The EU introduces the E-Commerce VAT Package and OSS on 1 July 2021. The previous delay from 1 January 2021 was due to the COVID-19 pandemic. COVID-19 is far from resolved with many Member States still suffering significantly with wide-ranging restrictions in place in many countries.
Regardless, the European Commission’s current plan is to press ahead with the implementation of the package. The package has the potential to generate significant additional tax revenues. The EU Commission estimates an additional €7 billion of tax revenue for Member States annually.
Combine this with the significant shift to online purchasing by consumers as a result of the various lockdowns in place and a further delay would perpetuate the benefit of low value consignment relief (LVCR) that sellers of goods delivered from outside the EU enjoy. This relieves low value imports from VAT whereas currently a local supplier must account for VAT irrespective of the value of the goods. The introduction of the new package removes LVCR on 1 July 1 2021.
Removal of low value consignment relief (LCVR)
LVCR has recently been removed by the UK Government so that all imports into Great Britain are now liable to VAT, with suppliers and deemed suppliers being liable to register and account for VAT for B2C sales where the goods are below £135.
The EU equivalent scheme will provide a mechanism for suppliers and deemed suppliers to be able to account for VAT in a single Member State for imports below €150 via the Import One Stop Shop (iOSS). Other versions of the One Stop Shop (OSS) will also be available for intra-EU distance sales of goods and cross border B2C supplies of services by EU companies (Union OSS) and supplies of B2C services by non-EU suppliers (non-Union OSS).
Will businesses be ready for the EU E-Commerce VAT Package changes?
There is concern around the preparedness of both Member States and businesses for the e-commerce VAT package changes. The European Commission released some guidance in the form of explanatory notes and a customs guide. However many questions remain unanswered.
The final piece in the puzzle from the Commission is the guide to the OSS. This will update the current guide to the Mini One Stop Shop to reflect the upcoming changes the e-commerce package will bring. In addition to covering crucial issues such as registration, returns and payment. The OSS guide release date is uncertain and time is running out.
At a Member State level, there is continuing evidence that not all tax authorities are ready for the change. The Dutch government is introducing emergency measures to be ready in time. It appears that its system will involve manual intervention by the tax authority which is far from ideal.
Additionally, the German customs authorities recently announced that the new electronic customs declaration for goods below €150 will not be operational until 1 January 2022. However it’s not entirely clear what impact this will have on iOSS being available in Germany.
Simplification for Businesses
It’s clear that the new OSS mechanisms will provide a simplification for businesses. As a result of allowing VAT to be accounted for in a single Member State. However, there are complexities that businesses need to fully consider. Businesses need to ensure that OSS is the right solution for them, and they are compliant with the rules.
The requirement to display the VAT paid by the customer before completing the order will require systems changes. This poses a challenge for many businesses at a time when many are already dealing with the trials of COVID-19, and in many cases Brexit. Add in the record keeping requirements and it’s clear that the simplification is not simple.
Failing to comply
Failure to comply with the rules can result in exclusion from the schemes. Consequently, business will need to register for VAT in all Member States where VAT is due. For e-commerce businesses currently registered for VAT in all Member States as a result of distance selling this would be a return to the current arrangements. However it’s likely that choosing to opt-in to OSS would cancel existing registrations in many countries. So there would be an additional cost and administrative burden in reinstating them.
For smaller businesses, removal from the scheme will be a significant increase in compliance costs. They are likely to currently only hold a registration in a small number of additional countries in addition to their home Member State. The new place of supply rules for intra-EU supplies of B2C goods don’t apply for certain EU established businesses. Those whose sales of intra-EU supplies of B2C goods and electronically supplied services are below €10,000. However many will exceed this, which will significantly increase their compliance burden in choosing not to use OSS.
Businesses therefore need to fully consider the impact of the new rules and determine whether OSS is right for them and if so, how they will ensure compliance with the rules. Additional guidance from the European Commission and tax authorities is urgently required given that a further delay seems unlikely.