Commission proposes solution to address double VAT on distance sales of goods from outside the EU
The European Commission has proposed a solution to double taxation problems that have been identified in the context of distance sales of goods imported into the EU. The solution would allow sellers or online platform operators to reclaim any import VAT that was erroneously collected by the customs authorities.
The VAT e-commerce package that became effective in the EU on 1 July 2021 allows taxpayers to report the VAT due on B2C cross-border supplies of goods in a single member state, rather than in each member state in which supplies are made (for an analysis of these rules, see the article in the June 2021 issue of Indirect Tax News). Implementation of the e-commerce rules has been relatively smooth, but nine months into the new rules, some technical issues have surfaced, including double taxation of imports not exceeding EUR 150 when a taxpayer uses the Import One-Stop Shop (IOSS) VAT return.
The IOSS—an electronic portal introduced as part of the e-commerce package—simplifies the declaration and payment of VAT by e-commerce businesses on distance sales of goods imported into the EU from a third country or territory. The IOSS allows suppliers and online platforms selling imported goods to EU buyers to collect, declare and pay the VAT to the tax authorities, rather than have the buyer pay VAT at the time of import. Where the IOSS is used, buyers will pay import VAT due at the point of sale and, therefore, will avoid additional VAT charges when the goods are delivered. The IOSS can be used only where the goods are dispatched by or on behalf of a supplier from outside the EU at the time of the supply and the value of the goods does not exceed EUR 150. Excisable goods also are excluded.
IOSS and double taxation
Before 1 July 2021, low value consignments—i.e., consignments valued at up to EUR 22—were exempt from VAT on importation into the EU. The exemption was abolished under the e-commerce rules (one reason being to level the playing field because EU online retailers had to pay VAT on low value goods shipped within the EU). Import VAT is now chargeable on all imported goods, irrespective of the value, at the rate applicable in the country where the goods are delivered. As noted above, the IOSS allows sellers and online platforms to collect, declare and pay VAT due on consignments valued up to EUR 150 in a single VAT return and it enables the payment of VAT on the supply at the time payment is accepted instead of paying import VAT at the time the goods clear customs. Consignments with a value exceeding EUR 150 remain liable for VAT at customs clearance.
Sellers or online platforms that are considered to be deemed suppliers for VAT purposes must register for the IOSS in one member state; non-EU-based businesses generally will have to appoint an EU intermediary to fulfil the VAT compliance obligations under the IOSS. Once registration takes place, the seller/online platform/intermediary will be issued a unique IOSS identification number that should be provided to customs at the time of import. This will indicate to customs that VAT already has been properly declared on the supply to the consumer so the customs authorities do not have to collect the import VAT.
The European Commission has identified situations where VAT is charged twice—once at the time of the supply and again at the time of import:
- The supplier’s IOSS number is not provided because the postal operator of the country of dispatch is unable to transmit the IOSS number; and
- A member state is not in a position to validate the IOSS number in a full customs declaration.
VAT is levied twice in these cases because the IOSS identification number is not provided on the import declaration.
The European Commission has proposed a temporary solution to the double taxation issue by allowing sellers and platforms to make a correction to the VAT in the IOSS return, which means that sellers and online platforms will be allowed to reclaim the VAT on the supply charged to their customer in their subsequent IOSS returns. This option recently was adopted unanimously by the EU member states in the VAT Committee and will be available provided the buyer is liable for the payment of import VAT and the prerequisites for correcting an IOSS VAT return are met. Consequently, the seller or platform will correct and reimburse the buyer for the VAT collected at the time payment is accepted as long as the buyer proves that import VAT was paid at the time of customs clearance.
The solution proposed by the European Commission (and unanimously endorsed by the advisory VAT Committee) should apply immediately and should help mitigate the double taxation issue. It is hoped that EU member states and postal operators will begin immediately to adapt their IT systems. Sellers and online platforms will have to deal with customers who have to pay import VAT after they pay VAT on the supply. There is also a risk that customers will cancel orders when the post office requires import VAT to be paid at the time the goods are delivered to the consumer. Although the Commission’s proposal is pragmatic and in the commercial interest of sellers and online platforms, it seems to be burdensome because suppliers will have to refund VAT to their customers (e.g., by sending credit notes), obtain proof that the customer paid the import VAT and make corresponding adjustments in their IOSS VAT returns. These corrections will be made in a subsequent IOSS VAT return filed no later than three years after the filing of the original IOSS VAT return.
The VAT rules for e-commerce are complex. If your business is using the IOSS to comply with VAT ecommerce obligations on distance sales of imported goods, it is important to ascertain whether there are any instances of double VAT and how the member state in which you are VAT-registered addresses this issue. Since VAT Committee guidelines are not legally binding and member states may deviate from them, professional tax advice is recommended.