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EU VAT and E-Commerce from 1 July 2021 – The new rules explained — Orbitax Expert Corner

Introduction

From 1 July 2021, Member States of the European Union ("EU Member States") must comply with the VAT rules laid down by the VAT Directive1, as amended by the so-called E-Commerce Directives2. The VAT rules are accompanied by binding interpretations laid down by the VAT Implementing Regulation3.

The new e-commerce rules exclusively apply to cross-border4 B2C transactions5 and an important feature of the new arrangements is the broad application of the "one-stop-shop schemes". The one-stop-shop schemes enable EU and non-EU businesses6 that are not registered for VAT in the Member State where the transactions are subject to VAT7, to register online in relation to B2C transactions in one of the EU Member States and comply online in the Member State of registration with the VAT obligations (registration, filing periodic VAT returns, remittance of VAT) in all other Member States. The applicable VAT rates are the VAT rates of the Member States of consumption. The Member State of registration is responsible for distributing the VAT revenues to the Member States where the VAT is due.

Until 30 June 2021, two one-stop-shop schemes apply to cross-border B2C "TBE services"8: the "Union scheme"9, which can be applied by EU businesses who supply TBE services to final consumers resident in other Member States, and the "non-Union scheme"10, which can be applied by non-EU businesses that supply TBE services to EU final consumers. The one-stop-shop schemes are optional: suppliers of cross-border B2C TBE services always have the right to register in each of the 27 Member States in which the VAT in relation to the services is due and comply, in the more than 20 official languages applicable in the EU, with the VAT obligations in each individual Member State.

The one-stop-shop schemes do not apply to B2B transactions; cross-border B2B services are generally subject to the reverse-charge mechanism and cross-border B2B supplies of goods are generally subject to VAT on the basis of the intra-Community acquisition or the importation of the goods in question, which has the effect that compliance with the VAT obligations in relation to B2B transactions is shifted from the supplier to the customer or importer of record.

Main aspects of the VAT rules relating to e-commerce

The main aspects of the VAT rules relating to e-commerce that will come into effect on 1 July 2021 are as follows:

  1. extension of the non-Union one-stop-shop scheme,
  2. extension of the Union one-stop-shop scheme,
  3. introduction of the Import one-stop-shop scheme (IOSS), and
  4. treatment of B2C supplies of goods made through electronic platforms (interfaces).

It should be noted that, from 1 July 2021, the deadline for filing quarterly VAT returns under all one-stop-shop schemes will be extended from 20 days of the end of the reporting quarter to the end of the month following the reporting quarter.  

Extension of the non-Union scheme

Until 30 June 2021, the non-Union (one-shop-stop) scheme is limited to B2C TBE services provided by non-EU service providers. From 1 July 2021, this one-stop-shop scheme is extended to all services supplied by non-EU service providers to EU final consumers if the services are subject to VAT ("deemed to be supplied for VAT purposes") in the final consumer's Member State. Apart from TBE services and depending on the circumstances, the extended non-Union scheme may apply to passenger transport11, removal services12 or to services connected with immovable property, if the property is located in the EU13. From the perspective of US service providers, the practical effects of this extension of the non-Union scheme will be rather limited.

Extension of the Union scheme

Until 30 June 2021, the Union (one-shop-stop) scheme is limited to B2C TBE services provided by EU service providers. From 1 July 2021, this one-stop-shop scheme is extended to include:

  • all services supplied by EU service providers to final consumers resident in another Member State, if the services are subject to VAT ("deemed to be supplied for VAT purposes") in the final consumer's Member State, which is true in almost all cases in relation to TBE services14. Apart from TBE services, the extended Union scheme may apply to passenger transport or removal services or to services connected with immovable property, including the services of architects and real estate agents, if the property is located in another Member State.
  • "intra-Community distance selling". Until 30 June 2021, EU and non-EU businesses must account for VAT in the customer's Member State in relation to supplies of goods made to final consumers resident in another Member State if:
    • the goods are transported by or on behalf of the supplier from one Member State to another, and
    • the supplier has exceeded, in the current or preceding calendar year, the "distance selling threshold" of (EUR 35,000 or EUR 100,000) applicable in the Member State of destination of the goods. Suppliers that have not exceeded the distance selling threshold are allowed to account for VAT on B2C cross-border supplies of goods in the Member State of departure of the goods, unless they opt for taxation in the Member State of destination. From 1 July 2021, the distance selling thresholds are abolished to the effect that, with one minor exception15, all B2C supplies of goods are subject to VAT in the final consumer's Member State if the goods are transported from one Member State to another by or on behalf of the supplier or where the supplier intervenes indirectly in the transport of the goods ("intra-Community distance selling").

