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VAT e-commerce package – One-Stop-Shop for e-commerce sellers in the European Union (PART I)

On 1st of July the new regulations called VAT package for e-commerce came into effect. In this unprecedented moment for the industry we are going to be witness of the massive changes and pan-European VAT harmonization for cross border e-sellers.
KR Group

Kacper Kosowicz talked to Robert-Jan Brethouwer, Partner at Grant Thornton Netherlands and Kateřina Ševčíková, Country Manager at KR GROUP LTD. in order to gain insight, clarity, and perspective on frequently asked questions by e-commerce sellers:

  • What does the one-stop-shop really mean for the taxpayer(s)?
  • What are the benefits of using OSS?
  • How should an individual distance seller get prepared for the new VAT reality?
  • How the new VAT framework is going to work for the market places?

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 show. From the first of July the new regulation called VAT package for e-commerce goes into effect. E-commerce boom, fueled by the coronavirus pandemic is undebatable. In this unprecedented moment for the industry, we are going to be witness of the massive changes and pan-European VAT harmonization for cross-border e-sellers. What is this buzz about? Who is going to benefit the most? How should the individual distance seller get prepared for the new VAT reality? What is held in the new EU VAT framework for the marketplaces? In this episode, we will touch upon the practical aspects of the upcoming changes and their impact on the day to day operations of EU and non-EU distance sellers delivering their goods to customers in the European Union. I'm thrilled to have today with me Kateřina Ševčíková from KR Group and Robert-Jan Brethouwern, Grant Thornton Netherlands. I'm Kacper Kosowicz and I will be your host for today. Kateřina, Robert-Jan, for the benefit of our listeners, could you both give us a little introduction of yourself?

Kateřina Ševčíková Hi, everyone. My name is Kateřina. I work for KR Group as a branch manager. We are dealing with VAT compliance for our clients.

KK Robert?

Robert-Jan Brethouwern My name is Robert-Jan Brethouwern. I'm a VAT partner in Grant Thornton, Netherlands. I worked for the company for a little bit more than 12 years and I am heading a VAT advisory and VAT compliance team of 19 people from the Netherlands. And we have a lot of clients which have to deal with this new regulation.

KK Excellent. Thank you so much. So imagining us sitting in the NASA mission control, that would be like 'EU e-commerce package. You are go for launch,' and that would be 10 seconds to go, three, two, one, and lift-off of the VAT revolution. Is that an actual revolution? What are your thoughts about that?

RB To start, it's really a revolution. We were already waiting for it for quite a long time. I remember that maybe four or five years ago I went and gave presentations when I was visiting clients in the US about these upcoming changes, and you always think it takes quite some time before it will be introduced. Now we are finally here at a stage that's the first of July these regulations will change. And then also to remember, of course, initially it was said it will be introduced first of January 2021. So, I'm honestly very glad that we are going live now as the first of July, or else we had to deal with it together with Brexit six months ago. So, it is definitely a big change for many companies. And it makes life easier for doing business in the European Union and selling all kinds of products and services to customers across the European Union.

KK Kateřina, same question. Is there a revolution, evolution? What do you think about that?

KS I believe that this is a revolution, definitely, and a very good step to the future, not only for us as a VAT compliance provider, but even for our clients, because business will be much more easier for a lot of them.

KK And assuming that I'm a distance seller established in the Czech Republic, or the Netherlands, I'm selling exclusively via my online shop and dispatching goods sold from my country of establishment directly to individual clients. I'm not reaching current thresholds of VAT registration. But in Portugal my regular sales amount to nine thousand euros, in Belgium three thousand euros, and in Poland, five thousand euros. What is going to change for me after the 1st of July?

