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VAT e-commerce package. A simple guide to Import One-Stop-Shop for non-EU sellers & online marketplaces as VAT deemed suppliers. (PART II)

Kacper Kosowicz invited Robert-Jan Brethouwer, Partner at Grant Thornton Netherlands and Kateřina Ševčíková, Country Manager at KR GROUP LTD. for further discussion about the VAT package for e-commerce which came into effect on 1st of July.
KR Group

Second part of our discussion where we investigated the import One Stop Shop (IOSS) further.

  • Why these changes might be deemed as a revolution for market places?
  • Who can use the import OSS and what is the role of the intermediary?
  • Which supplies of goods are covered by the import OSS scheme?
  • What are the advantages of using the IOSS?

Intro Welcome to the home of VAT. You are listening to KR Group Value Added Mornings, podcasts that answer all of your questions and make your VAT life easier. Nice to have you here. Grab a coffee, stretch your legs and enjoy.

Kacper Kosowicz Hello, everyone, welcome to the second part of our discussion about the VAT e-commerce package. This time around, we will investigate the Import One Stop Shop further. On top of this, we will talk through the reasons why these changes might be deemed as a revolution for a marketplaces. I'm pleased to have with me today again, Kateřina Ševčíková from KR group.

Kateřina Ševčíková Hi.

KK And Robert-Jan Brethouwer, Grant Thornton Netherlands.

Robert-Jan Brethouwer Hi, thanks for your invite.

KK I'm Kacper Kosowicz, and I will be your host for today. So let's imagine that I am again a non-EU distance seller in this case, without a fixed establishment in the EU, and I sell low value goods to end individual customers in the EU via my own online shop. What does the e-commerce package change for me? For this group?

RB The whole reason why they introduce this e-commerce package is mainly to focus on these types of sales, because at this time, so as until the 1st July, we had a different value to low value goods, then as of the 1st of July. So at this moment, if you, as a non-EU seller, let's say, a Chinese company, making sales to a Polish private individual, if someone orders those type of products and the value of those products is less than 22 Euros, no import VAT and no customs duties, are on those type of products, meaning that a Chinese company can sell those products without any custom duties, without any VAT, to European based private individuals. And that's of course a little bit in contradiction, with if the same product, would be ordered from an EU based company, then VAT has to be charged. Of course no duties, because it's still in the European Union, but it's a totally different way. And the way, the reason why they want to change this is to make the same situation applicable for non-EU sellers as for EU sellers. So, as of the 1st July, a 22 euro threshold will be fully removed and it's going to become a 150 euro threshold. Not meaning that you don't have to pay any VAT, but only for 150 euros you don't have to pay any import VAT or customs duties, but you have to pay VAT still of the country of arrival of the goods. Meaning that also in this situation, the Chinese company needs to, of course not needs to, but they can opt for the One Stop Shop, the Import One Stop Shop, in order to make the life easier for them to remit the VAT, because if they don't do that they need to be registered in all those EU member states to report the VAT in those countries. So, more or less a level playing field is introduced as of the 1st of July for these type of sales.

KK Yeah and a big hassle to report in all the countries, right, the VAT. So it's sometimes better to opt for the IOSS. But is there any threshold to register in the IOSS, and who can use the Import One Stop Shop? Is there any kind of factors or requirements that you need to meet to duly register in IOSS?

RB Of course, it was explained a little bit earlier that there is threshold of up to 150 euros, meaning that IOSS can only be used.

KK So just low value products, up to 150 euros. And then, if you don't want to pay the import VAT and not be registered in all countries where you are sending your goods, that's the solution for you. That's what you're saying, Robert-Jan.

RB Yeah, that's correct, yeah. And it doesn't mind whether you are really EU based or non-EU based. Also, if you are EU based, but are shipping those products out of the European Union, to private individuals in the European Union, you still can opt for the Import One Stop Shop of course.

KK OK, is there also, you mentioned earlier the all or nothing principle. Is that also applicable into IOSS?

RB Yeah.

KK Ok, and another question that I received a couple of days ago. Who is issuing the IOSS ID number and how could I use it? That was the question. So looking from the practice of the business, who is issuing the IOSS ID number?

