distorted. The cooperation between the authorities has to
be questioned.
3) Neukölln
It is not easy to reach the tax authority Neukölln and sellers are waiting for
responses of letters and emails very long.
4) 2018 5
Time for tax registration was big problem. The tax authority said at the beginnimg of
2018 that it takes up to 5 months.

Problems to assign the payments were admitted:

From the Perspective of Chinese Sellers:
Discrimination!

Case 2:
Black Friday
Neukölln
# Unjustified Account-Suspension, Garnishment of tax authority
Neukölln

11 20 2018 Neukölln
November 20th. 2018: Account-Suspension. The tax authority
Neukölln stated that the VAT declared and paid was too low:
„Hello,
We received a notice from the German tax office with regard to VAT debts concerning your Marketplace sales in Germany. In order to secure
the tax liability, the tax office issued garnishment orders against all of Amazon’s German Fulfillment Centers where your FBA inventory is
stored, meaning all of your FBA items are seized and may not be sold or returned until your debts are fully paid.
You may also no longer use our FBA service to ship items into the DE. To comply with inventory requirements imposed by German tax
authorities, we have changed your Seller Central settings to prevent inventory being stored in German Fulfillment Centers. Please do not
change your inventory storage settings for Germany. Doing so, may block your ability to inbound shipments into EU Fulfilment Centers.
We are currently informed about open debts in the amount of EUR 48.994,92. Attached is the garnishment order which states the amount
in question and includes payment details of the tax office at the bottom of the document (name of bank, IBAN, BIC).
Please contact tax authorities (phone 0049- (….) or email poststelle@fa-neukoelln.verwalt-berlin.de) to resolve your VAT status. Your Case
Reference number is D-16 (…) and you should quote this reference number in all correspondence with tax authorities. Once tax authorities
informs us that their notice has been withdrawn, your account setting will be brought back to normal.
Sincerely,
Amazon Services Europe“

48.994,92
„We are currently informed about open debts in
the amount of EUR 48.994,92“.

Garnishment and confiscation order of tax authority
Neukölln:
Muster

11 20
November 20th. Submitting of all payment records to
tax authority for taxes and investigation.
Neukölln
Information of the authority that there happed booking
mistakes by tax authority Neukölln in the past.
2018 11 21
November 21nd 2018: „ Proposal“ to lift the account
suspension to Amazon

Responsibility to lift the account suspension is transferred to the
platform operator. The seller is left alone by authority.
„Amazon checks the lift of the suspension then. That happens very
quickly mostly.“
Information of the authority for taxes and investigation, Berlin:

FBA
Neukölln.
The FBA investory was blocked longer. The authority for taxes
and investigations did not help the seller. The seller was asked to
contact the tax authority Neukölln.

1)
authority
The tax authorities do not take responsibility to lift account
suspensions. The issue a „proposal“ to the platform operator only. In
this case there was even a garnishment and confiscation order by
the tax authority Neukölln. The seller loses time with the conseqence
of financial losses.
2) Neukölln
The communication between the authority for taxes and
investigation and the tax authority Neukölln is problematic. The
intended and stated cooperation does not work.
3) Neukölln
The tax authority Neukölln has problems with the bookings of
payments.

Case 3:
Customer-Evaluations matter
# Unjustified Account-Suspension on basis of evaluations

„We estimated your turnovers on basis of your customer-evaluations and the
selling prices. The estimation exceeds the declared turnovers significantly“
2018 12
Account was suspended end of December 2018.
Authority for taxes and investigation, Berlin:

Estimation of VAT on basis of the customer-evaluations:
MUSTER aus einem anderen Fall
Bewertungsquote von 4 %

„ich habe die Sales Summary Reports ausgewertet, dabei habe ich Umsätze, die Sie
aus Eigenversand erzielt haben, herausgerechnet.
Es ergeben sich für den kompletten Zeitraum bis Oktober 2018 Netto-Umsätze in
Höhe von 422.350,50 Euro. Darauf entfallen Umsatzsteuern in Höhe von 80.246,60
Euro. Erklärt wurden Umsatzsteuern bis Oktober 2108 in Höhe von 37.448,49 Euro.
Somit ist eine Differenz in Höhe von 42.798,11 Euro offen. Bitte übermitteln Sie mir
den Zahlungsbeleg, sobald Sie die Zahlung angewiesen haben, damit die Gutschrift
auf dem Steuerkonto überprüft werden kann. Sobald die Summe eingegangen ist,
wird die Anregung der Wiederfreigabe erstellt.
•
Sie begehren die Wiederfreigabe vor Beendigung des Strafverfahrens und bevor die
Amazon-Umsatzdaten vorliegen.
Im Strafverfahren werden nur die Umsatzübersichten aus dem Seller-Central, also
die Sales Summary Reports als unveränderliche Daten akzeptiert.
Wenn die Umsatzdaten später von Amazon direkt vorliegen, werden diese hier
entsprechend ausgewertet und es werden auch Lieferschwellen und Lieferorte
geprüft.
Sollte es sich dann gegebenenfalls eine niedrigere Umsatzsteuer ergeben, kann die
dann eventuell überzahlte Umsatzsteuer erstattet oder mit kommenden
Umsatzsteuerforderungen verrechnet werden. Die Entscheidung obliegt dann dem
Finanzamt Berlin-Neukölln“.

