Will EU Member States and Businesses Be Ready for the July 2021 VAT E-Commerce Rules?

As we move full speed ahead towards the proposed deadline of 1 July 2021 for the new VAT e-commerce rules, EU countries are beginning to implement the changes to e-commerce transactions and distance sales into local legislation. While we track each Member State’s implementation, certain questions have been brought to the forefront and we can’t help but be left wondering – will all EU countries and businesses be ready on time to implement these large-scale changes?

The technical lift

It’s important to note that both the Netherlands and Germany have expressed early concerns in having their IT infrastructure ready in time. They have requested a further extension until 1 January 2022 for implementation of these changes, however this request was blocked by other Member States and the 1 July 2021 effective date is final as of now.

The concerns raised are not without merit, as the changes require businesses that utilize the extended One Stop Shop (OSS) to submit OSS returns, presumably via API, to each Member State of identification. Further, the Member State of identification must send header information to all Member States of consumption but must break out country-specific transaction information in separate messages. Finally, in addition to the OSS return itself and the required header information, they must send electronic messages with taxpayer identification information. Without the correct IT systems in place, sending these required electronic messages may prove challenging. The changes required to customs processes as a result of the introduction of the Import One Stop Shop (IOSS) will also mean that significant changes have to be made by Member States.

Will local implementation look the same?

As is required, countries have started to transpose the changes stipulated in the EU VAT Directive into local legislation. Although not all countries have set forth local laws yet, there are already some inconsistencies across early adopting Member States. It appears as though the countries with discrepancies are countries that have already adopted Marketplace rules, including both France and Germany where the proposed local changes don’t quite match one-to-one with the EU-wide rules. Other countries, such as Belgium, have opened a “public consultation” period for comments on the proposed local legislation. In Sweden, consulting firms have published documentation sent to the government, full of questions surrounding the implementation of these new rules.

Many countries have yet to introduce the changes locally, with little to no guidance offered. As we inch closer to 1 July 2021, it will be important to track all Member States’ implementation progress as it’s clear from what we’ve seen so far that the transposition of these changes may vary country-by-country.

The Commission published “Explanatory Notes on VAT e-commerce rules” on 30 September 2020 with further guidelines on the operation of the OSS and customs processes due by the end of the year.

Impact on businesses

Businesses must begin internal preparations soon as these changes are quite complex and may present certain challenges. The new rules expand the current Mini One Stop Shop (MOSS) scheme (to OSS) and introduce a new import scheme, IOSS, which may create initial administrative burdens for businesses. These separate schemes involve many moving pieces, all of which vary, including VAT numbers, filing dates, filing periods, and information needed for each declaration. Record-keeping and remaining organised will become increasingly important for businesses to ensure accurate submissions of the new declarations.

Finally, on 28 October 2020, a commission official from the EU firmly stated that the European Commission is not planning for additional delays to the implementation of the new e-commerce rules. As such, there is one thing we know for sure, these changes are coming and quickly, whether Member States and businesses are ready or not.