2021 is certainly setting out to be a year of significant change for businesses and consumers on the VAT front. With the UK withdrawal agreement, effective from 1 January 2021, businesses have rightly been focused on the impact the agreement is having on their supply chains. The focus has been on the supply of goods cross border, be it Business to Consumer (B2C) or Business to Business (B2B). The Northern Ireland (NI) protocol as well has created additional complexities, with NI remaining within the EU for the purpose of the supply of goods, whilst Great Britain (GB) is now a “third country”.
Even without the challenges presented by the UK’s exit from the UK, 2021 was always going to be a big year from a VAT perspective. Perhaps unknown to many, the European Commission has been steadily undertaking a root and branch review of the VAT system within the EU. In 2015 the VAT treatment of the supply of Telecommunications, Broadcasting and Electronic Services (TBE) services to consumers was overhauled. Allied to the change in the place of supply rules for TBE services, the EU also introduced the Mini Once Stop Shop (MOSS). MOSS effectively enabled businesses supplying TBE services to consumers across the EU, to register for VAT in one EU Member State and to remit VAT on all TBE B2C supplies in the EU through MOSS in that Member State. MOSS was a game changer. Reports by the European Commission on the impact of MOSS in 2019 indicated that since its introduction in the period 2016-2018 “between 60 and 80% of the value of cross border Business to Consumer (B2C) TBE services was reported on MOSS”. The EU statistics reporting a “clear positive response in terms of VAT collection for all EU countries” and also estimated that “the use of MOSS can reduce the administrative burden for businesses by up to 95%”.
In April 2016 The European Commission issued an action plan for VAT “Towards a single EU VAT area – Time to decide” setting out a timeline line for the implementation of further enhancements to the EU VAT system. In December 2017 following on from the action plan the European Commission adopted the proposed legislation and a package of measures across the EU, referred to as the “VAT e-commerce package”. The measures were originally intended to come into effect on 1 January 2021, however as a result of the Coronavirus pandemic the commencement of the measures was deferred until 1 July 2021.
In this article we look at the main changes being introduced. E-Commerce businesses should begin considering these changes in advance of 1 July to ensure that systems and processes are put in place in advance. These changes will significantly change the way VAT is operated, specifically in relation to Business-to-Consumer (B2C) e-commerce activities in the EU. It is also worth noting that these changes are for the benefit of EU businesses.
Extension of the Mini One Stop Shop (MOSS) – Distance Sales of goods
By way of background, MOSS currently operates as a simplification measure in respect of supplies B2C of TBE services across the EU. At present, for VAT purposes, the place of supply of TBE services is the place the customer is established. Therefore, where the supply is made B2C and is in excess of a certain threshold, (€10,000 but only on supplies within the EU), in the absence of MOSS the supplier would be required to register for VAT in each Member State where it is providing such services and remit VAT in that country. This would obviously impose a massive administrative burden on businesses, as well as significant compliance costs.
MOSS was introduced to simplify how VAT is remitted to the Member State where the service is being supplied. It allows a business to register for MOSS in one Member State and through that registration account for VAT and remit VAT to each EU Member State in which it operates. Therefore, the scheme avoids having to file and register in many different EU Member States.
From 1 July 2021 VAT MOSS is being extended to a One Stop Shop (OSS). Under the scheme it will be possible for a business to supply goods B2C from one EU Member State to customers in other EU Member States and account for the VAT on all such supplies in one EU Member State via the OSS.
Some of the main provisions are:
- MOSS is extended to include the supply of goods B2C where the goods are shipped from one EU Member State to consumers in another EU Member State
- Individual EU Member State’s distance selling thresholds will be abolished to be replaced with an aggregate threshold of €10,000 for all EU supplies (not on a State by State basis)
- Quarterly returns to be filed in the EU Member State of registration
- The two schemes that are presently in place, namely the Union and non-Union schemes will remain but their scope is to be extended.
- The Union Scheme is to be extended. EU established suppliers can use the scheme to report applicable B2C services supplied to customers in the EU and declare VAT due on intra EU distance sales of goods. Non-EU established business will be able to use the Union scheme to declare and pay VAT due on intra EU distance sales of goods (not services).
- The Non-Union Scheme is to be extended to cover certain B2C services supplied by non EU based suppliers to customers based in the EU (previously only TBE services). The scheme is available to suppliers who are in business but do not have a place of fixed establishment within the EU. Where a supplier opts to use the Non-Union scheme, then the scheme must be used to declare and pay VAT for all eligible supplies of services in the EU.
The extension of MOSS to goods will be of real benefit to Irish businesses selling goods online. The EU Commission have stated that companies that sell goods online pay around €8,000 in VAT compliance costs for every EU country into which they sell. This is a significant cost which can prohibit growth for online traders, in particular SMEs”.
Import One Stop Shop
Currently there is a VAT exemption in the EU for the importation of small consignments valued at less than or equal to €22 from outside the EU. With the rise in online purchasing, this exemption was effectively creating a competitive advantage for non EU established business selling to consumers in the EU. If EU businesses had to charge VAT but VAT was not being applied for purchases from outside the EU, EU businesses were at a disadvantage. This exemption is to be abolished from 1 July 2021. This is intended to benefit EU based suppliers and level the playing field.
