New business models arise as the world develops rapidly due to technology. As a result, those operating in the field face continuous challenges as current legislation not always seems to be compatible with the modern era. This seems particularly to be the case for businesses in E-commerce. The globalization of the E-commerce sector has resulted in very complex compliance obligations for the sellers involved. At the same time, marketplaces have encountered an exponential growth of online sellers that face challenges to be compliant with difficult VAT legislation.
The EU has worked on new legislation that was more compatible with this modern era. This package consists of various new measures which are implemented in various phases. As of 1 July last year, various new rules were implemented which should have made it easier to be compliant for online sellers. On the other hand, it should make it easier for authorities to enforce compliance obligations.
One of the new measures that was introduced is a new system to report all online sales in various EU Member States which is called the One Stop Shop (OSS). Simultaneously the thresholds for distance sales were abolished. Previously, online businesses that sold goods from one EU Member State to consumers in other EU Member States were required to continuously monitor the volume of their sales. If a particular threshold was exceeded in the Member State involved, the businesses needed to register for VAT purposes and comply with various obligations in this State. Therefore, the OSS seemed a very welcome simplification.
On the other hand, the abolishment of the threshold per Member State to a single threshold of € 10,000 in total has resulted in a more global VAT exposure and businesses continuously need to monitor changes, for instance changes of VAT rates in different EU Member States. Online sellers that have multiple stock locations in various EU Member States and sell to consumers locally and cross-border face a more complex VAT compliance position in case these sellers opt for the OSS. The reason for this is that these businesses need to monitor all local sales and all cross-border sales and report these sales separately.
Considering the impact of the new rules, it is strongly recommended for E-commerce businesses to review whether they are still in control. This could be done through an external review of the OSS returns or by setting up an Indirect Tax Control Framework (ITCF). RSM’s E-commerce Team is happy to assist you to discuss the impact of VAT legislation on your online business.
If you would like more information about the above, please contact your trusted RSM advisor.