The modernisation of VAT rules in the EU introduces new VAT liabilities and compliance requirements for online merchants and multi-seller platforms. This creates a level playing field for VAT in the EU but also brings challenges for marketplaces, which will have to ensure they determine the correct VAT treatment for specific transactions. These challenges are explored in Vertex’s e-guide, ‘Practical implications of EU e-commerce VAT rules’.
Importantly, merchants and marketplaces need to note that all online sales to consumers are now taxable for VAT in the country of destination, marketplaces are deemed suppliers for VAT purposes in certain scenarios and the VAT exemption on low-value consignments imported into the EU no longer applies. In addition, there is a new pan-EU sales threshold for VAT, new so-called Import One Stop Shop and One Stop Shop schemes and additional record-keeping regulations for marketplaces.
The legislation states that any electronic interface that facilitates distance sales may be a deemed supplier for VAT purposes. This applies to (1) all intra-EU sales by merchants not established in the EU and (2) sales of imported goods by all merchants with a consignment value up to €150.
Electronic interface is defined broadly to include websites, portals, gateways and apps, and a marketplace facilitates a sale if it takes part in setting the terms and conditions, authorising the charge to the customer or ordering/delivering the goods.
Where a marketplace is the deemed supplier, it must calculate VAT where applicable, charge it to the customer and remit it to the customer’s member state. Peter Boerhof, VAT director at Vertex explains: “It’s important that marketplaces have robust processes and enhanced technology systems, which can determine the correct VAT treatment at the time of checkout. Specialist advice might also be needed to understand the obligations and implement the most appropriate solutions. This will help ensure end-to-end compliance and avoid unnecessary disruption to the customer journey”.
Action points for marketplaces
Marketplaces must take steps to ensure they comply with these rules. This includes taking account of the fact that a single shopping cart may contain items with different VAT liability, so tax liability for each line will have to be assigned depending on product and customer location.
Where a marketplace is the deemed seller, the product must be classified to ensure the correct VAT rate is applied. The customer location must also be determined, which can be particularly challenging for online sales. And the value of the total consignment needs to be determined (and, if necessary, converted into euro) to verify it is above or below the €150 threshold.
In addition, marketplaces need to make sure they comply with invoicing rules in each EU country, and ensure the correct information is included on invoices. Part of their regular checks should be a robust onboarding process for sellers as well as guidance for sellers where possible.
Finally, note that transaction records must be stored for 10 years from the end of the year in which a supply took place and must be accessible and searchable. Record-keeping systems need to be thorough and robust so that any requests from tax authorities can be responded to quickly.
Importance of VAT determination
Online commerce is becoming more and more popular, and the business environment is increasingly competitive. In this context, accurate and timely determination of VAT is essential to deliver a good customer experience and retain the loyalty of both buyers and sellers. This will often involve seeking specialist advice.
Read more about what online sellers need to consider, and how specialist technology can help online businesses stay compliant, in the recent article ‘Six steps to help online sellers handle new EU VAT rules’.
