Legal Framework
BACKGROUND
Situation prior to July 2021
The Council Directive 2006/112/EC (the VAT Directive) contemplated simplification measures, which aimed to reduce the administrative burden of companies supplying goods or services B2C in their operations involving consumers located in different Member States.
In practice, however, these measures did not stop companies from having to register in more than one Member State in order to declare and pay the local VAT that was applicable to their B2C operations with local customers, constituting a significant administrative burden for many of them.
Until 1 July 2021, the simplification measures defined in the VAT Directive, which were designed to reduce the burden of companies undertaking B2C operations between the different Member States, were as follows:
For B2C services
A Mini One Stop Shop (MOSS) was introduced on 1 January 2015 for B2C telecommunications, broadcasting and electronic services (TBE). This was comprised of two special schemes, the Union scheme and the Non-Union scheme, for companies undertaking operations from a different Member State to where their customers were located or from abroad, respectively. These schemes enabled companies to register and declare the VAT resulting from their provision of TBE services to the different Member States through a single Member State.
The MOSS system was not applicable to any B2C services other than TBE. This meant that any suppliers that were operating from a third country or from a different Member State to where their customers were located, were required to register in each Member State in which they were supplying their services to an end customer if local VAT was to be applied in accordance with the applicable location rules (i.e. accommodation, vehicle rentals, work on immovable property.).
Each country established a VAT threshold for B2C distance selling
Except for cases that were subject to special taxation. This threshold was between 35,000 and 100,000 euros, with the exact amount varying depending on the Member State. If their sales were below said threshold, B2C distance sellers were not obliged to apply local VAT or register in the country.
This meant that once the distance sales of goods to local customers had exceeded the country’s corresponding threshold, the supplier was obliged to apply local VAT and register in the Member State in order to proceed with the declaration and payment of the applicable VAT.
VAT exemption for the importation
These regulations also contemplated a VAT exemption for the importation of small consignments with a value of less than 22 euros. A lack of coordination between the Member States and the misuse of this measure, facilitated by the increasing role played by new technologies and E-commerce platforms, resulted in an enormous loss in VAT revenue from B2C business (known as the VAT gap) and harmful competition from companies operating from abroad.
What happens after July 2021?
On 1 July 2021, the E-commerce VAT obligations established in the VAT Directive were modified by Directive 2017/2455 and Directive 2019/1995 (the E-commerce VAT Directives), which aimed to reduce the burden of formal VAT obligations and tackle the considerable amount of fraud resulting from B2C operations. The main changes are:
1) Extension of the One-Stop Shop (OSS) system
In order to facilitate compliance with the formal obligations derived from E-commerce operations in the different Member States, three special One-Stop Shop (OSS) schemes were regulated, namely:
The Non-Union scheme.
This scheme, which already existed prior to July 2021 for telecommunications, broadcasting and electronic (TBE) services provided to end consumers, has been modified to also include other types of B2C services that are subject to VAT in the EU Member State where the consumer is located (the Member State of consumption) according to the applicable location rules.
The new E-commerce regulations have not modified the existing rules regarding the place where the services are provided, but rather they offer a simplified procedure for declaring VAT owed in the EU Member States where the service is provided. This is a non-exhaustive list of B2C supplies of services by non-EU established taxable persons that could be declared under the Non-Union scheme: accommodation services, admission to cultural, artistic, sporting, scientific, educational, entertainment or similar events; transport services; hiring of means of transport, etc.
The Union scheme
The Union scheme, which already existed prior to July 2021 for telecommunications, broadcasting and electronic (TBE) services provided to end consumers, now covers B2C distance sales of goods and the provision of any other type of services, which according to the applicable location rules are subject to VAT in the EU Member State where the consumer is located (the Member State of consumption (i.e. accommodation, vehicle rental, immovable property works, etc. (the Member State of consumption).
The import scheme (IOSS)
A new import scheme has been introduced to facilitate the management of VAT when importing goods valued at less than 150 euros. This new scheme goes hand in hand with the abolition of the VAT exemption for goods valued at less than 22 euros, one of the changes that was introduced to combat fraud and ensure that the conditions were the same for EU companies as for non-EU distance sellers.
