Any business selling goods to consumers in the European Union (EU) will need to understand and implement major new VAT rules from 1 July 2021. Karen Robb explains how the changes may impact your business.
Given the current situation with COVID-19, it is possible that the implementation date for the new VAT rules might be postponed, but, at the time of writing, there has been no hint of that. It is therefore necessary to prepare for them coming into force in July 2021.
The rationale for the changes is to overcome the barriers to cross-border online sales and, in particular, to address challenges that arise from the VAT regimes for:
distance sales of goods
the importation of low value consignments
Under the present rules, businesses selling goods to consumers in other EU member states need to register for VAT in that state when turnover exceeds a particular threshold. This imposes significant administrative burdens on businesses and impedes the growth of online trade. Similarly, the existence of an exemption for low value imports has led to abusive practices which impact member states’ tax revenues. Finally, under the existing EU VAT rules, suppliers not established in the bloc can supply goods to consumers in it on a VAT free basis provided that the goods are below the low value import VAT threshold (EUR 22). Under the existing rules suppliers outside of the EU have a clear competitive advantage over suppliers of the same goods within it.
New EU VAT Rules
To combat these issues, the EU has legislated for some important VAT changes. These include:
The extension of the Mini One Stop Shop (MOSS) to other B2C services and intra-community B2C distance sales of goods
Abolition of the existing distance selling thresholds (to be replaced by a new EU-wide EUR 10,000 threshold)
Special provisions for businesses operating online marketplace platforms. Such operators will be referred to as ‘deemed’ suppliers and will be assumed to have both received and made the supplies that they are selling
Removal of the VAT exemption for low value consignments and a new special scheme for distance sales of goods imported from third territories and third countries where the goods are valued at EUR 150 or less (known as the Import One Stop Shop “IOSS”)
New measures for dealing with the distance sales of imported goods in other circumstances (where the IOSS is not used) and new record keeping requirements for online marketplaces.
What transactions will be covered by the new EU VAT rules?
The new rules will impact on the distance sale of goods that are imported into the EU either from third territories or from third countries by suppliers and/or ‘deemed’ suppliers. Third countries now includes Great Britain: ie, England, Wales and Scotland, but not Northern Ireland which, under the terms of the Withdrawal Agreement remains subject to EU VAT law.
The changes will also impact on intra-community distance sales carried out by suppliers or deemed suppliers and on the domestic supply of goods by deemed suppliers within a member state.
Finally, supplies of services by taxable persons not established in the EU, or by taxable persons established in the EU but not in the member state of consumption to non-taxable persons (ie, consumers) will be caught by the new VAT rules.
Distance sales definitions
The expression "intra-community distance sales of goods" is specifically defined in the VAT Directive as “supplies of goods dispatched or transported by or on behalf of the supplier, including where the supplier intervenes indirectly in the transport or dispatch of the goods, from a member state other than that in which dispatch or transport to the customer ends where the following conditions are met:
The supply of goods is carried out for a taxable person (or a non-taxable legal person) and
The goods supplied are not "new means of transport" nor goods supplied after assembly or installation"
The statement "distance sales of goods imported from third territories or third countries" is also defined as “supplies of goods dispatched or transported by or on behalf of the supplier. This includes where the supplier intervenes indirectly in the transport or dispatch of the goods, from a third territory or third country to a customer in a member state where the same two conditions are also met.
In a nutshell, supplies will likely be classed as "distance sales" where the supplier of the goods is established in the EU (but in a different member state to the consumer) or established outside the EU and the supplier arranges (directly or indirectly) for the goods to be dispatched or transported to the consumer.
Facilitation / online marketplaces
A marketplace facilitates the trading of goods between the supplier of the goods and the end consumer by the operation of an electronic interface.
The new rules coming into force in July 2021 will ensure that such "facilitators" of distance sales of goods imported from third territories or third countries (by means of an electronic platform/portal/marketplace or similar) where the intrinsic value of the goods is less than EUR 150 will be deemed to have both received the supply of the goods and made the supply of goods in question. Similarly, where a taxable person facilitates a supply within the EU by a taxable person not established in the EU to a consumer, the facilitator will also be regarded as having made and received the supply of the goods in question.
The aim behind these changes is to ensure that VAT is collected on supplies of goods made by businesses that are not established in the EU.
To simplify VAT reporting obligations and to relieve the administrative burden for those affected by the changes, a number of special schemes are to be amended or introduced. The existing union scheme and non-Union scheme will be amended and a new import scheme is to be introduced. Under current arrangements businesses supplying certain electronic services (telephone, broadcasting and other electronic services) are familiar with the operation of the MOSS system, whereby a trader can register in a single member state and account for VAT due in other member states through a single MOSS return with boxes for each EU member state. From 1 July 2021, the MOSS system is to be extended to all B2C services (ie, not just electronic services) taking place in a member state where the supplier is not established.
MOSS will also be extended to intra-community distance sales of goods and to certain domestic supplies of goods. From 1 July 2021 MOSS will thus become, simply, the One Stop Shop (OSS).
From a GB business perspective, where a GB business supplies goods to consumers in the EU (ie distance sales) and the intrinsic value of the goods is less than EUR 150 it will be covered by the new Import One Stop Shop (or IOSS). A GB business selling goods to EU consumers will need to familiarise themselves with the new IOSS rules (which are not compulsory) and, where necessary, arrange to be registered under the scheme in a single member state or to appoint an intermediary established in the EU to act on its behalf.
Preparing for the new EU VAT rules
The new VAT rules are far reaching and will have a wide impact not only for traders within the EU but also for non-established businesses (including businesses established in GB) selling goods to EU consumers on a distance sales basis.
EU and non-EU businesses will need to consider the new rules and understand the impact. With only a few months to go until July 2021, businesses need to start preparing for these changes now.
If you require further information or would like to discuss the new EU VAT rules in more detail, please contact Karen Robb.