E-commerce in the EU saw a VAT revolution on 1 July 2021, introducing the e-commerce VAT package. One of the package’s aims is to ensure that VAT is accounted for in the Member State where consumption takes place for B2C cross-border supplies of goods – this equates to where the goods are delivered. There is an exemption of €10,000 for EU established micro-businesses. Still, the reality is that most businesses selling intra-EU B2C goods will have to account for VAT in a greater number of countries than previously.
To compensate for this, the European Commission has significantly extended the Mini One Stop Shop that was in place before July 2021 into three new versions. One of these versions is for intra-EU B2C sales of goods declared via the Union OSS, which, despite its name, is used by EU and non-EU established businesses for such sales.
The concept of Union OSS is that a business is registered in one Member State, the Member State of Identification (MSI). The seller charges VAT at the rate in place in the country of delivery, the Member State of Consumption (MSC). This secures the aim of the package to tax consumption where it takes place. Consequently, the seller needs to know the appropriate rate of VAT to charge, which can be problematic when selling goods liable to the reduced rate.
The VAT that has been charged is accounted for in the MSI via the submission of a single quarterly VAT return. Payment is made to the MSI who disburses the amounts due to the appropriate MSC. Care is needed to ensure that all returns and payments are made on time as the consequence of being late is that there is a default in every Member State in which goods were sold. This could lead to penalties being imposed. Ultimately, failure to comply with the rules can result in exclusion from the scheme and being in quarantine for two years, unable to re-join.
Is Union OSS right for my business?
Union OSS is a simplification measure, and the alternative is to register for VAT in each Member State where sales are made. Some businesses, previously registered in all Member States, have continued to account traditionally and not use Union OSS. However, for businesses that were not previously registered in any other Member State or only a few, Union OSS appears to be the only viable solution. However, before deciding to implement it as a solution, businesses should carefully consider how they will be compliant to remove the risk of exposure to penalties and exclusion.
Union OSS and retrospective liabilities
Union OSS is a simplification designed to allow a straightforward mechanism to account for VAT in multiple Member States via one return. This means that it’s not particularly sophisticated or flexible in its operation. One thing Union OSS cannot do is deal with any retrospective issues. A business with sales exceeding the threshold has a liability to account for VAT in the MSC once the threshold is exceeded.
If a business identifies a need to account for VAT in other Member States on cross-border B2C supplies of goods, it must promptly register for Union OSS to use it. Businesses cannot retrospectively register for Union OSS except in very limited circumstances where making cross-border supplies has recently started. Then the registration can only be backdated a month. This highlights the need for businesses to be fully aware of their cross-border VAT obligations and take appropriate steps to be compliant. If there is a retrospective liability and Union OSS cannot be used, the only alternative is registering for VAT in all Member States where supplies are made. Businesses should avoid this at all costs.