KS So you will receive the IOSS ID number right after the registration to IOSS platform, and this ID number is used to form all procedures regarding the import.

KK So, is that a seller who can obtain the IOSS ID number or the procedure, how does the procedure look like?

RB If you want to be registered as a non-EU established company who needs the Import One Stop Shop you need to appoint a VAT intermediary. And that's the company, or a person who will register, or have to register the company for the Import One Stop Shop. So also the IOSS number will be provided by them, because they performed a registration on behalf of the selling company. And yeah, of course as VAT intermediary they can be held liable for all the VAT debts of the online company. So, they they will run some risk of course. So, it can be maybe a little more difficult to find a VAT intermediary. So that's a strange thing which they introduced. I completely understand that the European Union wants to make life easier for them, if VAT is lost, they can go to one company to assess all that non-reported VAT, but the risk for those kind of VAT intermediaries is quite substantial. And they will learn how many situations will happen that the VAT intermediary will really be assessed, but it’s...

KK Who would pay first Robert-Jan, the seller, the taxpayer, the non-EU seller, or the intermediary?

RB At the end it's of course an obligation to pay by the VAT intermediary. So the VAT intermediary, they need to find a way to reduce the risk for them, in order that they already have the money at hand before they are going to have to make the IOSS payment. So, perferably it would be best that the VAT part of a sale is already obtained and received by the VAT intermediary on the moment of the sale of course, not at a later stage. So it's something which should be discussed and agreed upon between the VAT intermediary and the company for which you are dealing.

KK I don't know whether we mentioned that but the goods at the moment of sales, right, would need to be outside of the European Union? Yeah, that that's correct. And just to summarize what you said. When I'd like to take advantage of IOSS, firstly, I need to find an entity that would be my intermediary, and then I need to make sure that this company, this entity is duly registered in IOSS. And this company will file my registration files to IOSS and receive the IOSS ID number for me. Is the IOSS ID number a VAT number? That's the very frequent question.

RB No, it's not a VAT number. It's really an Import One Stop Shop number of course, but some member states, they will use the same format, for example, or even the same number as your VAT number. But in a situation, if we're really talking about non-EU established company, which was never registered for VAT in European Union, then they will get really an IOSS number, which is not a VAT number. But it can happen that if some company will register for a different reason, let's say, in the county where they are also appointed the VAT intermediary, at the end they will receive the same number as the IOSS number. But officially, the number is not a VAT number. It's two different things.

KK And when as a non-EU seller you would use this for the IOSS number. You said a few words about that, Kateřina, so far, that custom clearance or custom agent. Could you please elaborate a bit on this, because it's also quite important for our listeners, I believe.

KS Because, even if goods still hold the threshold of 150 euro, basically they don't have to pay customs from these goods, but still it has to go through customs office. So, this was my point that it will easily, that this stock should easily go through this custom process.

KK Yeah, but is there a connection between the database of IOSS system and the custom agents systems?

KS Yeah, it is connected based on the information that we have. It's all connected. It is.

RB Definitely, yeah. What's going to happen is all the European member states, they will create a sort of portal environment in which they need to provide all kind of customs declaration information to each other. So, that all the member states are aware that those type of sales are made. So, there will definitely be a database with all those kind of import transactions. And what would make our life easier if we would have access to the system or at least have the possibility to make an export from that system. But unfortunately, it's only available for customs enduring.

KK So, it seems that in the center of the interest of everyone is this 150 euro value of the goods. How to calculate that intrinsic value of the goods to determine whether it's below or above this threshold? I think it's a game changer for everyone. So also when it comes to your liability, IOSS, et cetera, et cetera. So intrinsic value, low value consignment below 150 euros, it is filled when you can easily cheat, or easily say that your goods are still below the threshold. That's my understanding, or is it a common understanding. What are your thoughts about that? How to calculate intrinsic value?

