This blog was last updated on October 27, 2023
On 30 September 2020, the European Commission published its “Explanatory Notes on VAT E-Commerce Rules,” to provide practical and informal guidance on the upcoming July 2021 e-commerce regulations. This “EU VAT e-commerce package” was initially adopted (under Directive 2017/2455 and Directive 2019/1995) and set to be implemented on 1 January 2021 but has since been delayed until 1 July 2021.
The Explanatory Notes set out to explain the practical aspects of the upcoming changes to place of supply rules and reporting obligations for certain online supplies in Europe: specifically, B2C distance sales of goods imported from third countries, intra-community distance sales of goods, and cross border supplies of services. The explanatory notes provide further guidance on the application of the new One Stop Shop (“OSS”) and import One Stop Shop (“iOSS”) regimes, including scenarios where Electronic Interfaces (such as marketplaces) are deemed liable for the collection and remittance of VAT relating to underlying suppliers transacting on their platforms.
The OSS scheme:
For EU-EU goods deliveries, suppliers are no longer compelled to register and file VAT returns in every EU Member States where distance selling thresholds are exceeded. Instead, a new EU-wide threshold of €10,000 applies, after which VAT must be collected and remitted based on the destination of the goods. Under the OSS, suppliers (or deemed suppliers) may elect to register once in their Member State of identification and file a single, simplified OSS return in respect of all their EU distance sales. A similar scheme known as the Mini One Stop Shop (“MOSS”) already exists for electronically supplied services by EU and non-EU suppliers. Its scope will be broadened so that it includes all B2C services where the VAT is due in a country where the supplier is not established.
B2C suppliers who choose to participate in OSS must use it for all supplies that fall under the scheme. This shouldn’t be seen as a drawback, however, because the OSS scheme is designed to reduce admin burdens wherever it’s used. For example, in addition to simplifying registration requirements, OSS imposes no obligation to issue a VAT invoice for B2C supplies. (An EU Member State may opt to impose invoice requirements relating to service invoices only, but not for goods).
The iOSS scheme:
Distance sales of goods imported from third countries, with an intrinsic value no greater than €150, may be subject to the new iOSS simplification regime, designed to facilitate a smooth and simple collection of VAT on B2C imports from outside the EU. With the concurrent repeal of the €22 low-value consignment relief (and the absence of an alternate threshold or de-minimus) this is an attractive option for suppliers looking to reduce administrative and compliance burden. Under this mechanism, a supplier (or deemed supplier) may elect to register – via an intermediary for non-EU suppliers – for iOSS in a single Member State, and collect VAT in the respective EU country of destination, and remit monthly iOSS VAT returns in support.
The explanatory notes to the new e-commerce rules emphasize the overriding goal of making VAT collection more effective, reducing VAT fraud, and simplifying VAT administration. Nevertheless, the new rules are massive in scope, and businesses must be careful to ensure that their internal systems are properly configured prior to the changes taking effect.
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To learn more about the new EU e-commerce rules, listen to our on-demand webinar A Practical Deep Dive into the New EU E-Commerce VAT Rules
