The European Commission issued letters of formal notice to twelve EU Member States for a delay in implementing the four VAT ‘quick fixes’ (which took effect January 1st, 2020) in their local legislation.
The ‘quick fixes’ aim to provide clarity in addition to guidance on the correct VAT treatment of EU supplies of goods. They include the following:
EU cross-border call-off stock supplies
Documentary evidence of proof of EU transport
Mandatory VAT ID nummer verification for EU supplies
EU cross border chain transactions
The EU Member States yet to make amendments to their local VAT law are:
Belgium
Cyprus
Czech Republic
Denmark
Greece
France
Italy
Luxembourg
Portugal
Slovakia
Spain
United Kingdom (currently in transitional period)
Some of the listed Member States are in the process of approving amendments to their VAT laws through local parliaments. In the meantime, they indicated that businesses can rely on local VAT law or the VAT Directive until the new laws are approved.
Read more on https://www.vatsquare.com/are-you-ready-for-the-vat-quick-fixes-of-2020/
As of January 1st, 2021, a new VAT collection scheme will be effective for parcel imports into the EU. This scheme may simplify the customs clearance process for parcel imports. On the other hand, it may also create new filing obligations and tax collection complexities for the service providers handling these imports (i.e. postal operators, express couriers and customs agents).
An extensive impact assessment on the current and new VAT regulations for cross-border e-commerce was carried out by the European Commission. However, this assessment focused mainly on the compliance costs and challenges for SME’s (the suppliers). The European Commission drew no conclusions about the possible impact of the new import scheme on the postal and express sector. What will be this impact and the possible outcome for this sector?
The new VAT import collection system 2021
With the publication of new VAT rules – which will enter into force on January 1st, 2021 – it is the intention of the EU to simplify the import regime for parcels.
The current import VAT clearance procedure for low value parcels will be removed completely (this includes the abolition of the VAT de-minimis rule) and a new way of VAT clearance will be introduced. The new scheme will apply to the importation of parcels with an intrinsic value of up to 150 euros. Under these new rules, two import procedures are available. The outcome is a combination of a supplier registration system, a third-party consumer collection system and a marketplace collection system.
Impact of the new VAT collection scheme on postal & express
Currently, the supplier pays the import VAT (or applies the VAT exemption) and an administrative fee is charged to the customer by the service provider that is handling customs clearance. Because of the duty exemption for small value parcels, there are currently limited activities and obligations for these service providers. After 2020 we expect that the new I-OSS scheme could create an administrative burden for intermediaries like customs agents, postal operators and express couriers if they are not well prepared.
The simplified customs procedures will probably ease the customs hurdle, but will not eliminate the VAT burden. All service providers handling customs clearance are familiar with the administrative requirements at the moment of import. Under the new I-OSS scheme, VAT administration is required on a monthly basis and is charged at sales transactions. This is a new periodical VAT compliance burden for all service providers handling customs clearance.
In the VAT I-OSS return the service provider must report Dutch VAT for the supplies to Dutch customers, German VAT for the supplies to German customers, etc. Freight forwarders and customs agents might be familiar with these activities because they usually also act as fiscal representative for certain suppliers which means that they need to keep a separate VAT administration already. However, these are B2B supplies and not B2C, with the main difference that the transactions are all subject to a VAT exemption for intra-Community supplies instead of taxable with EU VAT in case of parcel imports.
Marketplaces tackling the VAT burden at import
Online marketplaces may have the solution to the VAT collection problem. It depends on their willingness to cooperate and invest in the relationschip with postal and express couriers.
As of January, 1st, 2021, if the supply of goods is facilitated by a platform, the platform will be responsible for VAT remittance, as it will be deemed to have purchased and then sold the parcels. The platform will be able to register for the I-OSS and pay VAT on a monthly basis. A combination of the supplier collection model and marketplace collection model.
The facts that the sales VAT will be pre-paid before arriving at the customs border, may lead to a much faster clearance process. It could also make the clearance and delivery process cheaper for the end-consumer because the handling fee charged by postal or express couriers will be lower. Online marketplaces could label the VAT pre-paid parcels and sent additional electronic information about the parcels to the couriers. Online marketplaces should have a lot of valuable (order & consumer) data available to them. On arrival in the country of import, the label is scanned and the shipment can be VAT cleared immediately.
To effectively make this pre-paid VAT system happen in the EU, postal & express couriers need to reach out to marketplaces and make the necessary agreements in order to benefit both.
Conclusion
The rise of cross-border e-commerce business is creating interesting opportunities for all parties involved. It is however unclear how the import parcel market will respond to the new collection model.
In all cases, we recommend all postal operators and express couriers to take this opportunity to review their current systems and to properly prepare for the 2021 scheme as soon as possible.
Source: tradetaxport.com
The European Parliament voted on Wednesday Jan 15, 2020 by a large majority in favour of a simplification of the VAT rules for SMEs. Businesses will soon be able to make use of VAT exemptions in other EU countries thanks to the new scheme.
In November last year, the EU finance ministers already reached a political agreement. This agreement provides for an exemption in all member states from VAT obligations for SMEs with a uniform turnover threshold of €85,000 for companies that only do business in their own member state and an EU-wide turnover threshold of €100,000 for SMEs doing cross-border business.
Until now, all these VAT exemptions have been regulated nationally, but with the new rules they will also become accessible to small businesses that are not established in the relevant Member State but do owe VAT there. A Dutch entrepreneur can then, for example, choose to make use of the German scheme, and the same applies to a German entrepreneur doing business in the Netherlands.
Under the new scheme, a trader will no longer have to pay VAT, but on the other hand he will no longer be able to deduct the VAT he has paid himself.
