Changes in the EU VAT System Affecting eCommerce

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Changes in the EU VAT system
Affecting eCommerce
Jayant Rakhan, Partner & Global Leader Indirect Tax
Baker Tilly Berk

Agenda
 VAT System in general
 Shipping goods into Europe
 Global supply chains and indirect taxes
 E-commerce sales
 VAT Action Plan

VAT system in general
VAT-GST
in more
than 160
countries
important
source of
revenue
for
countries
Changes
in indirect
taxes
influence
entire
business
Advanced
technolog
y at Tax
authoritie
s
Every
business
needs to
be fully
compliant

VAT is a multi stage tax on consumption
Manufacturer Wholesaler Retailer Consumer
TAX AUTHORITIES
Invoice 80 + 20 VAT Invoice 100 + 25 VAT Invoice 120 plus 30 VAT
Pay 80 + 20 VAT Pay 120 + 30 VATPay 100 + 25 VAT
Pay 20 VAT Pay 30 VATPay 25 VAT
Reclaim 20 VAT Reclaim 25 VAT

 VAT taxes goods and services
 Supply of goods: the transfer of the right to dispose of tangible property
as owner
 Supply of services: any transaction which does not constitute a supply of
goods

 ‘Supply of services shall mean any transaction which does not constitute
a supply of goods’
 Where subject to VAT?
 Main rule B2B: country of customer
 Main rule B2C: country of service provider
 Exceptions (non-restrictive), for example:
 Admission to events
 B2C e-services
Services

E-commerce Sales
A business case:
 US company sold apps to consumers living in EU countries
 No VAT paid in any EU country by US company
 Tax authorities discovered the VAT leak
 VAT due plus penalties and interest!
Business case

VAT
VAT
VAT
B2C E-services
VAT
VAT
VAT
Old system: New MOSS system since 2015:

 Supply of goods:
 The transfer of the right to dispose of a tangible property as owner
 When taxable event:
 Transfer of ownership
 Where subject to VAT: always follow the flow of the goods!
 Goods transported : VAT due in country where transport starts
(see exceptions)
 Goods not transported : location moment of supply
 Exceptions : for example distance sales B2C, ICA, import
Goods

 VAT compliance obligations for the seller of the goods
 Goods sold in EU or from EU: VAT compliance obligations!
 No legal entity required, also required for foreign businesses
 Types of VAT compliance obligations:
 Periodic VAT returns
 EU sales and purchasing reports
 Intrastat returns
 Annual VAT returns
VAT compliance obligations!

 Sell to business customers directly
 Sell to private customers directly
 Use a fulfilment centre in the EU
 Use fulfilment by online e-commerce marketplace
Possible business models:

Shipping goods into Europe
 Goods transported from non-EU country (US) to EU country (NL)
 Companies pay import VAT (and import duties) on the moment of import of goods
into EU!
 When taxable event for VAT:
 moment of import
 Import VAT special regulations
 Import VAT exemption for small consignments (max. EUR 22)
Import of goods

 No actual VAT payment, instead: administrative control through VAT return!
 Business not established in the Netherlands: license through fiscal representative
 Cash flow advantage
 Fiscal representative takes care VAT Compliance obligations
Other countries:
Import VAT deferment in the Netherlands

Import VAT
Fiscal rep
VAT compliance
Duties classification
Fulfillment
Clearance costs
Single Set of Rules
but, 28 sets of
interpretation
Who is the importer
of record?
Shipping goods into the EU – What you need to think about

B2B supply of goods, goods stay within one EU country
 Country of departure: local VAT is due in principle
 Exception: reverse charge mechanism could be applicable for non-NL suppliers
B2B supply of goods, goods from one EU country to another EU country
 Country of departure: intra-Community supply
 Country of arrival: intra-Community acquisition
Global Supply Chain & Indirect Taxes
B2B supplies of goods

B2B supply of goods, goods from one EU country to non-EU country:
 Country of departure: export in EU country
 Country of arrival: import in non-EU country
Global Supply Chain & Indirect Taxes
B2B supplies of goods

B2C supply of goods, goods from one EU country to another EU country:
 Sales are subject to VAT in suppliers’ country until threshold is exceeded:
 If threshold is exceeded, sales are subject to VAT in consumers’ country:
E-commerce sales
VAT
VAT
Distance selling regulation

