New VAT rules for the e-commerce sector

Laura Strzemiecka Menedżer, PwC Poland

The last few months of the COVID-19 pandemic and the resulting heavy restrictions have had a significant impact on consumer behaviour. The digitization and automation processes which have been taking place in recent years have translated into a significant increase in e-commerce. This trend is very likely to continue in the future.

During the pandemic, the interest in online shopping has increased even more, which has resulted in the need to revise the existing sales models. The new rules of VAT taxation are intended to meet these new requirements, so it is worth becoming acquainted with them today. 

VAT e-commerce 2021

Nowe zasady opodatkowania VAT sektora e-commerce

New VAT rules in the e-commerce sector – reasons, objectives and timing of implementation

At EU-level, the assumptions of the new VAT model for the e-commerce sector are set out in the so-called ‘E-commerce Package’, i.e. Directive 2017/2455 and Directive 2019/1995. The new rules will become effective on 1 July 2021. On 29 October 2020, a draft law implementing changes in VAT taxation of the e-commerce sector was published on the website of the Government Legislative Centre.

In accordance with the EC’s position, the changes introduced are intended to remove barriers to cross-border online trade. This includes, in particular:

  • The need to register EU entities for VAT purposes resulting from the current model of distance selling, after exceeding the threshold determined depending on the country 

  • Existence in some EU countries, VAT exemptions for low value imported goods (up to EUR 22), which leads to fraud, through artificial lowering the value of shipments 

  • Equalizing the competitiveness of EU entities with entities from the third countries that deliver without VAT and are not obliged to register for VAT purposes

The new rules are intended to ensure equal treatment of EU and non-EU businesses, simplify VAT obligations for businesses engaged in cross-border e-commerce and enhance the single European market.

The concept for a new model of VAT taxation in the e-commerce sector

The adoption of the proposed changes means there will be significant changes in the existing distance sale model and it also introduces a number of original concepts:

  1. The introduction of VAT-OSS (One Stop Shop), which is an extension of the MOSS (mini One Stop Shop). Settlements in VAT-OSS will cover both TBE (telecommunication, broadcasting and electronic) services and other services provided on a B2C basis, intra-EU distance sales of goods and certain domestic supplies of goods.

  2. The limit enabling VAT settlements to be conducted in accordance with the rules and at the rate applicable in the country of the registered office of an entity will be standardised. The limit will amount to EUR 10,000 and will cover, among others, supplies to all EU countries and the value of B2C cross-border services.

  3. The role of online platforms, e-shops and intermediary portals (“electronic interfaces”) in VAT settlements will be increased by recognising that in some cases, when facilitating supplies, they will be treated for VAT purposes as if they had purchased the goods from the original supplier and sold the same goods to their consumer.

  4. Elimination of VAT exemption for low-value imported goods (up to EUR 22) at EU level and introduction of a new model for declaring and paying VAT on distance sale of low-value goods (up to EUR 150) imported from the third countries or territories (Import One Stop Shop – IOSS).

  5. New requirements for maintaining documentation and VAT compliance.

Importance of electronic platforms for VAT taxation in the e-commerce sector

An electronic platform will be treated as an entity/seller intermediating in the supply and will be charged with responsibility for collecting VAT from the consumer, in the case of:

Platform responsibility for collecting VAT

An electronic platform will be treated as a participant in the supply of goods and will be responsible for collecting VAT from a consumer, in the event of:

  • Distance selling of goods imported from outside the EU when the value of a consignment does not exceed EUR 150;

  • Supplying goods in B2C relations within the EU by a non-EU supplier, irrespective of the value of the goods supplied.

Registration in VAT-OSS

In order to settle VAT, a platform will be able to use VAT-OSS in certain situations, to settle VAT through the portal in a selected country using the VAT rate applicable in the consumer’s country, without the need to register for VAT each time and in every country to which goods are being sold.

New registration duties

The platforms will be obliged to keep records of supplies and make them available for inspection to the tax administration of a Member State to enable the verification of the correctness of the VAT settlement. 

The platform’s responsibility for VAT settlement

Platforms will need to develop appropriate procedures enabling the identification of transactions on which VAT must be collected and remitted, and recovering the amount due from the seller.

Effects for the retail sector

As of 1 July 2021, the reform will result in tightening loopholes in the VAT system for B2C supplies and services provided by non-EU entities. 

Ensuring a level playing field EU and non-EU enterprises will eliminate some dishonest suppliers and bring about the concentration of competition on the market. Therefore, as a result of the proposed simplifications and the reduction in the costs of cross-border VAT handling, B2C commerce between EU Member States should increase. Settlements through VAT-OSS will mean that the VAT rates applicable in the consumer’s country will be applied, so it may be necessary to refer to regulations on the applicable VAT rates; this often causes problems for entrepreneurs (especially, the identification of goods covered by reduced VAT rates).

The anticipated changes will also mean that intermediaries in online sales of imported goods within the EU territory will be involved in VAT settlements. Online platforms are therefore facing significant challenges, consisting of, among other things, developing internal procedures and rules for cooperating with sellers.

From the consumers’ perspective, a certain increase in prices of non-EU goods is to be expected. In this respect, suppliers from Asia generate the largest volumes. However, price adjustment will also translate into higher certainty of turnover and a reduced inflow of goods of dubious quality, where competitive advantage is based solely on low prices – which is often the result of not paying VAT. Therefore, non-EU sellers will be forced to look for solutions which will enable them to effectively compete with EU entities. This may mean, among other things, higher quality products at relatively lower prices, with benefits for customers.

Contact us

Laura Strzemiecka

Laura Strzemiecka

Menedżer, PwC Poland

Tel: +48 519 504 115

Mieczysław Gonta

Mieczysław Gonta

Partner, PwC Poland

Tel: +48 502 184 907

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