RB Yeah, of course you will not lose the possibility that orders are under-valued for customs purposes, of course. But the European Union hopes that by the fact that you need to go through customs agents, that this step will be a little less applicable for those sales. Also, the value, of course, is a little bit higher but you will never lose the way that if the order is, in fact, 160 euros, that it is possible that the value will be accured 150 in order to make use of the import laws, that's still a possibility, of course, that we expect it will be less than in this moment. Especially for the value of those goods. And in respect of how to calculate that intrinsic value, it's more or less the export value, or the customs value, or usually the sales price of the goods. And it depends whether, for example, transportation costs will be added in that 150 value, yes or no. And it depends on whether you are seperately showing it on your invoice, or that you are asking a separate fee for the transportation. So, if you sell an item for 150 euros, including shipping, it will fall under the scope of the IOSS. If you sell a product for 150 euros, when you add 10 euros for shipping to it, it's still 150 euros because you are showing it separately on the invoice. If you're selling an item for all of 160 euros, including shipping. Yeah, then you cannot use to the One Stop Shop. Even the fact that you know, that maybe 10 euros of the 160 is attributed to the transportation costs, your price, which you are asking for the product is 160 euros, so it does not fall under the scope of the Import One Stop Shop.

KK Ok, so you're saying above the threshold, what are the consequences? You need to register in the country where the sales is actually made? That's, that's what you are saying?

RB So, it's officially, if you exceed the 150 euro threshold, only if you have one sale, you have to be registered in the country of the arrival of the goods, to report the VAT and even to report the importation depending on the country of importation. But of course, there are also ways to avoid that because, you know, if you are making sales above 150 euro, you don't have an import exemption so you have to pay custom duties, if those are applicable on your type of products. So, why not choose to import all those products in one country, register for VAT in that country, and then make use of the One Stop Shop, which we discussed before? So, there are ways to still make use of the new simplifications, even if you are making sales higher than normal amount of 150 euros.

KK But there are also situations when a non-EU seller might opt out for the IOSS. They can say, ok, I don't want to use IOSS.

RB Yeah, if they don't use the IOSS it means that you don't have any exemptions so you need to pay import VAT in the country where the importation takes place. And then you also are having to pay the VAT of the country of arrival of goods, or in the country where the goods are in the end shipped to. So, it's not beneficial at all to opt out from the Import One Stop Shop in this situation, because you'll have quite some VAT registrations and you have to pay quite some import VAT, which is not easy to get back in the member states without an actual registration.

KK Before we can move on, I think we missed one important question regarding the intermediary. We couple of times used this term. We even explained what kind of role the intermediary will play in the whole concept. But we didn't explain who the intermediary can be, or what kind of entities we can appoint as other intermediary. Are there any set of requirements for the company to act as an intermediary?

RB The only thing is that the VAT intermediary needs to be established in the country where you want to register customers for the One Stop Shop. So if you want to have non-EU businesses, be able to register for the Import One Stop Shop let's say in the Netherlands, you need to appoint a Dutch established VAT intermediary, it's not possible to appoint a VAT intermediary established in a different EU member state. What you see is that quite some VAT intermediary service providers, they set up a company in multiple European countries in order to be able to act as a VAT intermediary in those member states. But they don't do it in all the member states. They will choose the countries in which many companies will want to be registered, so it can be that the local tax authorities are known for their practical approach, or the system to register for the Import One Stop Shop is rather easy and efficient. So, yeah, it depends.

KK Kateřina, how does that look like in Czech Republic?

KS I absolutely agree. And basically the main term, what intermediary has to have is that the company has to be settled, incorporated in the European Union.

KK So in Poland it's more sophisticated, I need to tell you, because now we just copy and paste the provisions regarding the fiscal representative, and there are a set of rules and set of requirements, like a number of years being in the operations, et cetera, et cetera. So it looks a bit different in Poland.

RB We are almost glad that it is not in that situation, because we are afraid that in the Netherlands we'd have the same situation. They would say, ok, we are going to use the VAT intermediary principle, and it's exactly the same fiscal representative, it is kind of guarantee amount et cetera. And I'm really glad that they decided to not do it. It's not very decisive. So, what they say today in our government is that they will wait and see what will happen, and if they will notice that misuse is made from system, they always can change the law and enforce different rules, but for the moment, it's rather easy to act as VAT intermediary in the Netherlands.

