The EU platform financial system is estimated to generate a considerable €25.7 billion in VAT income yearly. Provided that the e-commerce sector contributes the vast majority of this income (€15.2 billion), it comes as no shock that bolstering enforcement efforts and simplifying VAT rules for this sector are central elements of two main VAT reforms.
On December 8, 2022, the European Fee adopted the “VAT within the Digital Age” (ViDA) proposal — a complete and multifaceted bundle of reforms pursuing three main aims, one in every of which is to modernize rules governing the platform financial system. Subsequently, on Might 17, 2023, the Fee offered proposals for “probably the most bold and complete reform of the Customs Union since its creation in 1968”. The customs reform goals to determine a tailor-made customs regime the place platforms that facilitate e-commerce gross sales might be made chargeable for all customs formalities and customs fee obligations.
Each reform proposals depend on the idea of the “deemed vendor,” a typical measure aimed toward enhancing tax compliance within the platform financial system. The deemed vendor regime successfully reduces the compliance burden for sellers working by platforms by designating the platform operators because the accountable celebration for declaring and paying the VAT on gross sales that they facilitate. Inside the deemed vendor framework, the VAT regulation establishes a authorized fiction of two consecutive gross sales. Below this fiction, the vendor is taken into account to be offering companies or items to the platform operator, who subsequently provides them to the client. It is necessary to notice that this authorized fiction is solely relevant for VAT functions and doesn’t alter the business association the place the switch of products’ possession happens from the vendor to the customer. At present, the deemed vendor guidelines apply to 2 kinds of e-commerce gross sales to EU shoppers: (1) gross sales of imported items valued under €150, and (2) gross sales of products owned by non-EU sellers and positioned throughout the EU on the time of the sale.
The reform proposals intend to considerably broaden the scope of the deemed vendor guidelines. The brand new e-commerce import regime will remove the present €150 threshold, necessitating platform operators to gather VAT and customs obligation on all distance gross sales of imported items they facilitate. Furthermore, for gross sales of products throughout the EU, the requirement that the products should be owned by a non-EU vendor might be abolished. Additional particulars on the proposed modifications are mentioned under.
New import regime for e-commerce
The EU 2021 VAT E-commerce Bundle launched the Import One-Cease Store (IOSS) to simplify the method of declaring and paying VAT on distance gross sales of low-value items imported from non-EU nations. Sellers who select to make the most of the IOSS are relieved from the duty of registering for VAT in every EU nation the place they make gross sales of imported items to EU shoppers. As an alternative, they’ll register and fulfill their tax obligations in only one EU nation. Moreover, when the IOSS is employed, VAT is collected upfront on the time of the sale, eliminating the necessity for paying import VAT when the products enter EU territory. The IOSS simplification is at present restricted to imported items with a worth not exceeding €150, as these items additionally profit from a customs obligation exemption. Nonetheless, merchants promoting items valued above €150 should pay VAT and customs duties upon importation.
The proposed reforms will result in important modifications for platforms concerned in facilitating gross sales of imported items. Firstly, all gross sales of imported items to EU shoppers might be topic to customs duties and might be eligible for the IOSS simplification because the €150 threshold might be eliminated. Secondly, e-commerce platforms will assume accountability for all customs formalities and funds, relieving shoppers from this burden. Thirdly, the utilization of the IOSS will turn into necessary for platform operators.
The choice to remove the €150 threshold stems from the abuse of the customs obligation exemption for low-value items by fraudsters who undervalue parcels getting into the EU, thereby evading customs duties on import. With the proposed reforms, all imported items might be topic to customs duties, and a simplified methodology might be carried out to calculate customs duties for often bought low-value items, lowering the quite a few customs obligation classes to only 4.
One other notable change considerations the timing of when customs duties turn into due. E-commerce platform operators might be designated as “deemed importers” and can incur a customs debt when the fee for the sale is accepted, quite than when the products bodily arrive within the EU. As platforms might be chargeable for making certain the fee of customs duties and VAT on the time of sale, shoppers will not encounter hidden import fees or surprising customs paperwork upon the parcel’s arrival. They may pay all of the required duties and taxes in the course of the checkout course of.
E-commerce gross sales throughout the EU
Platforms facilitating gross sales of products throughout the EU at present have a tax assortment requirement provided that the products are owned by a non-EU vendor and offered to a personal particular person. Nonetheless, the ViDA proposals search to remove the situation that the products should be owned by a non-EU vendor. The rationale behind this variation is twofold: to alleviate the compliance burden on EU sellers working by platforms and to create a stage enjoying discipline for each EU and non-EU merchants. Because of these reforms, e-commerce platforms might be required to gather VAT on all gross sales of products throughout the EU, whatever the purchaser’s standing or the provider’s location. The one exception to this rule might be relevant to platforms which are established solely in a single EU nation and solely facilitate gross sales of products inside that nation.
The reform proposals put forth by the European Fee are very intensive in scope. If political settlement is ultimately reached on these measures (which nonetheless require unanimous approval from all 27 EU member states), each internationally buying and selling firm might be impacted by them. Whereas the precise timeline for implementation stays unsure, the proposals envision a phased rollout of the modifications for the platform financial system spanning from 2025 to 2028.
In relation to the platform financial system, the proposed measures additional shift the burden of tax compliance from sellers to platform operators. As platforms will assume extra tasks of the sellers, their compliance prices are anticipated to rise considerably. Nonetheless, it’s debatable whether or not the proposed growth of the deemed vendor rule, encompassing all provides of products throughout the EU, is important. Given the implementation of the DAC7 reporting obligations, tax authorities may have entry to aggregated knowledge on platform transactions. It might be prudent to judge the affect of those measures earlier than imposing further tax compliance obligations.
The elimination of the €150 threshold is a constructive growth as it can stop companies from undervaluing items and remove the necessity for a number of registrations for sellers of high-value imported items who’re at present unable to use for the IOSS registration. Moreover, it can stop disagreeable surprises for each sellers and patrons, the place orders under the edge are mixed right into a single cargo, leading to further VAT collected on the border.
Making the IOSS necessary will promote a stage enjoying discipline for e-commerce sellers. At present, sellers who haven’t opted for the IOSS can checklist merchandise at decrease costs (excluding VAT, which prospects should pay upon supply), whereas these using the IOSS should embody VAT of their listed costs. One other benefit of increasing the IOSS is that platform operators will have the ability to apply the identical procedures to all imported items, whatever the cargo worth.