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The so-called VAT E-commerce Package initiated by the EU Council Directive has changed the way we view the taxation of retail sales (in the B2C channel) in the European Union. The most important changes, which came into force in Poland on 1 July 2021, concern the VAT classification of transactions, the thresholds required to determine the place of taxation, one-stop shops for taxpayers, as well as the role of electronic sales platforms/interfaces and the scope of recording obligations. New taxation rules have been in force for almost a year now.
EU distance sales of goods? Or imported goods?
- First of all, it is important to know that we no longer use tax classification of so-called distance sales of goods (divided into distance sales from and in the national territory).
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For the entrepreneur today, two types of transactions within the B2C channel are crucial:
- Intra-Community Distance Sales of Goods (ICDS), and
- Distance sales of imported goods (DSIG).
- A transaction meeting one of these definitions will be covered by the new VAT rules for e-commerce business.
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ICDS
- The supply of B2C goods which are dispatched or transported from one Member State to another.
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DSIG
- The supply of B2C goods which are dispatched to a Member State from a third
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At the same time, to meet both the ICDS and DSIG definitions:
- the transport (dispatch) must be carried out by the supplier (also indirectly, i.e. inter alia in situations where the supplier arranges the transport, assumes even partial responsibility for the delivery of the goods to the purchaser or even merely encourages the use of a third party, while providing the required delivery data),
- the goods delivered must not be new means of transport or goods which are being installed or assembled.
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ICDS
Once multiple national thresholds, now a single EU threshold
- Until the entry into force of the VAT E-commerce Package, the seller was obliged to monitor the volume of consumer sales of goods to individual EU countries, whereby the thresholds could differ from one member state to another. Once the threshold was exceeded, the place of taxation of the transaction changed, with the consequence that the entity was required to register for VAT in a particular member state.
- Under the current legislation, there are no longer sales thresholds specific to individual EU member states. There is now a single threshold of €10,000 for all sales made by a given entrepreneur in all EU member states in total.
- The threshold includes ICDS volume, as well as sales of electronic services provided to EU consumers.
- Once the indicated sales threshold is exceeded, the place of taxation of these transactions changes - the entrepreneur is obliged to tax such transactions at the place of consumption.
- The period over which the volume of sales is monitored for the purpose of determining whether the threshold is exceeded is the current and previous fiscal year.
- Crossing the threshold leads to the seller facing the following choice:
- the entrepreneur/seller can register for VAT in all countries where he/she sells in a B2C channel and thus be accounted for according to local VAT reporting rules, or
- can use a one-stop shop for VAT-OSS in one country (of identification), through which he will declare and pay the tax due to individual EU member states.
- The thresholds described are in principle only relevant for determining the place of taxation of ICDS, i.e. this threshold is not taken into account when determining the place of taxation of DSIG.
- At the same time, the sales threshold is also irrelevant for determining the place of taxation of the ICDS in a situation where the seller is a non-EU entity and where the seller dispatches its goods from several EU countries (e.g. it has warehouses or logistics centres in several countries)
One-stop shop for e-commerce settlements
An alternative to local VAT registrations and VAT compliance obligations in each country is to use the VAT One Stop Shop (OSS) procedure, which offers several options, depending on the type of sales made by the trader ( ICDS, DSIG, TBE services, etc.).
ICDS and intra-Community supply of B2C services are, as a rule, settled under the OSS procedure, while DSIG is settled under the IOSS procedure.
VAT OSS procedures are currently fully optional.
The idea of simplification is to settle all the tax due in the EU countries by means of a single declaration filed in a single Member State of identification.
The Member State of identification will in principle be the country of establishment of the entrepreneur. Nevertheless:
If the entrepreneur is not established in the EU, it will be the EU country where he has a fixed establishment for VAT purposes;
If a entrepreneur has several fixed establishments in the EU, it will be one of the countries of his choice in which he has such a fixed establishment;
The entrepreneur is free to choose the EU country of identification where he is not established or has no fixed establishment in any Member State.
- IOSS sales are reported monthly while OSS related declarations are submitted quarterly.
The platform as a party to the transaction
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In situations where the transaction takes place via an electronic sales platform/interface, the legislator
has introduced the criterion of "facilitating" the sale via such a platform.
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The so-called "deemed-supplier" regime only applies to certain B2C supplies, namely:
- DSIG in consignments of an intrinsic value not exceeding the equivalent in zloty of 150 EUR,
- ICDS of a taxpayer who is neither established nor has a fixed establishment in the EU, and,
- A local B2C supply by a taxable person who is neither established nor has a fixed establishment in the EU.
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The so-called "deemed-supplier" regime only applies to certain B2C supplies, namely:
- Where a platform is deemed to be an intermediary, it is assumed (by way of legal fiction for tax purposes) that the platform itself took part in the transaction, i.e. that it purchased the goods from the underlying seller (B2B transaction) and then itself supplied those goods to the consumer (B2C transaction).
- Accordingly, it will be the platform's responsibility to pay the VAT due on such transactions, as well as other obligations specific to sellers under the new regime. Thus, the entity operating the electronic interface / sales platform is in this situation responsible for the VAT reporting of its own sales and the payment of the tax due (it is not responsible for the tax liability of a third party).
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At the same time, this liability is not absolute and a bona fide platform operator should not be held liable
for incorrectly accounted VAT on facilitated supplies of goods if:
- is dependent on information provided by suppliers or by other third parties to correctly declare and pay VAT on those supplies and that information is incorrect, and
- is able to demonstrate that he did not know of the irregularity of the information and, reasonably, could not have known of it.
- In order to be considered as facilitating delivery, the platform must in principle allow for the establishment of contact between the supplier and the purchaser, although the Regulation itself as well as its explanatory notes provide for a number of exemptions in this respect. For instance, if the role of the platform is merely to process the payments linked to the delivery of the goods, without any further intervention in the delivery process, this activity would not be considered as facilitating delivery within the meaning of these regulations.
Last, but not least - record keeping!
- Both entities using OSS, IOSS and platforms facilitating B2C sales within the EU are required to keep electronic records in this regard.
- The records must be kept for a period of 10 years after the end of the tax year in which the supply of goods or services subject to the recording obligation was made.
- At the request of the Member State of identification and consumption, entrepreneurs will be required to make records available electronically
The records are to enable the correctness of the tax settlement to be checked and made available for each good or service.
In the event of a breach of the obligation to keep and make available records in the required form and content, the seller may lose the right to use the OSS procedure for a period of 2 years. This, in turn, can lead to an obligation to register for VAT in many EU member states.
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