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N&V - E-Commerce with and to the European Union

The rise of the digital economy has forced policymakers all over the world to deal with some of the fundamental issues of taxation. There has been an avalanche of tax proposals to further facilitate cross border trade but also to ensure that companies, both digital and traditional, are paying their fair share.

By Barbara Voskamp

A few of the recent proposals of the European Commission will have a severe impact on digital shops, platforms and market- places that sell, facilitate sales in or to the European Union.

Effective July 1, 2021, the European Union is making important changes to its value-added tax (VAT) rules. This will impact APAC businesses that sell to consumers into and within the EU as follows:

  • VAToncross-bordersalestoconsumerswithintheEUcan be reported through a single reporting scheme (called the One-Stop-Shop, or “OSS”);

  • AllgoodsimportedintotheEUshallbesubjectedtoEUVAT;

  • Asinglereportingschemecoveringsalesofnon-EUgoods to EU consumers up to a value of EUR 150 and for which a VAT exemption upon import will apply if the trader declares and pays the VAT at the time of the sale using this declara-

    tive system (called the Import One-Stop-Shop, or “IOSS”);

  • Postal operators or courier firms may be liable to collect import VAT on behalf of EU consumers and will be eligible for simplified VAT filing in respect of consignments with a

    value not exceeding EUR 150;

  • MarketplacesmaybeliablefortheEUVATwhentheyfacili-

    tate the delivery of goods to EU consumers, even if they are not part of the supply chain.

    In addition, Directive 2011/16/EU (DAC7) was approved. Under DAC7 the EU extends tax transparency rules to digital platforms and introduces an obligation for platform operators to provide information on income derived by sellers through platforms, from 2023 onwards. The information collected will be shared with the tax authorities of the concerned Member States to address the lack of tax compliance and the un- der-declaration of income earned from commercial activities carried out with the intermediation of such digital platforms.

    APAC-based digital platform operators may be impacted having a reporting obligation if they facilitate reportable commercial activities of EU sellers or the rental of immovable property located in the EU regardless of the place of residence of the sellers.

Action needed for webshops, digital platforms and market- places:

Before 1 of July 2021

  • Possible appointment of an intermediary who will report the sales on behalf of the seller and account for the VAT;

  • Suppliers/sellers systems must recognise the VAT status of their clients, the countries of import/dispatch/arrival of the goods and capture the VAT rates applicable;

  • ContractsshouldbereviewedtoensurethatVATaccounting responsibilities are clearly defined in the light of the new rules;

  • Thelowconsignmentrelief(consignmentwithavaluenot exceeding EUR 23) will be abolished, so VAT will be due on those sales at the rate applicable in all EU countries of sale. This will also impact the price and margin of the products.

    Although 2023 may sound far-off, platforms should start thinking about the possible DAC7 implications such as:

  • Reviewing the contractual relationships with the sellers;

  • Evaluating any data protection implications;

  • Complying with data retention rules; and

  • Determining the place of registration for DAC7 purposes

    where this decision becomes