It should be noted that also US businesses may be making intra-Community distance sales of goods, even if they do not have a fixed establishment in the EU, for example, where they have a place of storage in the EU and deliver, from that place of storage, goods sold to final consumers in another Member State. In relation to distance selling of goods imported from outside the EU, de Import scheme applies (see 2.3.).

Businesses are not required to apply the one-stop-shop scheme in relation to B2C cross-border supplies of services and intra-Community distance selling. The alternative is that they have to register and fulfil all administrative obligations in the various Member States where the VAT is due (where their customers are resident). The additional advantage of applying the one-stop-shop scheme in relation to intra-Community distance selling is that, from 1 July 2021, the supplier is no longer required to issue a VAT invoice.  

Introduction of the Import scheme (IOSS)

Until 30 June 2021, the importation of goods of "negligible" value (less than EUR 10 or EUR 22) is exempt from customs duties and import VAT, even if the goods were imported in large batches, provided that the value of the individual consignments is "negligible". From 1 July 2021, this exemption is abolished and replaced by a third one-stop-shop scheme (IOSS), which can be applied to "distance selling of imported goods"16 if the intrinsic value of the imported goods, including transport cost and insurance, does not exceed EUR 150. If the supplier opts for accounting of VAT under the IOSS on the supply of the imported goods to EU final consumers (at the VAT rate applicable in the Member State of consumption), the importation of the goods is exempt under a new exemption. Even though "distance selling" has always been associated with goods transported from one Member State to the other, the IOSS also applies if the final consumer is resident in the Member State of importation. The new import exemption is not very logical. It would have been more logical to allow the importer of record to deduct the import VAT under IOSS. However, one of features of all three one-stop-shop schemes is that the schemes can exclusively be used for remitting the VAT due to the tax authorities of the Member State of registration, not for claiming deductible input tax. Under the one-stop-shop schemes, suppliers can only claim deductible input VAT by filing a separate refund application.

For the purposes of the IOSS, non-EU businesses engaged in distance selling of imported goods must appoint a VAT representative who is liable for fulfilling all VAT obligations under the IOSS in the name and on behalf of the supplier. Distance sellers cannot appoint more than one representative, who must report, under the special scheme, all imports in all Member States and all subsequent supplies of goods to final consumers in all Member States. EU suppliers may also appoint a VAT representative. It is quite confusing that this VAT representative is labelled as "intermediary". This "intermediary" has nothing to do with intermediaries acting as "disclosed agents".  

If suppliers engaged in "distance selling of imported goods" do not wish, or are not able, to apply the IOSS, the supply of goods is still taxed in the Member State of residence of the final consumer, unless the goods are imported in the name of the final consumer in the final consumer's Member State. In the latter scenario, the supply of goods is not taxed but the importation of the goods is taxed and the import VAT will not be refunded.

The importer of record must remit the import VAT to the customs authorities in principle at the time the customs authorities release the goods into free circulation in the EU. In this context, a separate concession is applicable to the importation of goods in the framework of distance selling of imported goods outside the IOSS; if the value of the imported goods does not exceed EUR 150, the importer of the goods is allowed (in all Member States) to remit the import VAT to the customs authorities on a monthly basis.

Electronic platforms (interfaces)

The fourth VAT arrangement applicable to e-commerce transactions from 1 July 2021 concerns the fact that many businesses operate websites on which they offer a large variety of goods to final consumers all over the world. In some cases, the operators of the websites supply the goods themselves but, in other cases, they will channel the final customer's order and payment (less a commission) to a third-party supplier. The operator of the website may or may not disclose the identity of the actual supplier.

