Germany advances marketplace VAT liability bill
- Jul 31, 2018 | Richard Asquith
On 1 August 2018, Germany’s federal cabinet (Bundesregierung) approved a draft bill to oblige online marketplaces to capture key VAT data and compliance on third-party sellers on their platforms from January 2019. After 30 September 2019, marketplaces failing to follow the new obligations, including blocking fraudulent sellers, will become secondary liable for any unpaid VAT dating back to 1 March 2019.
Hundreds of millions in missing e-commerce VAT
Germany is looking to reduce hundreds of millions in lost VAT revenues, much of which is believed to originate from sellers in other countries unaware of their German VAT obligations or deliberately evading VAT. The EU estimates that member states lose a total in €5billion in e-commerce VAT fraud.
The largest online platforms in Germany are: Amazon; Otto; Zalando; Noteboosbilliger; Bonprix; MediaMarkt; Cyberport; Conrad; Tchibo; ad Alternate.
Marketplaces must collect seller background and transaction data
The draft bill would require marketplaces to verify that merchants are German VAT registered, plus collect background information including:
- the full name and address of the seller;
- the tax number of the seller, and if appropriate the VAT ID number;
- the start and end dates for validity of the certificate for the above;
- the place where dispatch or shipping begins, and the destination; and
- the date, and quantity of sales.
Alternatively, they can seek a digital tax certificate from the tax authorities that the seller is up-to-date with their VAT compliance. If this is not satisfied, and the marketplace continues to allow the seller to market on their platform, then it would be held liable for any unpaid VAT.
Non-EU sellers will have to appoint a VAT representative / agent to obtain their tax certificate. This agent must be resident in Germany or an authorised party in another EU country.
Challenges to the German bill
It is stil unclear if the bill can proceed for 2019 enactment:
- The practicalities for the German tax authorities handling the expected rush to VAT register hundreds of thousands of sellers may hold up the bill’s passage. Although the delay till 30 September for joint marketplace liability should help mitigate the risks on this issue.
- The requirement to record the origin and destination of each transaction for many platforms may also undermine the proposals since many of them have no role in fulfilment of the sales.
- The ‘legally established’ term in the bill to define affected sellers also lacks clarity
- The German customs authorities may also be unable to monitor the supporting data on the goods’ movements. This means criminal foreign sellers can still easily just shut up their marketplace accounts and relaunch under a new name elsewhere – thus undermining the whole purpose of the legislation.
All of the above means the draft bill may infringe the EU VAT Directive's requirements for proportionality and neutrality.
UK and EU marketplace liability rules
The UK implemented marketplace VAT rules in March 2018, requiring marketplaces to display verified VAT numbers of sellers on their websites. It also introduced a voluntary code of conduct to help spot and block fraudulent sellers. Germany has not followed these requirements, which will create further burdens for the international marketplaces.
The EU had proposed making marketplaces liable for clear cases of VAT fraud where they should have identified missing VAT. This could be introduced in January 2021.
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Researching German VAT legislation is the first step to understanding your VAT compliance needs. Avalara has a range of solutions that can help your business depending on where and how you trade.