„In the crimal procedure the data overviews in Seller-Central, this means the
Sales Summary Reports, are accepted as unchangeable data.
Amazon
When the transaction data are provided by Amazon the transaction data are
checked and delivery thresholds and delivery destinations are checked.“
„In the crimal procedure the data overviews in Seller-Central, this means the
Sales Summary Reports, are accepted as unchangeable data.
Amazon
When the transaction data are provided by Amazon the transaction data are
checked and delivery thresholds and delivery destinations are checked.“
In the crimal procedure the data overviews in Seller-Central,
this means the Sales Summary Reports, are accepted as
unchangeable data.
Amazon
When the transaction data are provided by Amazon the
transaction data are checked and delivery thresholds and delivery
destinations are checked.“

Beispiel Bericht aus Seller Central:
Muster

Criminal tax proceedings have been initiated against the director.
We informed tax authority about legal claims for compensation.
-
Waiting that Amazon provides the transaction data to the authority.
Payment of the sum claimed by authority to open account.
Fear that Amazon disposes inventory.
Waiting for the „proposal“ to lift the account suspension to Amazon.

1)
To deliver from other EU member states within delivery thresholds
and direct sendings can lead to account suspensions, even the seller
complies to VAT law.
2)
The use of Fulfillment by Amazon can be risky as investory can be
blocked.
3)
The fact that the authority „proposes“ to lift account suspensions
leads to a longer time to recover accounts.
4)
The tax authorities investigate against the directors. The background
of companies is not known in general.

5)
It is not a way to declare too low VAT in the declarations as the
amount may be checked later.
6)
Customer evaluations can have negative effects.
7)
To have only one account is risky therefore.

Import service providers are liable for the declaration of too low
customs values if they act as indirect representatives or import the
goods on their own.
Logistic companies and fulfillment service providers must be aware
of possible criminal liability of responsible persons by facilitating tax
evasion by sellers (Aiding and abetting).
Logistic companies and fulfillment service providers have to suspend
sellers, if they get information that they evade German VAT.
Risks for Ecommerce Logistic Companies

Issuing Invoices
European customers expect an invoice according to European standards.
The invoices have to be with VAT, if there is a VAT obligation, and all
necessary information.
Some business customers want to deduct VAT as input tax and lose money
when there is no invoice.
A missing invoice may lead to the conclusion that the respective seller does
not pay VAT.

https://www.gruenderszene.de/business/steuern-nein-danke-oneplus-vermeidet-umsatzsteuer-in-deutschland

WEEE
Customers find further information on the invoice like WEEE number
in case of electronic products.
An invoice helps to make clearer, who the seller is and the customer
can find contact details.
Sellers should make sure they can deduct the VAT.
In case of direct sendings customers do not want to be the customs
declarant.

Legal Compliance is an important question in general. The recent
VAT enforcement in UK and Germany was just the beginning.
Its recommended to solve all the compliance questions, so that
you are well prepared for the future and you can focus on your
business activity.
Especially when selling on platforms, the selling of products can
be suspended easily and other sanctions may follow.
A Look Beyond VAT

Demonstrate western customers that you are professional and
reliable seller. Legal compliance can help to make a better impression
on the customers too as far the compliance is visible (for especially
when providing legal information or invoice ).
Create a successful business with innovative products.
Let‘s make “Made in China” to a brand the customers can rely on
and the customers love.
A Look Beyond VAT

VAT evasion does not make sense. Authorities will intensify the
controls.
Focus on your business, products and brand. On this way, you will earn
more in the longer run.
Sellers face two sovereigns: The Federal Republic of Germany and the
platform operators, which makes legal protection more difficult.
The VAT Certificate is not required in case of direct sendimgs without
VAT obligation or deliveries within the respective delivery threshold.
Conclusion

Unjustified account suspensions happen.
Customer Evaluations may lead to account suspensions
in cases of direct sendings and delivering within delivery
thresholds from other EU member states. The authority
does not consider the warehouse location in this context.
Follow a multi-channel strategy. Do not rely on Amazon
only. There are other platforms too.
Conclusion

Dr. Jörg Brettschneider
Rechtsanwalt
2019 5 13
Shenzhen, May 13th 2019
Eeamg
Logo

VAT Compliance as Challenge for Chinese Ecommerce Sellers

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