Entrepreneurs who sell (online) goods to private individuals in another EU Member State, for example through an online webshop, may be faced with the so-called distance selling scheme. This is the case if goods are delivered to private individuals, dispatched or transported by, or on behalf of, the supplier (transport requirement), and if a certain threshold applicable per EU Member State is exceeded. If the distance selling scheme applies, the trader is liable for VAT in the country where the goods arrive, rather than in the country where the goods depart from. If the customer has the goods transported, the scheme does not apply and VAT is paid in the country where the goods depart from.
The trader to whom the distance selling scheme applies must currently register for VAT in each EU Member State where he or she must declare their EU distance sales. The European Court of Justice (ECJ) has recently ruled in the KrakVet case on the scope of the distance selling scheme. In this article we discuss that judgment and the implications of it.
Transport requirement fundamental to the determination of VAT treatment
The transport requirement is central to the KrakVet case. KrakVet sold goods online to Hungarian private individuals. It offered customers the opportunity to make arrangements with a Polish transport company for the transport of the goods from Poland to Hungary. KrakVet itself was not a party to that agreement. Additionally, customers also had the opportunity to pick up the goods themselves or to choose another transporter. The question is which country, Poland or Hungary, is competent to levy VAT on the sales. The answer depends on whether the distance selling scheme applies. The ECJ concluded the decisive factor is whether the transport was carried out by or on behalf of KrakVet.
The ECJ ruled that to answer the question of whether the distance selling scheme applies it is necessary to consider whether the supplier plays a decisive role in organising (the essential stages) of the dispatch or transport of the goods. To assess whether that’s the case, the ECJ considered the following questions relevant:
In the situation in which all these questions are answered in the affirmative, the supplier plays, in our opinion, a decisive role and the transport requirement is met. However, there is still uncertainty regarding a situation in which only a few of the questions are answered in the affirmative. Particularly if question 1 or 3 is answered in the affirmative, the transport requirement is, in our opinion, quickly met.
It is, therefore, important to check how trade flows are regulated when you sell goods to private individuals in another EU Member State. Even where you, as a supplier, do not arrange the transport yourself, but you do play a decisive role in organising the transport, under certain circumstances, this transport may still be at your expense. As a result, the VAT treatment of your activities may be different.
We note that in 2021 the rules for EU distance sales will be extended so that in the event of indirect intervention in the transport or dispatch of goods, the distance selling scheme will be applicable to you. The extension aims to stop entrepreneurs from trying to circumvent the application of the distance selling scheme by having private individuals themselves conclude a contract with the transport company. (Even in such situations, after all, the supplier is often involved in the conclusion of such agreements.) Given the judgment of the ECJ, we anticipate that suppliers will comply with the current transport requirement more quickly than before. From 2021 onwards, indirect intervention in transport or dispatch will fall under the transport requirement. As a result, the transport requirement will have an even broader scope in 2021.
Originally, the ECJ would have introduced the changes from 1 January, but the COVID-19 pandemic has led to an increase in the number of Member States that cannot guarantee they will be able to complete the preparatory work for the new rules by 1 January 2021.
To minimise further budgetary losses for Member States, the proposed postponement is six months. As a result, the new start date for application of the change will be 1 July 2021.