The VAT treatment of supplies of goods and services in the digital economy continues to be an area of challenge and change, affecting businesses around the world.
In keeping with this trend, on 5 December 2017 in Brussels, the European Union (“EU”) adopted new legal provisions affecting both EU and non-EU businesses involved in selling goods cross-border to EU consumers (“distance sales”). The provisions will in many cases change the VAT compliance obligations for such businesses, as well as extend VAT compliance obligations in certain circumstances to businesses which facilitate distance sales, such as online platforms and marketplaces. The EU legislators also intend that joint and several liability for VAT purposes should extend to businesses that “facilitate distance sales of goods”, potentially imposing additional VAT obligations on a wide range of businesses. These are significant changes but, for the most part, they will not enter into effect before 1 January 2021.
While the final text of the legislative measures agreed today is not yet publicly available, we understand that the principal measures can be summarised as follows:
1. Goods sold to EU consumers from outside the EU
The existing relief from VAT on consignments imported into the EU from outside the EU with a value of less than €22 will be abolished in 2021. However, where distance sales of goods imported into the EU are facilitated by an electronic marketplace including platforms or portals and have an intrinsic value of €150 or below, the marketplace operator will be liable to pay the VAT in the EU country where the customer is located. Where the €150 threshold is exceeded, a full customs declaration will still be required.
2. Goods sold cross border within the EU
The intra-EU regime for distance sales will also have a major overhaul. The one-stop-shop regime already in place for supplies of digital and other services will be extended to distance sales of goods in 2021. While this will avoid the requirement for some online sellers to have multiple VAT registrations, it will however require more businesses to charge VAT on distance sales of goods based on the location of their customer. This is because current national registration thresholds for distance sales of goods will be replaced by a new common threshold of €10,000 for all sales within the EU but outside of the home country.
Some simplification measures affecting the current regime for B2C supplies of digital services will come into effect on 1 January 2019. However, the measures set out above in respect of distance sales of goods will come into effect on 1 January 2021. This long lead in period is needed to ensure the necessary administrative and infrastructure changes are in place in all EU Member States. More importantly however, much of the detail of how the measures will work in practice will need to be included in implementing regulations that will have to be finalised well before this date. For example, more work will be needed on details such as who exactly is liable for collecting and paying the tax and the information obligations that fall on businesses. The European Commission has not formally started drafting these implementing regulations but early indications are that they will closely follow the approach taken in the regulations for the 2015 changes for telecoms, broadcasting and electronic services.
While 2021 may seem some way off, businesses involved in or which facilitate distance sales of goods to consumers in the EU should begin to consider the implications of these measures for their business. KPMG can assist with the assessment and implementation of these changes in your business.
Perhaps more urgently, however, the coming months will be critical for engaging with European Commission and governements on the development of detailed implementing regulations. KPMG has already engaged with the key stakeholders on the development of these measures and will continue to do so. We would welcome your input into this process.