KK But in the notion of the directive, the non-EU seller is not only the company established in the third country. There are some implications for the EU-based sellers as well. And let's imagine another business case. I'm the Polish based seller purchasing goods outside the EU, and holding a stock in non-EU country. When goods are bought by the customers from Spain or Germany, they are dispatched from the non-EU warehouse directly. What are the things I should pay attention to after July the 1st? Would I be treated as a non-EU seller? How would I need to cope with new regulations, after the 1st of July? I have my warehouse outside of EU, selling directly to my clients from non-EU warehouse.

RB I would say in this situation still the Import One Stop Shop, can be applied, or will have to be applied if you want to make use of the simplification, even that you are officially already based in the European member states, because the goods are, at the end delivered from a non-EU country to an EU country. So that means that you fall under the scope of that regulation and you want to avoid probably to pay import fees. So the Import One Stop Shop would then still be applicable. But if you are already established in the European Union, there are of course also ways to think, to structure in different way and do not qualify it as a really an export from a non-EU member state into an EU member state, which, you would see it as more or less import in one EU member state, than a subsequence intra-comunity distance sales of goods. So that you don't fall on the scope of the Import One Stop Shop, but opt for the One Stop Shop, and also lose the requirement to appoint a VAT intermediary. So it's much easier in this situation to remove the obligation, or the option to register for the Import One Stop Shop, and decide to use the One Stop Shop instead, then of course, for non EU-based companies.

KK You know that there are many, many even large scale sellers from EU, from Poland, for instance, they are sourcing their goods from China and reselling the goods in the European Union, right? So sometimes they are storing that in their own warehouse in non-EU country. Sometimes they are doing it as you just said, they are just importing that to Poland, storing it inside and dispatch all goods to individual end clients in the respective country.

RB Yeah, in drop shipping indeed, they only are acting in the middle, to purchase something and sell it and then send directly to the final customer.

KK They are calling themselves as an e-commerce business, right? So they are adding the markup and reselling them.

RB Yes. It's a very, very beneficial business model.

KK I believe so, yes. So, Katarina, would you like to add something?

KS I agree, and I believe that for this type of business IOSS is fully applicable.

KK OK, let's let's move to marketplace's as VAT collectors. This idea, this is the third pillar of the revolution, right? And I guess the majority of the distance sellers are operating either as marketplaces, or they are selling via marketplaces. And most of our listeners most likely have already had a bunch of terms like deemed supplier, electronic interface, affection and transaction created for the VAT purposes. In this context, what are the new rules and obligations set for the marketplaces in this e-commerce package that is going to be in place in July?

RB So, if I can explain it in a little detail, is that this is the whole reason, also one of the big reasons, of course, for this big change is that European Union wants to make it easier for them also to get the correct VAT amounts, so that no VAT is lost. And which party are you able to contact first for those type or sales? Of course, platforms, they know almost everything because they keep track of all the orders. They are usually involved in receiving the payments, and maybe even in providing the fulfillment services of shipping the orders out of their wharehouse to the customers. So they are a great party to contact, to make liable for the VAT in that situation, instead of a non-EU based entity which can be established in China, or maybe even further away, which are quite difficult to get a hold on if the VAT is not paid. So, what will happen as of the 1st July, in some situations is they introduce the VAT platform fictionaly, or the electronic interface fiction, meaning that in some situations the platform can be held liable for paying VAT on the inter-community distance sale, because they will be qualified as deemed supplier of the goods. So, even based on the fact that a company selling the products using the platform, officially has to pay and remit the VAT, they are going to shift that obligation for paying the VAT to the platform, instead of a seller. Meaning that the platform will have, sort of buy/resell for VAT purposes, so they purchased the products from the seller, and resell it to the final customer, where the transaction between the seller and the platform will be outside of scope of VAT. No VAT consequences are applicable in this transaction, and the platform has to remit the VAT on the sale to the final customer, instead of the seller. So that's quite some change for the platforms. And to be honest, I really don't think that most of the platforms are ready for that. And even that there are many more platforms which can fall on the scope of this new legislation than the platforms we all are thinking about, like the Amazon.

