Exploring The EU VAT E-Commerce Reforms

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The latest EU VAT e-commerce regulations and their implications on businesses and consumers around the world are discussed by Liz Armbruester, Avalara’s senior vice president of global compliance.
The length and clarity of this transcript have been altered.
Stewart, David D.: Hello and welcome to the podcast. Hello, my name is David Stewart, and I’m the editor-in-chief of Tax Notes Today International. This week’s theme: Update on the value added tax.
The European Union’s major amendments to the value added tax went into force on July 1. Due to the COVID-19 epidemic, the modifications, which primarily affect online transactions in some EU member states, were postponed for six months.
What is the reaction and adjustment of firms in the EU to the new VAT rules? What impact will the reforms have on customers in Europe and the US?
Kiarra Strocko, a legal reporter for Tax Notes, is here to discuss this further. Welcome back to the podcast, Kiarra.
Kiarra Strocko (Kiarra Strocko): Dave, I appreciate it. It’s wonderful to be here.
Stewart, David D.: For Tax Notes, you’ve been covering this topic. Could you give us some context on why these reforms were implemented and what they mean?
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Kiarra Strocko (Kiarra Strocko): Yes, of course. The EU Council adopted the VAT e-commerce package in December 2017 with the goal of decreasing administrative costs on intra-EU trade while simultaneously reducing VAT fraud. These new laws also attempt to level the playing field between EU and non-EU enterprises, promoting fair competition.
As you indicated, the rules were intended to go into effect on January 1, but they were postponed to July 1 due to current issues this year. These regulations are significant because they reflect the expansion of cross-border e-commerce and will affect the majority of enterprises worldwide.
A rule will make online marketplaces that promote cross-border sales responsible for collecting and remitting tax on presumed supplier transactions as part of the new measures. In addition, their forms erase the VAT exemption for low-value imports, so that all items imported into the EU are now subject to VAT.
These new rules are critical because, under previous rules, enterprises who sold online goods were required to register for VAT in the consumer’s member state if sales above a set threshold. Businesses can now register and file their VAT returns in a single member state.
Stewart, David D.: You recently discussed this with someone. Can you tell me about your visitor and what you discussed?
Kiarra Strocko (Kiarra Strocko): Liz Armbruester, Avalara’s senior vice president of global compliance operations, spoke with me. She explained the complexities of the EU VAT system as well as the overall impact of the modifications made. We found it fascinating that the EU VAT system was last changed in 1993, and that these VAT modifications are taking place in the midst of the pandemic’s slowing and negotiations for a two-pillar global tax reform plan.
We also talked about the reasons for the VAT reforms, their ability to close the e-commerce VAT gap, and the EUR140 billion VAT shortfall in the EU that was disclosed in 2018. We also looked at the ramifications for large and small firms, as well as whether non-EU and EU enterprises are actually ready to deal with the new developments six months later.
Liz presented instances of when online marketplaces may become the presumed supplier and how to apply the shift to various business settings, which was helpful. She also gave an overview of the VAT One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) systems, as well as lessons gained from the Mini One-Stop Shop (MOSS) that debuted in 2015 and any issues that may arise in the future.
Stewart, David D.: That’s all right. Let’s get this interview started.
Kiarra Strocko (Kiarra Strocko): Liz, welcome to the podcast. It’s wonderful to see you here. With the new rules taking effect at the beginning of this month, it’s the ideal time to explore EU VAT amendments and their ramifications. From an implementation standpoint, it could be the calm before the storm.
Liz Armbruester: I’m Liz Armbruester, and I’m Kiarra, I appreciate it. It’s great to be here with you today to discuss this huge development that will affect a wide range of vendors all across the world.
Kiarra Strocko (Kiarra Strocko): EU enterprises can now file and pay VAT in a single member state as a result of several EU VAT changes, such as the implementation of the VAT One-Stop Shop scheme. What does this mean for e-commerce business owners? Is this to say that some sellers will be disadvantaged as a result of this?