RB Before the 1st July, each type of sales qualified as distance sales of goods to private individuals, which are shipped from one EU member state to another EU member state. Those are currently still taxable, in principle, in the country of departure of the goods. And only if a certain distance selling threshold will be exceeded, those sales are taxable in the country of arrival of the goods. Normally, that would mean that you need to be registered for VAT purposes in all those different EU member states. So we are now with 27 EU member states. That is, and was always an administrative nightmare to deal with all kinds of registrations and VAT compliance in all those different countries. It was very time and costs inefficient to do that. And what is going to change as of the 1st of July 2021, is that all those sales, all those intra-community supply of distance sales, so B2C sales, those are taxable in the country of arrival of the goods. And the only exception which will apply is that there will be EU-wide threshold of ten thousand euros, so that only really the micro companies, which only occasionally sell some items cross-border to private individuals, will not be applicable based on this new legislation. But I think that ninety nine percent of all the companies doing e-commerce business will have to follow this new legislation, meaning that they have to charge the VAT of the country of arrival of the goods, instead of the country of departure of the goods. If a company, in your example, making distance sales to these countries, they can simply register for the One Stop Shop in, let's say, the Czech Republic or the Netherlands based on the country where they are established, of course. And report those sales in One Stop Shop return and they can stock, and they can redraw their VAT registraiton if they would have them in the country of arrival.

KK Well, you mentioned the threshold of ten thousand euros limit for the VAT registration. So in my example, even though under current circumstances I wouldn't have to be registered for VAT in the mentioned countries, after the 1st of July, I would need to do it right, after meeting the threshold. How can the distance seller actually register for OSS?

KS If I can speak for the Czech Republic point of view, it's very easy, administrational step, because you can fill in an application via our local tax office and it's very easy and user friendly. And they also have a hotline in case of some technical issues, or if you just simply don't know what to do.

RB In that respect, they need to be registered for the One Stop Shop, because this is where the 10,000 euro threshold has been exceeded. In the Netherlands, it's actually a little bit more, strangely enough, difficult. It depends on whether you are a Dutch established company or whether you're non-Dutch established company, and a different way to register for the One Stop Shop. The first for whether they are registered or now established in the Netherlands, yes or no. They, strange enough, have used this moment to introduce a complete new electronic filing portal with Dutch tax authorities, which made it a little bit more difficult for, especially Dutch established companies, to register for the One Stop Shop. But it works quite well. It's a little bit more time consuming than expected. But the first registrations are already issued. So, right on time.

KK Really? So, you are much better than we are because we are still waiting for the confirmation where all the registrations with a file from the 1st of April will be granted just after 1st of July. I don't know. We still didn't get the clear answer from the Ministry of Finance of Poland. Let's continue that part, the registration one. When I'm selling goods to multiple countries, on what premises I can choose the country where I want to be registered in OSS?

RB At first it depends on the country of establishment of the company. So, if you are established in the European Union, that means that if you want to opt for the One Stop Shop, you need to register at the tax authorities of the country of the establishment of the company. So, if you are a Czech Republic company, you need to register in the Czech Republic; if you are a Dutch company, you need to register in the Netherlands. If you are, of course, not established in the European Union, but you still have inventory in the European Union selling and making distance sales, then you can choose which country you want to be registered in. But, if you have only one country of departure, so only one warehouse in the European Union, from where you are going to supply your shipments, orders, then you need to be registered for the One Stop Shop in the country where you have the warehouse. And if you have multiple warehouses, you can choose the country where you want to register for the One Stop Shop.

KK The warehouses and third party logistic services will make the things a bit more complicated, right? Again, we have a Czech company having the warehouse in both, the Czech Republic and the Netherlands. They are selling the goods to Spain, Portugal, France, from the warehouse from the Netherlands. And they are serving Polish clients, Hungarian clients, Romanian from the one from the Czech Republic. Would they need to deregister in the Netherlands or how would that work?

RB I know they need to remain here in the Netherlands because the One Stop Shop, of course, can only be used for distance sales of goods, and for so-called TP issuers, so telecommunications, broadcasting, electronic services. Meaning that if you ship inventory between warehouses, for example, if you are going to import those products directly into the Netherlands and then fulfill those orders from the Dutch warehouse, you still need to be really VAT registered in the Netherlands in order to import the importation and the transfer of goods between warehouses for example. So in this example, it is not possible to deregister the Czech company for Dutch VAT purposes due to the fact that they have a warehouse in that country. So that's applicable for all situations, so if you have a warehouse in a particular EU member state, you cannot be deregistered for VAT purposes in that country, because you would have to report other transactions than solely distance sales in that particular country.

KS In general, it's good to keep in mind that this new platform is presented for B2C. So if you also work in business to business scheme, it still means that you have to watch carefully the terms in the country where you are operating.

RB Yeah, that's of course, if you are supplying to business customers from particular EU member state because you have a warehouse over there. You still perform a intra-community supply of goods which has to be reported in the country of departure of the goods and not only in the VAT return, but also in the sales listing   and maybe even in an interest of obligation.

