The deemed supplier rule impacts two types of cross-border transactions:
- Goods valued below €150 imported by EU or non-EU sellers and sold to EU customers
- Goods of any value sold by a non-EU seller to an EU customer
Once the marketplace becomes the deemed supplier, the sale between the seller and the customer is treated as two separate transactions for VAT purposes:
- The seller sells the goods to the marketplace. This becomes a business-to-business (B2B) tax-exempt sale and no EU VAT is due.
- The marketplace sells the goods to the customer. This becomes a business-to-consumer (B2C) sale with the marketplace now responsible for collecting the VAT due based on the customer’s country of residence.
Here’s an example of how this would work: Let’s say a U.S. merchant sells goods to French and German customers through an online marketplace. As it stands now, the seller has to be VAT-registered in France and Germany in order to charge 20% VAT to its French customers and 19% VAT to its German customers. Starting July 1, under the new rule, the seller becomes the underlying supplier and the facilitating marketplace becomes the deemed supplier, purchases the goods from the seller, resells them to EU customers, collects the VAT, and reports the sales through either local VAT registration or single EU Import OSS for those sales.
Marketplaces must also keep detailed records of sellers’ transactions to show VAT has been correctly accounted for, and electronically maintain these records for 10 years from the original transaction date. The marketplace won’t be held liable for underpaid VAT if the seller failed to provide the correct information required for the VAT calculation and the facilitating marketplace can reasonably show it wasn’t aware of the error. It’s also important to note that while the marketplace facilitator is responsible for VAT, it may not be responsible for other obligations related to the sale, such as product liabilities.