Liz Armbruester: I’m Liz Armbruester, and I’m I think it’s a great question, and I think stating something like, “Hey, listen, we haven’t had this substantial of a change in operations since 1993,” really encapsulates the consequences of how quickly business is changing. It’s taken some time for the EU reforms and the regime to step up the pace, acknowledge this, and get everyone back on a level playing field.
But, when we think about the One-Stop Shop and the Import One-Stop Shop, often known as OSS and IOSS, it’s crucial to remember that what you hear when you hear those names isn’t what’s causing the disruptions. Right? These are the techniques. Sellers will be able to use those tools, if you will, to help simplify the changes that will occur as a result of the regulations that take effect on July 1.

getty European VAT idea
One of the first things that comes to mind when I think about it before July 1 is the distance selling thresholds. Right? These existed, and their purpose was to force foreign enterprises to register for VAT whenever their sales hit a certain threshold, which varied by country. They ranged in price from $35,000 to $100,000.
The VAT package, which goes into effect on July 1st, removes the distance selling thresholds. At the time of the first sale, cross-border retailers must charge the VAT rate in the customer’s country of residency and remit it to the foreign tax authorities. That appears to be the case at first glance “Wow, that was incredible. For sellers, this is a significant compliance burden. They must go out and register for VAT in every location where they sell.”
However, according to the reform package, “No way. We’re going to simplify things a little bit there.” That appears to be a continuation of the single VAT return. It’s a one-stop shop for e-commerce, cross-border sales, and commodities sold over long distances. This eliminates the requirement for sellers to register for VAT in each nation where they sell to EU consumers. It simplifies things once more, and the existing requirement to register in all nations is abolished. That’s a significant shift.
Kiarra, this can be quite difficult for sellers to comprehend. I believe that a significant point to consider here, as you mentioned in the start, is who this relates to and what transaction types actually come within the OSS and IOSS streamlined system.
The first is business-to-consumer [B2C] sales of items transported within the European Union, followed by B2C sales of goods shipped from outside the EU. If your B2C sales are being sent from within the EU, the benefits of OSS come into play once more. IOSS comes into play when you have B2C items exported from outside the EU. It makes registering and remitting VAT easy.
If you fall into the latter category and are not based in the EU, you must evaluate the need for an intermediary, which is a representative based in an EU country. It’s akin to the fiscal rep rules that are currently in place in many EU member states. I’m not sure whether any UK merchants are listening, but there are very significant questions about whether or not that intermediary applies to UK businesses right now. So, just a quick note to those who are still debating whether or not this pertains to them.
Last but not least, and somewhat unrelated to OSS and IOSS, there is one more aspect of this change that will affect sellers, and that is the deemed marketplace. Those revisions, too, went into effect on July 1st. The marketplace deemed supplier rules apply in this case to marketplaces that are based outside of the EU or that are importing goods into the EU.
The marketplaces will be in charge of processing the VAT reported for sales made by third parties on their platforms under these guidelines. It’s a lot of change, all aimed at doing the things you indicated, namely, reducing fraud and creating a level playing field. However, even with simplification approaches, it might be a difficult task for enterprises.
Kiarra Strocko (Kiarra Strocko): Another significant change is that, as you mentioned, online marketplaces that facilitate cross-border sales will now be responsible for collecting and remitting the fees associated with considered supplier transactions. Could you give us a quick overview of this development and any consequences it may have for non-EU countries?
Liz Armbruester: I’m Liz Armbruester, and I’m Sure. I’m delighted to. The requirements for marketplaces that are designated suppliers apply to marketplaces that are based outside of the EU or that import goods into the EU. The marketplaces will be responsible for processing the VAT reporting for sales made by third parties on their platforms, according to the rules.
Once that marketplace has been identified as the presumed supplier, the sale between the seller and the consumer is effectively regarded as two independent VAT transactions. The first section appears to be a seller selling things to a marketplace. Things’s the most straightforward way of putting it. This is now a tax-free sale between businesses, and no EU VAT is owed.
The second half of the transaction occurs when the marketplace sells the items to the client, which turns the transaction into a business-to-consumer transaction, with the marketplace now liable for collecting the VAT due./nRead More