KK In assuming that kind of case, the company that is selling both B2C, B2B clients, storing the goods locally in the foreign country, would OSS be beneficial? Would that company be a good case, a good example for OSS, or would you advise against of using OSS?

RB It depends on whether they have warehouses in all those member states. If you, I mean, I would assume that if a certain company would have maybe two or three warehouses across the European Union in order to fullfill those orders in a timely manner, depending, of course, on the county where the order comes from. Well, in that situation, it would be definitely beneficial to still opt for the One Stop Shop. If you don't do that, for example, that means that if you get an order from a country in which you are not registered for VAT purposes, and even if it's only one order, the company becomes required to be VAT registered for that only sale. And you can avoid that by still opting for the One Stop Shop, even if you also have many B2B sales of goods. So, if you only have a few countries which you have warehouse and from where you are fulfilling orders, but you are selling to all the European member states, or at least you give customers the opportunity to make those orders, then it would be definitely beneficial to still opt for the One Stop Shop. If you want to avoid that, of course, you can simply say, ok, I'm going to close my website, my sales channel for orders from particular countries. Avoiding that, you are making sales to those countries, and then you also don't have to be afraid, of course, that you still have to be registered for VAT purposes in that country.

KK So, it may occur to the company to report both in OSS and locally right, to Hungarian authorities or Czech authorities, B2B sales and the other type of transactions that would not be subject to OSS. In this case, it's quite often, to be honest, the question about that, would that be efficient for us to keep two different records? Should we adjust our ERP system for then having double work, or reporting our VAT obligations and fulfilling it?

RB I never experienced these kinds of problems. I don't see that there would be a problem there is those situations because the One Stop Shop has so many positive aspects, far more than the negative aspects. So if the sole reason is that I'm going to respect that I have to do more VAT complaince than before, yeah, maybe that's correct, because you at least get one additional One Stop Shop return. But it's going to be a very simple return in which you need to report a turnover, the tax amount, or VAT rate of that EU country. And then you're ready. It makes life much easier instead of performing or registering in a particular country for VAT. Only in a situation where a company is already registered in all the EU member states, and they cannot deregister in any of those member states due to other type of transaction they are creating or having, then, of course, only in that situation I would say, ok, why choose for the One Stop Shop if you have to be registered in all those member states still, then you've got to also report those sales. A very important remark, is if you ask for the One Stop Shop, it means that you are obliged to report all the B2C sales of goods, so all the B2C distance sales of goods in the One Stop Shop return, as well, of course, as to B2C TP issuers. You don't have an option that I'm going to report some in VAT return, because you are still registered over there, and the other countries in the One Stop Shop return. It's all or nothing, in that respect.

KK You mentioned that you can gain a lot thanks to OSS but in practice, what are the benefits of using OSS for taxpayers? If we can single out like two, three things, what would that be?

KS It's definitely a cost reduction for VAT compliance, less of administration, and from my point of view, time effectivity.

RB I completely agree. It saves a lot of time, a lot of hassle, a lot of registrations, a lot of dealing with all kinds of different service providers, maybe. It's a really efficient solution. It will, of course, lose our kind of companies quite some work. But at the end, it's very good for our clients.

KK But, you know, all revolutions take its toll, right? And there are some costs attached to that. And I believe there to be compliance to make sure that you are complying, you need to also make some efforts. Are there any particular things that sellers would need to do, or some changes they need to introduce, updates, features in their ERP systems, and the process flow to make sure they are compliant with the new regulations, potentially?

RB The most important one is going to be, of course, VAT rates. So, many companies who are making at this moment distance sales, but they are still below the necessary threshold per EU member states, they are used to charging the domestic VAT at the country of depatrue of the goods. As of the 1st of July, if it's a possibility of course, the VAT should be applied at the country of arrival, and it means that all companies need to assess which VAT rate is applicable to their type of products, and those VAT rates need to be included in their ERP system, but also in the server central if they are using Amazon, for example, so that the correct VAT rate is applied on the sale of the products. Another aspect, as well, is that the One Stop Shop return needs to be submitted in euros. Even, if you are based in the country which doesn't have the euro as their main currency, you still need to report all those transactions in Euro. You're still obliged, of course, to issue your invoices in any other currency, as long as you exactly know which amount in euros you are going to charge to your customer, because you have to report that as well in your One Stop Shop return.