Companies that have opted for any of these special schemes will not be required to register and submit VAT declarations in each Member State in which their E-commerce operations take place and where they are obliged to apply the local VAT rate, instead they can choose to fulfil all of their E-commerce tax obligations in one single Member State. This means:
Under the Non-Union scheme and the Union-scheme
If, according to the applicable location rules their services are levied with the local VAT corresponding to the country of consumption, companies will not be required to be registered in every single Member State in which their B2C E-commerce operations take place. Instead, the VAT on B2C sales may be declared and paid on a quarterly basis through the IOSS system. For this purpose, the companies will be required to submit the aforementioned declaration in their Member State of Identification (which the taxable person will be free to choose under the Non-Union scheme, or which will be the country in which the company is established under the Union scheme).
Under the Import scheme
The VAT owed may be declared and paid through a monthly IOSS VAT declaration, which the company will have to submit themselves. However, in the case of companies that are not established in the EU, or companies with an information exchange agreement, the declaration will be submitted by their appointed intermediary. As with the previous special schemes, the VAT declarations must be submitted in the Member State of Identification, which the company will be free to choose if they are not established in the EU, or which will be the Member State where the company or their intermediary is established within the EU.
Likewise, companies that opt to enrol in a special OSS scheme must keep special records of all B2C operations, which must be made electronically available to the Member State of Identification and the Member States of consumption for 10 years.
According to Council Regulation 282/2011 (article 63c), these records must contain general information including the Member State of consumption, the type of operation, the date of the operation and the amount of VAT payable, as well as more specific information, including details of any payments received on account and the information used to determine the place where the customer is established, has their permanent address or usually resides.
These records must be kept for 10 years from the end of the year in which the operation took place, irrespective of whether the taxable person has stopped using the special scheme or not. During this period, these records must be made electronically available to the Member State of identification or any Member State of consumption that may request it, without delay.
2) Role of electronic interfaces in the management of VAT for the B2C operations in which they intermediate
Taxable persons who facilitate distance sales of goods through the use of an electronic interface, such as a marketplace, platform, portal or similar means (EI), will be obliged to collect the VAT on those sales.
The concept of “deemed supplier”
For this purpose the VAT Directive (article 14 bis) has established a new legal provision in which a taxable person is considered as “a deemed supplier” if they facilitate the following supplies of goods through the use of an electronic interface:
- Goods imported in consignments of an intrinsic value that does not exceed EUR 150 supplied to a customer in the EU, irrespective of whether the underlying supplier/seller is established within the EU or outside the EU.
- Goods which were already released into free circulation in the EU, and goods that are located in the EU and that are supplied to customers in the EU, irrespective of their value, when the underlying supplier/seller is not established in the EU.
Special recording obligations
Irrespective of whether the company is a deemed supplier or not, new record keeping requirements have been introduced, under which companies that facilitate the supply of goods and services via an electronic interface are required to maintain records of all transactions made through the interface for 10 years.
3) Changes to import VAT for small consignments
The new E-commerce rules have brought about significant changes in the payment of VAT on the import of small consignments:
The VAT exemption for small consignments with a value of less than 22 euros has been abolished
Because the system was open to abuse. This was replaced by the aforementioned Import Scheme for consignments that do not exceed 150 euros.
New VAT exemption
In order to avoid double taxation, a new VAT exemption system has been introduced for the import of consignments with a value of less than 150 euros when the Import scheme is applicable.
A special procedure has been introduced for paying VAT for the import
A special procedure has been introduced for paying VAT for the import of consignments with a value of less than 150 euros when the Import Scheme is not applicable. In this case, the import VAT is charged to the end customer by customs declarants, who are generally postal operators, courier firms or customs agents. In this case the VAT can be collected via a monthly payment.
Important note
The special VAT declarations resulting from the new E-commerce VAT system are in addition to and not in lieu of the VAT declarations that a company may be obliged to file in any of the Member States in which they operate, in accordance with the applicable national regulations.
This may be the case for companies selling goods that are located in their own Member State to end consumers (as is often the case with companies that have signed up to an Amazon FBA scheme).
