7 minute read 21 Dec 2020

The 2021 e-commerce VAT package

By Jan Van Moorsel

EY Belgium Tax Partner

Indirect tax partner

7 minute read 21 Dec 2020

EY & Comeos carried out a survey to assess the impact of the new rules and regulations re. the 2021 e-commerce VAT package.

Executive summary

  • As the survey reflects, many businesses which operate a webshop will be affected by the new e-commerce rules for their cross-border B2C supplies of goods within the EU.
  • The new rules do not necessarily result in a simplification of the VAT implications or in a reduction of the VAT compliance burden.

Reshaping the VAT rules for the Digital World –  the 2021 e-commerce VAT package

A number of factors are spiking the interest in  e-commerce, the Covid-19 pandemic being a crucial  one. While this increased interest should be welcomed,  it is as important to stress the new rules and regulations  surrounding the e-commerce VAT package which will in  principle enter into force on July 1st 2021. Together  with Comeos, the representative of Belgian trade and  services, EY has carried out a survey to assess the  impact of the new rules among its members.

In April 2016, the European Commission launched its Digital Single Market Strategy for Europe (DSM Strategy) as part of the VAT action plan. This included an initiative to modernize VAT for e-commerce, which aimed to simplify VAT obligations for businesses involved in e-commerce while at the same time combating VAT fraud and ensuring fair competition for European businesses. On 5 December 2017, the European legislator therefore adopted the VAT e-commerce package, which entails new e-commerce measures introduced on a step by step basis. The measures will fundamentally change the VAT rules for international trade in order to encourage e-commerce and expand the digital economy. 

A number of measures already entered into force on 1 January 2019 (simplification of the regime for  telecommunications, radio and television broadcasting and electronically supplied services).

A second package of measures will enter into force in July 2021 (until further notice). This includes major changes of the European legislative framework for VAT on B2C e-commerce, covering both distance sales within the EU and distance sales of goods imported into the EU. Despite the intended simplification, these new rules are very comprehensive and detailed. In essence, the changes in question are outlined below.

What is this about?

In first instance, it concerns distance sellers. These are suppliers of goods who sell their products to private individuals (B2C) and certain types of customers. If they supply goods cross borders and arrange the cross-border transport, the applicable VAT rules will change for them. Additionally and under very specific circumstances, the VAT rules also change for local supplies of goods. The main changes can be described as follows:

  1. The thresholds for intra-Community distance sales will be adapted;

  2. A new category will be introduced, namely distance sales of imported goods;

  3. Even indirect involvement of the supplier with the transport of the goods is sufficient to be covered by the distance selling rules;

  4. There will be an abolition of the exemption of import VAT for shipments of low value consignments;

  5. Systems to simplify VAT-reporting will be introduced (the One-Stop-Shop for both intra-Community transactions and imports);

  6. The so-called online platforms or electronic interfaces are in certain cases deemed to have purchased and sold the goods for VAT purposes, although they do not legally obtain ownership of the goods;

  7. In certain cases, the moment when VAT becomes due, and must therefore be declared and paid, is adjusted to the moment when the payment is accepted by the customer;

  8. The invoice obligations will be adjusted; and

  9. Special arrangements will be introduced for postal and courier companies to facilitate the payment  of import VAT when the goods are supplied from outside the EU.

 

Who will be affected by those changes?

Of course, the distance sellers themselves. They will have to take into account that they will need to charge foreign VAT to their customers much quicker than today. A distance seller is not necessarily an entrepreneur who is only active in the B2C sphere. There are many “mixed” players, serving both B2B and B2C customers. All kinds of consumer goods are indeed suitable and intended for both professional and private use. Just think of a supplier of office equipment or coffee machines.

Furthermore, the electronic platforms or interfaces are caught in the VAT net in more cases as is today. Unlike today where, in principle, they should in principle not be concerned with VAT due on sales by external suppliers who sell products via their website or platform, this may be the case under the new rules. But not always: only in a few well defined cases the platforms will be deemed to purchase and sell the goods. Even if they do not fall in scope of this fiction, but offer products from third party suppliers via their website, they will be obliged to keep records of these sales.

The effects of the new rules reach further than the distance sellers or the electronic interfaces. Think of the logistics players (the postal and courier companies) which are responsible for customs clearance of goods ordered by European consumers and coming from a non-EU country such as China.

The providers of IT infrastructure and ERP packages will need to anticipate the future changes as well. More than in the past, it will be necessary for the suppliers or retailers to have an adequate process and IT system that can correctly qualify the customers (B2B or B2C) and store their identification data.

Together with Comeos, the representative of Belgian trade and services, EY has carried out a survey to assess  the impact of the new rules among its members. Read along for the most important results:

  • 30% of the participants act as an electronic interface  and facilitate the sale of goods by external suppliers on their website. They will therefore have to verify whether -from a VAT point of view- they become a seller and buyer for these products, as well as the documentation requirements they are required to comply with;

  • More than 57% of the participants carry out cross-border supplies of goods and most of them supply to private individuals or the special types of customers. It is remarkable that most of the recipients are located in the EU. Few provide supplies to non-EU recipients as well. Moreover, of the EU destinations, the UK appears to be a minority. They will have to verify whether foreign VAT needs to be charged and what will change in 2021. They can examine under the new regulation whether it is easier to cancel foreign VAT numbers and replace them by the OSS system.

  • 62% of respondents who perform cross-border supplies to private individuals are directly or indirectly responsible for the transport to the customer. This means that the 38% of suppliers are not involved in the transport and therefore should not be subject to the VAT rules on distance sales.

  • Nearly 65% of respondents purchase goods in non-EU countries, most of which (89%) are sold to private individuals or special categories of customers. In most cases (75%), the country of import is not the same as the country of final destination. The majority of goods may have any value (more or less than €150). These suppliers will have to verify whether they will be able to use the IOSS system or other VAT simplifications upon custom clearance of the goods.

  • Only 43% is certain that the business has put a customer acceptance process in place, albeit that these companies systematically request the customer’s VAT identification number if the customer is a VAT payer. They also check whether the VAT number is valid. In order to be able to apply the VAT rules correctly, it is important to always verify the identity (name, address, VAT status) and put correct/proportional business processes in place in this respect. After all, B2B sales do not fall under the VAT rules for distance selling.

  • 43% is registered for VAT in several EU Member States. This can be the result of multiple reasons. If the foreign VAT registration is due to the thresholds for distance sales being exceeded, it is recommended to examine whether the compliance burden (the maintenance of multiple VAT numbers) can be reduced by the use of the one-stop shop under the new rules. Only 9% of respondents consider the e-commerce VAT package to result in a reduction in VAT compliance for the business.

Conclusion

Although the survey has been restricted to Comeos members (mainly retailers), the survey already gives an idea about the impact the new e-commerce rules for VAT will have for businesses.

As the survey reflects, many businesses which operate a webshop will be affected by the new e-commerce rules for their cross-border B2C supplies of goods within the EU (irrespective of whether the goods are of EU or non-EU origin). Also, we share the feeling with the majority of the respondents to this survey that the new rules do not necessarily result in a simplification of the VAT implications or in a reduction of the VAT compliance burden. Given the complexity of the new rules and the myriad of different possible scenarios, it will be crucial for each involved business to get familiar with the new rules, to analyze them, to search for possible simplifications and to get prepared in time.

2021 VAT package for e-commerce

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Summary

Deep dive into the new rules and regulations surrounding the e-commerce VAT package which will in principle enter into force on July 1st 2021.

About this article

By Jan Van Moorsel

EY Belgium Tax Partner

Indirect tax partner