Even though the VAT Directive has always contained a specific rule relating to goods and services that are being supplied through an "undisclosed agent", a new rule applies in the framework of e-commerce to businesses that "facilitate", through the use of an electronic interface, such as a marketplace, platform, portal or similar means:

  • distance sales of goods imported from outside the EU in consignments of an intrinsic value not exceeding EUR 150, or
  • the supply of goods within the EU by a business not established within the EU to a final consumer.

Under the new rule, the business that "facilitates" the supply is deemed to have received and supplied those goods itself. In other words, if the goods are actually supplied to an EU final consumer by a third-party, the transaction is split up, for VAT purposes, into a supply of goods made by the third-party supplier to the operator of the website ("facilitator") and, subsequently, a second supply of the same goods made by the operator of the website to the final consumer. In order to determine whether or not the transaction qualifies as a distance sale, the transport of the goods to the final consumer is ascribed to the supply made by the facilitator. If the supply of goods to the facilitator is deemed to be made in the EU, that supply is zero-rated.

In this context, the term "facilitates" means the use of an electronic interface to allow a customer and a supplier offering goods for sale through the electronic interface to enter into contact which results in a supply of goods through that electronic interface. However, a business is not facilitating a supply of goods where it:

  • does not set, either directly or indirectly, any of the terms and conditions under which the supply of goods is made, and
  • is not, either directly or indirectly, involved in authorizing the charge to the customer in respect of the payment made; and
  • is not, either directly or indirectly, involved in the ordering or delivery of the goods.

A business also does not "facilitate" a supply of goods if it only processes payments in relation to the supply, lists or advertises goods, or redirects or transfers customers to another electronic interface where goods are offered for sale, without any further intervention in the supply.

It should be noted that the special rule for facilitation is limited to supplies of goods and does not apply to services. However, in relation to electronic services that are supplied through a telecommunications network, an interface or a portal, such as a marketplace for applications, the operator of the interface is presumed to be acting as un "undisclosed agent" unless the identity of the actual service provider is explicitly indicated in the contractual arrangements between the parties, including the related invoices. The same legal presumption applies to telephone services provided through the Internet, including Voice over Internet Protocol (VoIP), where those services are supplied through a telecommunications network, an interface or a portal, such as a marketplace for applications, and are supplied under the same conditions as electronically supplied services. The VAT treatment of services provided through "undisclosed agents" is the same as supplies of goods through facilitators, i.e., the transaction is split up, for VAT purposes, into a service supplied by the third-party service provider to the operator of the interface and, subsequently, a second service supplied by the operator of the interface to the final consumer.

Conclusion

The new EU VAT rules for e-commerce, which will come into effect on 1 July 2021, are aimed at striking a balance between, on the one hand, the creation of a level playing field between businesses operating within and outside the EU and, on the other hand, limitation of the administrative burdens on businesses engaged in cross-border B2C transactions, which will, under the destination principle, be subject to VAT in almost all cases in the final consumer's Member State of residence. It remains to be seen how successful the new arrangements will be in practice.

The new VAT rules that will come into effect on 1 July 2021 are detailed and complex, not in the least because the second E-commerce Directive (Directive 2019/1995) amends a number of provisions of the first E-commerce Directive (Directive 2017/2455), even before the latter Directive became applicable. A consolidated overview of the rules applicable until 31 June 2021 and from 1 July 2021, including the accompanying binding interpretations laid down by the VAT Implementing Regulation, are presented in the Consolidated EU VAT Directive, see International Tax Research and Compliance Expert, VAT, Analysis.

Footnotes

1 Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, OJ L 347 of 11 December 2006. The text of the Consolidated EU VAT Directive, including the provisions that will come into effect on 1 July 2021, is presented on the International Tax Research and Compliance Expert, under VAT, Analysis.

2 Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods, OJ L 348 of 29 December 2017, and Council Directive (EU) 2019/1995 of 21 November 2019 amending Directive 2006/112/EC as regards provisions relating to distance sales of goods and certain domestic supplies of goods, OJ L 310 of 2 December 2019.