KK But do you believe that the exchange rate risk would increase due to the frequency of the reporting, which is right now quarterly, or will be quarterly? Is that the case? Sometimes clients are raising this question. And is there a simple answer to that?

RB I don't think it will change anything, because also, before you have to apply the daily exchange rate, officially, at least in most countries, you have to apply the daily exchange rate to calculate the correct VAT amount. So, if you make a sale to a Polish company and it was taxable in Poland, and you invoice them in euros, the Polish zloty amount had to be stated on the invoice as well. And you also in that situation, have to apply officially the daily exchange rates in Poland even the day before the invoice date. So, it will remain the same at this stage, of course. And a very important change, of course, is that if you opt for the One Stop Shop, you are officially not obliged anymore to issue any invoices. So, that's a really big difference instead of what the current regulation is, because at this stage, sales to individuals are normally exempted from the obligation to issue a VAT invoice. But there is an exception for that, for distance sales, and now, as of 1st July, if you opt for the One Stop Shop, you are not obliged to issue any VAT invoices to your customers at all. So it's a really big change in that situation. What I noticed in practice is that many clients will then say, ok, but I'm not obliged to issue an invoice, but I'm going to do it anyway, but because I don't have a requirement, it can be form free. And that's incorrect, because the explanatory notes of the European Commission clearly states that you don't have the requirement to issue a VAT invoice, but if you do, you need to comply with the in-force requirements of the member state of identification, meaning the member states in which you are registered for the One Stop Shop.

KK Only a certain group of sellers will be benefiting from the single pan-European VAT return. Who are those who would not be eligible?

KS Typically, it could be companies who provide business to business services, or selling goods in the country of establishment. So, it means that they are not providing the services, or maybe not services, but are selling goods to another European country. Or, typically in Czech Republic, we have a lot of small family businesses, and a lot of freelancers.

KK Robert-Jan, would you like to add something?

RB The companies which are not benefiting from the One Stop Shop regime are indeed companies making mostly B2B sales, but they didn't have and also will not have real requirements to be registered in the country of arrival of the goods, because in that situation, the 0% VAT rate for the goods supplied would be applicable. Another example is you need the companies, which already have quite some warehouses across the European Union. If you are going to sell and ship from different locations, you cannot remove or deregister in those countries. So, in those situations the One Stop Shop will not be fully beneficial, but it can still be beneficial depending on the amount of countries in which you have a warehouse location.

KK We know that there are sellers that are using their own online shop, but most of the e-sellers are selling via some marketplaces like eBay, Amazon, Zalando. And if we can just take one step back and focus on their situation, how would the EU VAT reform affect its business, or this group that is selling exclusively volume marketplaces?

RB In this situation, there will be no changes to the legislation or the marketplace fiction because it's only applicable in different situations. But if you are based in the European Union, and you are selling and transporting the goods from only European Union, the fact that you are making sales using the platform will not change VAT legislation for you. Meaning that as the seller of the products who sells goods, you are still responsible for remitting the correct VAT to the various tax authorities. Or, if you choose to opt for the One Stop Shop that you report that turnover and pay the VAT to the government.

KK So again, if a marketplace is moving your goods from one place to another, then you have to be registered in all countries for VAT purposes.

RB Yeah, that's, of course, due to the transfer of goods that you still need to to be registered, but it will not have any consequences for the platform.

KK Yeah, yeah, for the platform itself no. Now, here we are now focusing just on the case of the individual sellers selling the goods via marketplaces.

RB Yeah, and that's, of course, what happens with these kind of platforms. They can move your products even probably without your knowing, between the various warehouses of the fulfillment partner. This is really a big problem for the last couple of years, that many companies using that fulfillment program, were not aware of all those registration requirements in the various countries. And they will remain as long as you opt in to allow those platforms to transfer your own inventory between warehouses in order to reduce delivery times, you still need to be registered in those countries. That's fully correct, Kacper.

KK So thank you, Kateřina, thank you, Robert-Jan, that was indeed very interesting. And it is something that we even don't have the full picture of, and I believe that in coming weeks we're going to clarify some points, and our clients and taxpayers, will also know more. Thank you for your time. It was a pleasure talking to you.

RB Oh, no problem, I'm here to help.

KS Thank you. Have a lovely day.

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