The EU E-Commerce VAT Package is here. The new schemes, One Stop Shop (OSS) and Import One Stop Shop (IOSS), bring significant changes to VAT treatment and reporting mechanisms for sales to private individuals in the EU.
Our recent webinar, Back to Basics: The EU E-Commerce VAT Package, discussed the basic principles of the three key OSS schemes.
The EU E-Commerce VAT Package is a complex topic and there were a number of questions that we didn’t have time to answer during the webinar.
In the last blog we answered your questions about marketplace liability, this blog will focus on OSS.
How does input VAT recovery work under OSS? Do you fill in your OSS return as usual and then the EU Member States refund per country?
It really depends on the way the input VAT is incurred. Provided that this is a result of returned goods then these can be reflected in the OSS return reducing the respective tax base.
However, input VAT incurred on purchases must be either included in the resident VAT return (if the business has VAT registration in the country where the input VAT was incurred) or using the refund mechanism of the 8th VAT Directive for EU established businesses, or the 13th VAT Directive for non-EU established businesses.
In case the latter applies, any taxpayer must be mindful of the additional requirements for reciprocity between the country of establishment and the country of the refund.
Where the seller sells goods located in the EU to an EU business customer but the customer doesn’t provide a valid VAT number, should the sale be treated as B2C and reported via OSS?
The distinction between B2B and B2C transaction is done on the basis of whether the other party is a taxable person or not. In principle, this is determined not by the assignment of a VAT identification but is based on whether that person is conducting economic activity or not. To put it in simple terms: the other party must be in business.
The VAT numbers are just identification for the purposes of this tax. However, different countries have varying rules for assigning VAT identification to resident businesses, hence in a lot of cases a fully functioning business may not be registered for VAT until it breaches a certain threshold. However, this doesn’t mean that this business shouldn’t be considered as a taxable person.
Therefore, in our view such a sale must be considered as a B2B sale and be subject to the normal rules. If the relevant sale is a domestic transaction, then this goes into the resident VAT return. If it is an intra-Community B2B supply, then the respective rules should apply, and the supplier must establish if the exemption could be applied or not. If exemption does not apply, then the sale should be reported with VAT on the local VAT return.
How are most companies dealing with this first period in transition from direct filing with multiple countries when electing OSS, especially since OSS is quarterly filing and others are monthly? Is deregistration required immediately in Member States?
In principle, the taxpayers making use of the OSS scheme are not required to de-register from VAT in the EU Member States where they were already identified for VAT purposes. This is because they may have some other types of transactions which are not eligible to be reported within the OSS return.
It could be entirely a business decision if and when de-registration is done but there is no obligation to de-register in case OSS is applied for.
However, the restriction here is that transactions that qualify to be reported through the OSS return could only be reported there and not in the resident registrations that were kept by the relevant business for whatever reason.
Considering the transition period between the OSS and the resident registrations, the question about where to report the relevant transactions is determined generally by the tax point. If the tax point has occurred prior to the business notifying the tax authority they have applied and will be making use of the OSS scheme then the transaction should be reported in a resident VAT return.
Alternatively, if the tax point occurred within the period covered by the notification, then this would be reported in the OSS return.