2018/0006(CNS) – Common system of VAT: special scheme for SME’s
The EU VAT regime applicable to cross border supplies of goods is complex and insecure. It is due to undergo huge reforms over the next few years. The current ‘temporary’ systems will be replaced by a definitive ‘destination’ based regime, provisionally from July 2022.
Ahead of this reform, EU member states have agreed four changes to the business-to-business (B2B) VAT rules on EU cross-border transactions, which came into place January 1st 2020. The reforms, known as ‘quick fixes’, cover the following areas:
Call-off stock
Proof of cross-border transportation
Customer VAT number
Chain transactions
Companies involved in cross-border supplies of goods should consider the possible impact of these ‘quick fixes’ on their businesses in order to mitigate VAT risks and seize the opportunities.
EU cross-border call-off stock supplies
From January 1st 2020, all Member States are required to introduce a call-off stock simplification regime into their VAT law. Call-off stock occurs where a supplier in Member State A transfers stock to another in Member State B, so that stock can be called-off by a specific identifiable customer established in Member State B when required.
In principle, the supplier must register for VAT in Member State B and charge local VAT to its customer. The call-off stock simplification regime relieves, under some conditions, the supplier from having to register for VAT in Member State B and shifts the payment of the VAT to the customer. Currently, the VAT law of Member States do not provide for such a simplification regime. The new rules should therefore represent a significant improvement for impacted businesses.
Documentary evidence of proof of EU transport
Intra-EU supplies of goods (goods transported from one Member State to another Member State) between VAT taxable persons are VAT exempt in the Member State of departure of the goods. This implies that the supplier is able to prove the transport of the goods. Providing such proof has been a source of difficulty for many Member States. The ‘quick fixes’ aim to clarify how to prove such transportation.
As from 2020, a seller will need two non-contradictory pieces of evidence out of a list defined by the new legislation (i.e. a transport or insurance document, a CMR document). A completely new and additional requirement will be introduced when the buyer takes care of the transport of the goods (or a person on their behalf) in which they must provide the seller with a written statement that the goods have been transported to the destination Member State.
This written statement is an innovation of the new legislation and has indeed, never been seen before by the VAT Directive.
Mandatory VAT ID nummer verification for EU supplies
As from January 2020, the importance of quoting the purchaser’s VAT number in cases of intra-EU supplies will become even more important than it is currently. In fact, it will become a substantive condition instead of a formal one.
Practically speaking, not quoting the VAT number of the purchaser or quoting an invalid VAT number will imply that intra-EU supplies of goods will not be VAT exempt in the Member State of departure of the goods and that the local VAT will instead be due. This could subsequently have a significant financial impact.
Businesses performing intra-EU supplies of goods should ensure that they have appropriate measures and procedures in place to check their clients’ VAT registration numbers systematically, easily and reliably.
EU cross border chain transactions
Determining which transaction in a multiple supply chain of sales is the intra-EU supply, and can therefore potentially benefit from the exemption, is likely to become clearer following changes in 2020 surrounding the transportation of goods arranged by an intermediary supplier (i.e. where goods are dispatched or transported by the intermediary or by a third party acting on its behalf).
In principle, the supply between the original supplier and the intermediary will be considered the intra-EU supply and therefore will be exempt, except if the intermediary provides to the original supplier the VAT number under which he is registered in the Member State of the original supplier.
On 2 October 2018 the European Council adopted several changes to the VAT legislation.
Quick Fixes
A first directive will implement some short term quick fixes pending the introduction of the definite VAT regime for intracommunity transactions. These quick fixes are:
A simplified and uniform treatment for call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another member state. Such transfers will, at first, not be treated as a supply of goods. If the goods are not sold after 12 months, a taxable transfer of the goods will need to reported. These are just the principles, there are of course a number of conditions to be met.
Today a supplier can exempt his intracommunity supply from VAT if the goods are shipped from one member state to another and his customer acts as a taxable person. The new article 138 of the VAT Directive will demand, for this VAT exemption to apply, that the buyer is registered for VAT in another member state than the one where the transport begins, and that he has indicated his supplier with this VAT number.
In chain transactions (a sequence of supplies where the goods are shipped only once from the first seller to the last buyer within the chain) the VAT directive will lay down several rules on how to determine in which supply of the chain the goods are shipped. Only this supply can benefit the VAT exemption for intracommunity supplies if the other conditions are met.
In a council regulation, legal certainty will be enhanced on how to prove the transport of goods when applying the VAT exemption for intracommunity supplies. If the supplier can provide certain documents, it shall be presumed that the goods have been shipped from one member state to another.
These four quick fixes will apply as from 1 January 2020.
VAT rates on e-publications
After several years of discussion, the Council also adopted a directive allowing member states to apply reduced, super-reduced or zero VAT rates to electronic publications. This directive will apply from the 20th day following its publication in the official journal of the EU.
Fight against VAT fraud
To combat VAT fraud, the commission has allowed:
A temporary measure (until 30 June 2022) allowing member states, under very strict conditions, to introduce a general reverse charge mechanism on domestic supplies of goods and services above a threshold of € 17 500 per transaction.
An extension until 30 June 2022 of the so-called sectoral reverse charge mechanism for certain supplies of goods and services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud (article 199a of the VAT Directive).
Further the Council agreed on measures to boost administrative cooperation between the member states to improve the prevention of VAT fraud.
These measures will also apply from the 20th day following its publication in the official journal of the EU (with exception for certain specific measures of the last mentioned directive that will apply from 1 January 2020).
Follow our website for upcoming details of our client conference in the beginning of next year where these quick fixes will be further explained.
