e-Commerce: today’s indirect tax challenges
Key indirect tax issues — challenges for businesses supplying goods digitally
The term “digital” is predominantly associated with the supply of services electronically and the consequent indirect tax challenges that arise. But businesses in manufacturing, wholesale and, of course, retail must be able to reach distant markets in the pursuit of an omni-channel presence.
This relentless quest for distant markets and the supply chain connections required in an omni-channel environment often cause businesses to miss indirect tax consequences and compliance obligations. The penalties are costly and diverting.
Indeed, Donato Raponi, head of the value-added tax (VAT) unit at the European Commission’s Taxation and Customs Union Directorate-General, declared that “VAT has been identified as one of the top-3 barriers to cross-border e-commerce.” Companies have to spend around €8,000 annually per Member State to register and account for VAT. The current system is seen as complex and costly, with increased compliance risks and legal uncertainty for online merchants.
Is there an alternative?
No wonder then that businesses have considered ways to mitigate the cost of multi-territory VAT compliance under the distance-selling regulations.
On 20 October 2015, the VAT Committee of the European Commission published an updated set of guidelines in response to specific questions raised by the UK and Belgium about the application and operation of Articles 32, 33 and 34 of the Principal VAT Directive.
The questions concerned arrangements implemented to obviate the requirement to register for VAT under the distance-selling regulations via an interpretation of the term “goods dispatched or transported by or on behalf of the supplier” under Article 33. In summary, the structure sought to separate the supply from the transport of business-to-consumer (B2C) sales of goods to customers in distant Member States so that the requirement to register for VAT in the customer’s country would not arise.
The UK noted in its submission that “whilst these arrangements offer customers the options of collecting the goods in person or arranging delivery themselves, customers invariably request delivery by another legal entity ‘supposedly under a separate contract.’ Often, this transport company is associated with the supplier. The UK considers that, ultimately, the customer is ordering goods from the supplier and wants those goods delivered to him. The arrangements put in place between the supplier and the transport company are merely an alternative way in which the supplier has his goods delivered to the customer. The introduction of the transport company for the purposes of delivering the goods does not prevent those goods from being ‘dispatched or transported by or on behalf of the supplier.’ Consequently, the UK considers that VAT is due in the Member State of delivery.”
The VAT Committee has essentially agreed with the UK and Belgian view. Specifically, it has agreed that, for the purposes of Article 33, goods shall be considered to have been “dispatched or transported by or on behalf of the supplier” anytime the supplier “intervenes directly or indirectly in the transport or dispatch of the goods.” The supplier shall be regarded as having intervened indirectly in the transport or dispatch of goods when one of these conditions applies:
- The supplier subcontracts the transport or dispatch of the goods to a third party that delivers them to the customer.
- A third party dispatches or transports the goods, but the supplier bears the responsibility — totally or partially — for delivering the goods to the customer.
- The supplier invoices and collects the transport fees from the customer and further remits them to a third party that arranges the dispatch or transport of the goods.
In other cases of intervention — particularly when the supplier actively promotes the delivery services of a third party to the customer, puts the customer and the third party in contact, and gives the third party the information needed to deliver the goods — the supplier shall likewise be regarded as having intervened indirectly in the transport or dispatch of the goods.
These guidelines are the views of an advisory committee and do not constitute an official interpretation of EU law and do not necessarily have the agreement of the Commission. Nevertheless, they are very persuasive and clearly reflect the views expressed by tax authorities in most Member States.
In this climate of tax transparency and accountability and the potential for reputational risk, it is perhaps a brave online seller that would ignore such a warning shot.
On 7 April the European Commission adopted its Action Plan on VAT, setting out, among other measures, proposed actions to adapt the VAT system to the digital economy. It also provides clear orientation towards a single European VAT area in relation to the VAT system for cross-border supplies.
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