EU July 2021 Marketplace deemed supplier EU VAT reforms

8 May 2020 update: the 2021 EU VAT e-commerce package is delayed, including this reform, until 1 July 2021.

From 1 July 2021, online marketplaces which ‘facilitate’ the cross-border sales of third-party sellers will become the ‘deemed supplier’ on certain imports and cross-border sales to consumers. This will oblige the marketplace to first purchase the goods from the seller, typically on a zero-rated cross border basis, and then make the sale to the consumer. This second step will oblige the marketplace to charge and report VAT under its own name – it will become the deemed supplier for VAT purposes. 

It is part of the EU Action Plan for VAT and other reforms.

The implementing legislation was agreed at the end of 2018, and the proposals originally formed part of the EU VAT Action Plan from 2016.

The marketplace deemed supplier changes will reduce some of the opportunities for fraudulent non-EU and EU sellers to avoid declaring VAT on their sales. The aim is to reduce VAT fraud on cross-border e-commerce transactions which the EU Commission estimate cost member states over €5 billion in 2019, rising to €7 billion by 2021. 

Marketplace deemed supplier rules

The marketplace deemed supplier rules only apply on two types of cross-border sales models, and where the marketplace has ‘facilitated’ the sale.  The sales models are:

1. For goods below €150, first imported by an EU or non-EU seller, and then distance sold to an EU consumer; and

1. For goods of any value distance sold by a non-EU seller to an EU consumer.

In terms of facilitating the sale, this may include:

• The platform has control on the general terms of the sales contract;
• The platform charges payment on behalf of the seller; and
• The platform participates in the ordering, fulfilment or delivery of the goods

However, the following marketplace activities alone to not qualify as facilitating the supply:

·      Providing payment processing facilities;

·      Advertising or listing the goods; or

·      Providing a hyperlink to other platforms where goods are sold without further involvement in the eventual sale or delivery.

Marketplaces reporting deemed supplier transactions

In terms of reporting the transactions, marketplaces may use either their existing VAT registrations in appropriate countries, or the new OSS or IOSS declarations (see above) being launched in July 2021. These enable sellers or marketplaces to declare imported and distance sold transactions in a single, pan-EU return. 

Questions over marketplace liabilities – Kittel principle

The liability of the marketplaces to any underdeclared or missing VAT has still to be clarified. If the seller provides inaccurate information to the marketplace then the marketplace cannot be held liable. However, if it can be shown that the marketplace did or could have reasonably known that the data was incorrect, then they may be held responsible for any excess undeclared VAT.  

This potentially deploys the ‘Kittel principle’, based on the 2006 European Court of Justice ruling that if a customer could have known of a likely fraud, then they were not entitled to input VAT deduction. Since marketplaces have differing business models, including degrees of access to the goods and buyers/sellers, this open liability issue may throw-up many test cases.