The fundamental concept in VAT law is that VAT should be paid in the Member state in which the supply takes place and this is in accordance with the principle of taxation in the Member State of destination.
In order for this to be achieved, there have been various changes over the years described below.
Changes Taking Place
In 2015, a major change took place whereby in respect of certain services, being telecommunications, broadcasting and electronically supplied services (TBE) provided to final consumers, the place of supply shifted to where the customer is established. Due to this, various suppliers had to register for VAT in the place where their customers were established or opt for the simplification mechanism and register for the MOSS (Mini One-stop Shop) system and pay the VAT in the Member State of Identification which would, in turn, distribute the VAT collected to all the respective Member States of Consumption.
Two thresholds were introduced to simplify VAT Compliance for smaller businesses.
- a) A Euro 10,000 threshold was introduced so that cross-border suppliers of telecommunications, broadcasting and electronically supplied services (TBE) that do not exceed this annual turnover threshold have the option to charge VAT according to where the suppliers are established.
- b) A Euro 100,000 threshold was introduced so that cross-border suppliers of telecommunications, broadcasting and electronically supplied services (TBE) that do not exceed this annual turnover threshold are allowed to only maintain one piece of evidence rather than two, proving where the customer is established.
Other changes took place in relation to Invoicing so that the rules of the Member State of Identification of Supplier will apply instead of those applicable in the Member State of Consumption.
Some other improvements were implemented in the MOSS system and in addition businesses not established in the EU but having an EU VAT Registration number can make use of the non-Union Scheme.
The major changes are taking place in 2021. Due to COVID-19 circumstances, the changes that initially were intended to take effect on 1st January 2021 were postponed by 6 months and these will now take effect on 1st July 2021 in order for the Member States to have now more time to prepare. These 2021 changes are referred to as the 'VAT E-commerce package'.
The following Acts were adopted to postpone the application of the VAT e-commerce package to 1st July 2021:
- Council Decision (EU) 2020/1109
- Council Regulation (EU) 2020/1108
- Council Implementing Regulation (EU) 2020/1112
- Commission Implementing Regulation (EU) 2020/1318
Overview of the VAT E-commerce package
Extension of the Current MOSS System
The MOSS System will be widened further to become the OSS System (One-Stop-Shop Scheme) as it will become applicable for other services as well as for intracommunity distance sales of goods to final end consumers.
- a) OSS will be applicable for those suppliers of services where the place of supply is other than the place where they are established and therefore up until now, had to register in these different jurisdictions (example, services connected with immovable property, hiring of means of transport, the supply of transport services, amongst others). Through the OSS system, they can register for OSS and pay the VAT through the Member State of Identification.
- b) OSS will abolish the current distance sales of goods thresholds and in the case of EU suppliers exceeding an annual turnover of Euro 10,000, the intra-community distance sale will be deemed to take place in the member state where the transport of the goods ends. In this case, they can opt for the OSS scheme which would simplify their VAT compliance obligations and pay all the VAT through the OSS Return instead of obtaining VAT Registration Numbers in the various jurisdictions where their customers are established.
The Import One Stop Shop (I-OSS) Scheme
From 1st July 2021, the concept of distance sales will extend to cover B2C sale of goods transported from outside the EU by EU or non-EU suppliers.
At the moment an exemption applies in respect of imports with a consignment value not exceeding Euro 22. This small value consignment VAT exemption will cease to exist and instead an import scheme will come into effect covering distance sales of goods imported from third countries up to a value of EUR 150.
In the cases of goods not exceeding Euro 150, there will be a VAT exemption upon importation and the seller will charge the VAT at the point of sale to EU customers and declare and pay that VAT through the I-OSS to the Member State of Identification.
Where the import OSS cannot be used, another simplification mechanism will be available. Import VAT can be collected from customers by the customs declarant including the postal operator, courier firm, customs agents. These will pay it to the customs authorities monthly.
The I-OSS is less beneficial than the OSS Scheme referred to above because it only applies to imports not exceeding a consignment value of Euro 150 and requires monthly reporting.
Digital Platforms and Online Marketplaces
Businesses operating online platforms and electronic marketplace interfaces facilitating distance sales are sometimes in certain circumstances, be deemed to be acquiring the goods and onward supplying these themselves to the end customers in the EU for VAT purposes. To this effect, they are obliged to collect and pay the VAT themselves even though they are facilitators. They can opt to register for the OSS and I-OSS as well to simplify their VAT Compliance Obligations.
This article was originally published by the Malta Business Weekly on 14th January 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.