Complex VAT rules to make e-commerce simpler: A Spanish perspective
Fernando Matesanz of Spanish VAT Services explains why not all e-commerce operators will benefit from the new EU VAT rules.
The former VAT rules governing e-commerce transactions have proved to be an obsolete procedure that does not meet the current needs of the market, as they impose detrimental administrative burdens on the entities that carry out this type of transaction, especially for international entities.
This is why a series of rules were approved which are applicable as of July 1 2021. These new rules are the EU Directives 2017/2455 and 2019/1995 and also the EU Implementing Regulation 2019/2026. The directives and regulation aim to modernise and facilitate the taxation and VAT compliance for all companies selling goods online.
One of the main objectives of the new rules is to generalise the principle of taxation at the destination of ecommerce sales. In other words, online sales of goods will be subject to VAT in the country in which the recipient of the goods is domiciled (member state of consumption).
As regards intra-community distance sales of goods (those where the transport of the goods starts in a member state and ends in a different member state), in order to simplify the declaration and payment of VAT, a one-stop-shop scheme (OSS scheme) is established whereby such sales will be declared in a single member state (member state of identification).
Impact on Spain
A Spanish online seller of goods will be able to declare and pay VAT to the Spanish tax authority on all sales of goods throughout the EU. The seller will be obliged to charge the corresponding applicable VAT rates in each of the countries where his customers are domiciled. However, the payment of all VAT due can be made to the Spanish tax authority by filing a single special VAT return.
The Spanish tax authorities will, afterwards, repay the VAT to the corresponding member states. This will avoid the obligation for these sellers to register themselves for VAT in all member states where they have customers – this happened with the former distance sales scheme.
Another rule in force since July 1 2021 is the new scheme for sales of goods sent from third countries to an EU consumer (IOSS scheme). This new scheme aims to shift the VAT revenue from the point of importation to the point of sale of goods.
To this end, an exemption from the payment of VAT on importation is established provided that the value of the consignment does not exceed the intrinsic value of €150 (approximately $177). An IOSS scheme is then established whereby VAT is declared and paid in a single member state by means of a special declaration (member state of identification).
The VAT rate to be applied will be that in force in the member state where the recipient of the goods is domiciled (member state of consumption). In this way, a Spanish seller who sells goods online sent directly from a third country, if he decides to register under this special scheme, will not have to pay VAT on importation and will simply have to file a VAT return with the Spanish tax authority where all sales made within the EU will be included.
Finally, a complex system of liability is established for digital interfaces facilitating e-commerce sales under certain circumstances. A deemed chain transaction has been established whereby the seller supplies the goods to the interface and the latter supplies said goods to the consumer who has ordered them. VAT will be charged only on this second sale to which the OSS or IOSS rules apply depending on where the goods are dispatched from. The platform is, therefore, responsible for paying VAT to the administration.
These are technically complex rules aimed to make life simpler for e-commerce operators. However, not all e-commerce operations will benefit from the new rules. For example, those business models that involve keeping stock of products in different locations will see their formal obligations increase (these simplifications will not affect them). Moreover, digital platforms will have to rethink their business models due to the greater responsibility they will assume vis-à-vis tax administrations.
Finally, drop-shipping operators, due to the particularities of their activities, have experienced considerable growth in previous years. Drop-shipping operators are one of the main operators affected by the new rules, as their business model will have to be reconsidered.
There were many options to bring the VAT regulatory framework closer to the economic reality of e-commerce. The truth is that the EU legislator has opted for one of the most technically complex options. Time will tell whether the measures have had the desired effect.
Managing director, Spanish VAT Services