3 Council Implementing Regulation (EU) No. 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax, OJ L 77 of 23 March 2011. The text of the VAT Implementing Regulation, including the provisions that will come into effect on 1 July 2021, is included in the Consolidated EU VAT Directive, on the International Tax Research and Compliance Expert, under VAT, Analysis.

4 In the framework of supplies of goods "cross-border" means that goods physically move from a place outside the EU to an EU Member State or from one Member State to another. In the framework of services, "cross-border" means that the service provider is established outside the EU, whereas the recipient is resident in the EU or that the service provider and recipient are established/resident in different Member States.

5 :"B2C transactions"] are supplies of goods or services made by businesses (or "taxable persons" within the meaning of Article 9 of the VAT Directive) to recipients who do not qualify as "taxable persons" (i.e., organizations not engaged in economic activities and private individuals or final consumers).

6 "EU businesses" are businesses that are established in the EU or, if they are established outside the EU, have a fixed establishment in the EU. For VAT purposes, a "fixed establishment" is defined as any establishment, other than the place of establishment of a business, characterised by a sufficient degree of permanence and a suitable structure in terms of human and technical resources to enable it to provide the services which it supplies. A "fixed establishment" is similar, but not identical, to a "permanent establishment". "Non-EU businesses" are businesses that are not established in the EU and do not have a fixed establishment there.

7 The Member State where B2C services are subject to VAT (where the services are deemed to be supplied for VAT purposes) is determined on the basis of the place-of-supply rules, see Articles 46 to 50 and 55 to 59c of the VAT Directive.  

8 "TBE services" are Telecommunications services, radio and television Broadcasting services and Electronically supplied services (or "electronic services"), see Annex II to the VAT Directive.

9 The term "Union scheme" is not defined or used in the VAT Directive. Under Article 57a of the VAT Implementing Regulation, the term is defined, from 1 July 2021, as the "Special scheme for intra-Community distance sales of goods, for supplies of goods within a Member State made by electronic interfaces facilitating those supplies and for services supplied by taxable persons established within the Community but not in the Member State of consumption as set out in Section 3 of Chapter 6 of Title XII of the VAT Directive". It should be noted that, from 1 July 2021, the term "Union scheme" is no longer limited to suppliers established in the EU. Supplies of goods made by "facilitators" or by "intra-Community distance sellers" are also subject to the special one-stop-shop scheme if the "facilitator" or "distance seller" is established outside the EU.

10 The term "non-Union scheme" is not defined or used in the VAT Directive. Under Article 57a of the VAT Implementing Regulation, the term is defined, from 1 July 2021, as the "Special scheme for services supplied by taxable persons not established within the Community as set out in Section 2 of Chapter 6 of Title XII of the VAT Directive".

11 Under Article 48 of the VAT Directive, services consisting of passenger transport are deemed to be supplied at the place where transport takes place, proportionate to distances covered.

12 Under Article 50 of the VAT Directive, B2C intra-Community transport of goods is deemed to be supplied at the place of departure.  

13 Under Article 47 of the VAT Directive, services connected with immovable property, including the services of architects and real estate agents, are deemed to be supplied at the place where the property is located.

14 From 1 July 2021, TBE services provided by service providers established in only one Member State of the EU are not subject to VAT in the final consumers' Member States if the total value derived by the service provider from B2C cross-border TBE services and intra-Community distance sales does not exceed EUR 10,000 in the current calendar year and did not exceed EUR 10,000 in the preceding calendar year. From 1 January 2019, the threshold of EUR 10,000 already applies to B2C cross-border TBE services.

15 From 1 July 2021, intra-Community distance selling is not subject to VAT in the final consumers' Member State if the total value derived from intra-Community distance selling and B2C cross-border TBE services does not exceed EUR 10,000 in the current calendar year and did not exceed EUR 10,000 in the preceding calendar year. This exception only applies to suppliers that are established in only one Member State.

16 The term "distance selling of imported goods" is not a legal term. The official term is "distance sales of goods imported from third territories or third countries".