KK But the platform, that electronic interface is the entity that is facilitating the sales. So sometimes it's the easy example, like mentioned Amazon or eBay, but sometimes it's not that obvious.

KS In Czech Republic, the company, it's considered to be an electronic marketplace and the terms of meaning, or that companies have to meet one of the conditions. There are three conditions. Their first condition is participation on the payment, or set up the terms of delivery, or participation of delivery of the goods. If the company meets with one of these conditions, they are automatically considered as an electronical market based provider.

KK We received such a question from a payment facilitator for non-EU sellers, and the question was about whether then, if they are receiving the money before the marketplace, who would be a deemed supplier?

RB This is really a subject which is very unclear, because no one really knows exactly what will happen with these kind of electronic interfaces. And I'm sure that even companies like Amazon, they don't want to access the platform. They don't want to pay the VAT probably for the customs. So they will still remain, their customer, the seller liable to pay the VAT, even if the legalation will not be correctly applied. What we not must forget is also that that platform fiction is not applicable in all situations. It's only applicable really in two situations. So, for the so-called IOSS transaction, so the transactions which are shipped out of the European Union, valued less than 150 euros, or for situations where products are shipped out of the European Union member states, but where the seller is non-EU established. So it would not be applicable for EU established company selling products, and supplying the products from the European Union. So, it's also very limited in some situations that platform fiction will be applicable. But if it can be applicable, then you really need to explain and investigate the conditions in order to discuss for certain whether it's applicable for you or not.

KK I read the statement of one of the largest marketplaces in the CEE region regarding IOSS, and they clearly said that they would not opt for IOSS and that would be only in discretion of the seller, if the seller would like to take advantage of the IOSS system. That's what I received from one marketplace. It was funny because it's really, I now think it's quite unclear also for the sellers, how they should cope with such answer, like, ok, voluntarily, you can do whatever you like, you can opt for IOSS, but it's up to you. We would follow the regular procedure, if we are deemed supplier, ok, but we will not facilitate that to the extent that it's needed.

RB Of course, in fact, it's their obligation to follow that rule. So, that makes it clear that there is quite some uncertainty even now a few days before the 1st of July. And I really hope that someone is at the end paying the VAT, and not that the platform is not paying it and also the seller is not paying it, because then we have one big problem in the European Union.

KK That's a very good thing that you just brought up, because I was wondering whether there is room for mistakes, and for how many months we would see a great understanding showed by our tax authorities in Europe, by mistakes made in IOSS, OSS, the VAT that is not properly calculated and paid by the deemed supplier, et cetera, et cetera. Is there a room for any mistakes?

RB Of course I cannot believe it will go fully correctly as of the 1st July. There will be mistakes made, quite some big mistakes probably and at the end of course, all of our mistakes we will find out, but all those tax authorities are so not yet fully, are not aware or ready for this change. And it's more or less my feeling, that I would say that the first couple of months, or maybe the first year, yeah, everyone will do something with their best knowledge and thinking that they are following the rules. And maybe not fully correct, but they are doing their best instances and quite a correction will be left to be made maybe, after a period of time. It can be rather messy, but it's also what we expected with Brexit and at the end we're now on our way and it is only six months later and it goes quite well. So, at the end we will survive, what I expect.

KK But I believe the intermediary needs to keep the records for 10 years.

RB Yes, 10 years quite..

KK I think it will be quite a time. So, I believe their liability will be also quite significant in this term so whatever is incorrect, or incorrectly stated, it might chase the intermediary. But we will see, as you say. Well the time will tell, and we have to wait for the practice of using the law in pan-European scale. Thank you so much, Kateřina, thank you, Robert-Jan, and for sharing your thoughts and expertise with us today.

RB No problem.

KK I think we all agree that the coming weeks will be intense and tough. That's going to be a spectacular time for the VAT experts, hopefully for taxpayers as well. And we will comprehend the VAT rules rather quicker than later. Thank you. Thank you all for joining us for today's episode, and stay tuned. Thank you, Kateřina. Thank you, Robert-Jan.

RB Yes, bye.

KS My pleasure, bye bye.

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