2021 EU marketplaces VAT deemed supplier
From July 2021, marketplaces may become the deemed supplier when they facilitate certain cross-border B2C transactions of their third-party sellers.They will therefore be liable to collect, report and remit the VAT due from the consumer. Whilst the marketplace takes on the VAT rights and obligations of the sale, they do not take on other obligations, such as product liabilities. This new rule comes into force as part of the e-commerce package of reforms to help simplify VAT compliance and tackle online VAT fraud. Note: there is an opt out for this obligations under the Special Arrangements, moving the VAT collections role to postal services and customs agents instead.
This is one of three reforms as part of the July 2021 EU e-commerce VAT package. The other two reforms are:
- Launching the One-Stop-Shop EU VAT return; and
- Ending low-value import VAT exemption and new IOSS return.
The 2021 EU VAT e-commerce package was delayed, including this reform, until 1 July 2021. In addition, the UK marketplace VAT liabilities has already implemented marketplace obligations from 1 January 2021 - the end of the UK's Brexit transition period.
To understand where the new rules will apply, the following facts should be examined: defining a marketplace; is there facilitation; and which transactions are in scope. Once a deemed supply has been identified, a new two-stage VAT transaction process must be applied.
I. Defining a marketplace
The EU Council implementing regulation for the July 2021 e-commerce package refers to ‘electronic interfaces’ (‘EI’), which includes online marketplaces, platform, portal or similar means. The role of the marketplace is to introduce customers and sellers offering goods for sale, and who then enter into a contract which results in a taxable supply.
II. Is the marketplace facilitating the sale?
A marketplace is considered to facilitate a sale when it participates in any of the following:
- Controls the terms and conditions of the sale;
- Authorises the charge to the customer in respect of the payment for the supply; and/or
- Orders or delivers the goods.
However, the marketplace is not considered to facilitate the sale if it only provides one of the following services in relation to the sale:
- Payment processing;
- Listing or advertising the goods;
- Redirecting customers to other marketplaces where the goods are offered without any further involvement in the sale.
III. Which transactions are in scope?
Two types of cross-border transactions are in scope for the July 2021 deemed supplier rule changes when facilitated by a marketplace:
- Import sales by EU or non-EU sellers to consumers of consignments not exceeding €150; and
- Consignments sold by a non-EU seller to an EU consumer of any value. This may be on a distance sale (cross-border) or domestic sale basis.
Two-stage VAT transaction for deemed supplier marketplace sales
To effect the new rules, once a seller and customer have agreed a sale, the existing single transaction procedure between the seller and customer will be split into two:
1. The seller will sell the goods to the marketplace on a B2B VAT exempt with credit basis. This means the seller remains free to deduct any input VAT suffered on the purchase of the goods. The transport of the goods will be attached to this transaction, so entitling it to zero-rating.
2. The marketplace will sell the goods to the consumer, charging the VAT rate of the consumer’s country of residence. The VAT is due at the earliest of the marketplace receiving the order, commitment or order to pay from the consumer.
To understand the marketplace facilitation use cases, let us take two examples.
Example 1: Import followed by distance selling below €150
DeutschShopper GmbH is a German-resident seller. It makes sales to French and Italian consumers via a facilitating marketplace. The goods are valued below €150, and are sourced from China and then imported into France initially.
Today: DeutschShopper is VAT registered in France to recover the French import VAT and charge 20% French VAT to the consumer. It must also be VAT registered in Italy (assume it is over the distance selling threshold of €35,000) to report the distance sales from France to Italian consumers, and charge 22% Italian VAT.
From July 2021: The facilitating marketplace will become the deemed supplier, and will take responsibility for the import into France in its EU One Stop Shop (OSS) or IOSS declaration ( See the new 2021 OSS single EU VAT return). It will charge the French and Italian consumers 20% and 22%, respectively, at the point-of-sale. This effectively replaces the import VAT. It follows the new rules under the withdrawal of the low-value consignment stock relief, also to be introduced in 2021. DeutschShopper can close its French and Italian VAT registrations if not using it for other purposes. For example, holding local stocks in Italy, selling via its own website or selling goods over €150.
Example 2: Non-EU selling goods across EU borders for any value
USSeller, Inc, is a US-resident seller. It buys goods in France for resale to French and German consumers via a facilitating marketplace.
Today: USSeller is French VAT registered in order to charge 20% French VAT on domestic sales, and to recover the French input VAT it is charged when it buys stocks. It is also German VAT registered (assume it is over the German distance selling threshold of €100,000) to charge 19% German VAT to consumers.
From July 2021: The facilitating marketplace will become the deemed supplier for the French and German sales to local consumers. The marketplace will report the sales through either its own local VAT registration in France or Germany. Or, if the marketplace does not have a local registration, it can instead use its single EU IOSS for sales in France and Germany. USSeller may de-register from France and Germany – unless it is selling off the marketplace or holding stock locally. Lastly, it can recover the French VAT it paid when initially buying its stock via a 13th Directive VAT recovery claim.
Marketplace record keeping obligations
In addition to taking on potential deemed supplier VAT responsibilities, marketplaces will also have new record keeping responsibilities. They will be required to keep sellers’ transactions in sufficient detail to enable tax authorities in the country of the customer to check that VAT has been correctly accounted for. The must be held electronically for at least 10 years after the year of the transaction.
Marketplace liable for mis-declared VAT?
A marketplace will not be held liable for underpaid VAT on deemed supplier transactions where the seller provided it with erroneous information that was required for the VAT calculation. But the marketplace will have to demonstrate that it did not and could no reasonably have known that the information was incorrect.
The UK left the EU VAT regime on 31 December 2020. The July 2021 EU deemed supplier marketplace reforms will therefore not apply to transactions in the UK.
UK ecommerce marketplace deemed supplier rules were introduced on 1 January 2021. They are similar to the above EU rules. The major difference is that instead of the IOSS import return, marketplaces will use a regular UK VAT return. And there is no Special Arrangements opt out in the UK.
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