E-commerce sales
Once threshold exceeded in an EU country, some challenges:
 local VAT registration required
 local VAT compliance obligations
 application correct local VAT rate
 local requirements applicable on invoices
Also applies when selling through a market place like Amazon!
Market place not responsible for collecting and paying VAT on behalf of seller.
VAT
VAT
VAT

E-commerce Sales
A business case:
 Company established in New Zealand
 Selling sailing clothes to consumers living in 20 EU countries
 Stock comes by sea transport from China to third party warehouse in the Netherlands
 Once product sold, packed and transported to consumer within 24 - 48 hours
VAT obligations in EU:
VAT registrations and compliance obligations in 20 EU countries
Business case

E-commerce sales
 Make sure that systems are in place to capture accurate sales info
including which countries the customers are in;
 Make sure to include the shipping/delivery costs as these are included in
the final sums when calculating if a threshold has been exceeded;
 Keep up-to-date with the VAT registration thresholds and if relevant,
monitor currency fluctuations;
 Know which VAT rates apply to the sold goods;
 A VAT registration can take approximately 1 week to several months;
 Make sure that invoices comply with local regulations.

VAT Action Plan
“Our activities will go under
the radar, the tax authorities
will not find us”
“We only sell to private individuals in EU countries and
we are established in another part of the world, we do
not have anything to do with VAT in Europe.”
 Failure to register could result in
significant penalties and interest on
late payments!
 Specialists within tax authorities are
actively pursuing e-tailors and
approaching Amazon, etc. for seller
sales data

VAT Action Plan
 VAT revenue collection has failed to show significant improvement across
EU Member States
 Difference between expected VAT revenue and the collected VAT over
EUR 150 billion
 Due to fraud, evasion and tax avoidance
Why?

VAT Action Plan
 Remove, harmonize and simplify VAT related obstacles to E-commerce
 Purpose:
 Modernize the VAT system for cross-border E-commerce & reduce administrative
burden arising from different VAT regimes
 Action to support E-commerce by for example:
 Remove the import VAT exemption for small shipments of goods
 Extending the One Stop Shop for all cross-border E-commerce
European Commission published VAT Action Plan on December 1, 2016

VAT Action Plan
 Simplify VAT rules for start-ups, micro-businesses and SMEs for B2C
transactions to other EU countries:
 Threshold of EUR 10,000 re. cross-border sales: rules of home country of the
smallest businesses applicable.
 SMEs will benefit from simpler procedures for cross-border sales of up to EUR
100,000 annually.
 These measures will enter into force by 1 January 2019.
 Mini One Stop Shop for electronic services (MOSS), will be extended for
online supplies of goods and to all cross-border services to end
consumers. Proposed date of entry 2021.
European Commission welcomes agreement on new rules on December 5, 2017:

VAT Action Plan
 Large online marketplaces will become responsible for ensuring that VAT is
collected on sales on their platforms that are made by non-EU companies
to EU consumers. This includes sales of goods that are already being
stored by non-EU companies in warehouses (so-called 'fulfilment centers')
within the EU which can often be used to sell goods VAT free to consumers
in the EU. Proposed date of entry 2021.
 The removal of the exemption for VAT on imports of small consignments
(max. EUR 22). Proposed date of entry 2021.

 Obtain advice re supply chain from VAT/customs perspective, VAT compliance
obligations, etc.
 Structure / optimize business model
 Structure / optimize administrative processes
 Put in place operating procedures that will enable maximization of refunds, cash flow
advantages and avoidance of penalties and interest
Before the start of doing business in the EU:

 International VAT and customs structuring
 Coordination of multiple-country project (within Baker Tilly International)
 EU VAT compliance
 Advice and structuring E-commerce goods (webshops)
 Fiscal representation
 EU VAT trainings, VAT scans & webinars
What do we for our clients

Thank you
Jayant Rakhan
Partner & Global Leader Indirect Tax
T. : +31 6 12 02 41 49
E. : j.rakhan@bakertillyberk.nl
For news updates on the new VAT system in the EU, go to:
https://www.bakertillyberk.com/vat-e-commerce/

Changes in the EU VAT System Affecting eCommerce

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