Collecting VAT on such small consignments was always going to be difficult. From 1 July 2021 it will now be possible for non-established businesses to register for the new Import One Stop Shop (IOSS) which will simplify the importation of low value goods into the EU. Low value goods are goods that are imported into the EU from a third country in consignments that do not exceed an intrinsic value of €150, excluding goods that are subject to excise duty. For Non EU based suppliers they must either register for IOSS through an EU established intermediary or, should the country where they are established have a mutual assistance agreement with the EU, then they can register for IOSS directly. Countries such as the UK and the USA have a mutual assistance agreement with the EU.
For suppliers based outside the EU, IOSS operates by allowing suppliers who import goods into the EU to declare and pay VAT arising on their goods through the filing of a monthly return using IOSS. The supplier will only need to register for IOSS in just one Member State which will significantly reduce the administrative burden of accounting for VAT substantially. The system is also expected to expedite customs clearance as those that register will be issued a unique identifier that can be listed on all sales within the EU. It will, however, be important for the supplier’s systems to be updated such that, for example, the IOSS number appears on customer orders (so they can be identified and fast tracked through customs) and the correct rate of VAT is applied based on the address of the consumer.
In summary, a supplier using IOSS should ensure the following in respect of VAT:
- Display the amount of VAT to be paid by the customer in the Member State to which the goods will be sent/dispatched at the latest when the ordering process is finalised (for example, on the payment page of the website).
- Collect from the customer the VAT on supplies of all eligible goods dispatched/transported to the EU
- Make sure that eligible goods are shipped in consignments of an intrinsic value not exceeding the EUR 150 threshold.
- Either on the VAT invoice (if issued) or on the commercial invoice accompanying the goods for customs clearance, it is recommended to show
a) the price paid by the customer in euro separately per each VAT rate; and
b) the VAT amount charged to the customer
- Provide to the transporter/customs declarant of the goods (such as postal operator or logistics provider) the information required for the customs clearance in the EU, including the IOSS VAT identification number in order to avoid VAT being levied at the moment of importation. An IOSS registered supplier will provide this information directly to the transporter/customs declarant.
- Filing a monthly IOSS return in the Member State where they registered for IOSS in respect of relevant goods. Making an accompanying payment of any VAT owing.
- Any system put in place should ensure that only consignments with an intrinsic value of less than €150 should be included within IOSS.
This provision will benefit Non-EU established businesses that want to sell goods to EU consumers and want to ensure that they are compliant with EU VAT provisions. Such suppliers will be able to register for IOSS in one EU Member State and administer EU VAT in that jurisdiction.
The growth of the online marketplace and similar platforms has been exponential over the past few years, especially recently due to restrictions brought about by Covid-19. These platforms facilitated supplies of goods B2C within the EU. However, the European Commission identified VAT leakage as it was difficult to ensure compliance of non EU established businesses who may not VAT registered for VAT in EU Member States. The lack of accountability meant that there was significant VAT leakage arising that was difficult for local Revenue Authorities to collect.
From 1 July 2021 online marketplaces can be held responsible to account for VAT on certain supplies of goods B2C being facilitated through their online marketplace. The legislation effectively provides that the supply of goods from an underlying supplier to an end customer, through an online marketplace or platform, will be artificially split into two supplies, being
- a supply from the underlying supplier to the online marketplace and
- a supply from that online marketplace or platform to the customer.
An online marketplace or platform will be deemed to be making the supplies when they facilitate the following transactions:
- the importation of goods from outside the EU in consignments of an intrinsic value not exceeding €150 regardless of where the underlying supplier is established and/or
- intra-EU distance sales of goods and domestic supplies of goods, regardless of the value of the goods, but where the underlying supplier is established outside of the EU.
This provision should increase VAT compliance across the EU and reduce VAT leakage. Where the provision applies, it effectively puts the onus to correctly collect VAT on supplies on the online marketplace. For EU businesses that are compliant and have been correctly accounting for VAT on distance sales this will be a welcome development. This provision will further help in levelling the playing field between EU businesses and non-EU businesses and ensure that compliant EU businesses are not at a competitive disadvantage.
Other Arrangements for imports of goods
A final arrangement is also to be introduced with specifically postal operators and other logistics providers in mind. Under this arrangement, the VAT due on import will be collected from the customer by the operator and remitted to Revenue. The arrangement allows for a deferred payment of VAT on the same basis. This will cover the eventuality of businesses selling into the EU who do not have a business in the EU and so it will be left to the ultimate consumer to reimburse the logistics provider/postal service for the VAT/customs duty due on the goods the consumer had purchased from outside the EU.
As the 1 July 2021 date draws closer it is important for all businesses involved in any type of cross border B2 trade to consider what systems need to be put in place to ensure a smooth transition to the new VAT rules. Revenue will be releasing further details regarding the practicalities of the measures to be introduced closer to the time. For Irish businesses trading online, these provisions will provide a real boost. The intention is to facilitate trade and to remove compliance burden associated with supplying across the EU, which can disproportionately affect SMEs.
To discuss further, please contact:
- Ronan McGivern, International Tax & Business Advisory Partner, E: email@example.com
- Richard McAufield, Senior Taxation Manager, E: firstname.lastname@example.org
Appendix – Overview of the special schemes
|Non-Union Scheme / OSS||Union Scheme / OSS||Import Scheme / IOSS|
|Types of Supply||ALL B2C supplies of applicable services to customers in the EU||a) All Intra-Community B2C supplies of applicable services|
b) Intra-Community distance sales of goods
c) Article 14a(2) domestic B2C supplies of goods
|Distance sales of imported goods in consignments < €150|
|Taxable Person||Non-EU established||a) Only EU established|
b) EU & non-EU established
c) Electronic interfaces EU and non-EU established
|EU & non-EU established, including electronic interfaces|