Emergency Ordinance no. 59/2021, published in the Official Gazette no. 630/28.06.2021 implements in Romania the EU-wide VAT package in the e-commerce era, whose rules will apply from 1 July 2021.
By George Trantea (counsel), Adrian Cristea (senior associate), Adrian Zamfir (associate), Filip & Company
Delayed by the pandemic, the VAT E-commerce package is the means to adjust the VAT, the prominent representative of indirect taxation, to the new realities and technologies. What are these adjustments and what could be their effects? Are they sufficient to unlock the development of trade or could they constitute a barrier to it? We do not know the answers to these questions yet, but we can provide some useful insights to guide participants through the thicket of amendments.
- Who is interested in the new rules and why?
If you sell goods on the Community territory to customers who do not have the right to deduct the related VAT (generically denominated as consumers), you will have the obligation to register for VAT purposes, declare and pay the VAT in all states where the traded goods arrive. The same applies to intra-Community service providers, but also to non-EU service providers, if they target Community consumers.
The persons managing electronic interfaces, web pages, applications, portals, marketplaces, etc. should also pay special attention to these rules, since they become the new VAT payers in respect of certain products they sell, even if such products are not their own products. In other words, if it is not possible to collect the VAT from the person who actually receives it, it could be easier to recover it from the intermediary. The latter is easier to identify!
The impact of this change is significant: if the supplier sells its goods through a marketplace, it is relieved from the obligation to collect VAT. However, the electronic interface will become responsible for declaring and collecting the VAT and will be held liable for non-payment.
- When is the Electronic Interface fiscally responsible for the payment of the VAT?
With a bit of exaggeration, we can say that, for the first time, a software has tax obligations! The law refers to the taxable person behind the software, but the software is the key player. A marketplace will also have the obligation to collect VAT on goods that do not belong to it, for the following transactions:
- distance sales of goods imported from third countries in consignments not exceeding EUR 150, or
- supplies of goods manufactured by a person not established within the Community to an EU-consumer – both the domestic supplies and the intra-Community distance sales of goods.
For these transactions, the electronic interface, such as the marketplace, is a deemed supplier and will be deemed to resell such goods through two fictitious transactions: a B2B transaction, from the actual supplier to the marketplace, and a B2C transaction, from the marketplace to the customer. Each of these transactions will have its own VAT scheme and, as a rule, the B2B transaction will be exempt. The only situation in which the electronic interface is exempt from VAT is the one in which it did not and could not know the correct information of the transaction between the actual supplier and the customer.
As a supplier, even if only a deemed supplier, the electronic interface has the right to use the special, simplifying VAT declaration and payment schemes: OSS and IOSS.
- What is OSS?
One Stop Shop – is the older brother of MOSS (Mini OSS), a one-stop shop available both for certain services (Television/Broadcasting/Electronic – TBE) and for: i) B2C services that are provided in Member States in which the supplier is not established, ii) for intra-Community distance sales of goods and iii) for certain domestic supplies of goods, such as those provided through the marketplace.
The OSS will allow the persons providing services and delivering goods to EU consumers to declare and pay in a single Member State the VAT due in all Member States in which such goods/services are consumed.
- What are the advantages and shortcomings of the OSS? Centralised declarations, but not for everything!
The One Stop Shop simplifies the VAT obligations for the suppliers selling goods and supplying services to the final consumers throughout the EU, allowing them:
- to register for VAT electronically in one single Member State for all the eligible sales of goods and services to customers located in all the other 26 Member States;
- to declare in a single electronic VAT OSS return and to make a single payment of the VAT due on all these sales of goods and services;
- to work with a single tax administration (of the Member State in which they are registered for the OSS).
The OSS does not include the VAT deduction/refund procedure. The VAT deductible in the State of registration, even if such VAT is related to transactions that must be declared in the OSS, will be included in the VAT return submitted for domestic transactions. The VAT to be refunded – the expenses incurred by the taxable person in the countries in which such person provides services/delivers goods – may be claimed through the mechanism implemented through Directive 2008/9.
- EU and non-EU Scheme
There are two special schemes under the OSS: the EU scheme and the non-EU scheme. Each of these schemes has a different scope, both in terms of the range of relevant goods and services and in terms of the persons who can use these schemes. Thus, each supplier will have to determine if it can use the OSS, depending on the transactions it conducts.
The EU scheme allows the declaration of the VAT on the following transactions: i) supplies of intra-community B2C services, ii) intra-community distance sales of goods and iii) domestic supplies of goods (performed only by Electronic Interfaces). It can be used by both EU and non-EU established persons who carry out such transactions.
The non-EU scheme allows the declaration of the VAT on the B2C services provided by a person who is not established in the EU.
Under the EU scheme, for the TBE services and the intra-Community distance supplies of goods, the new threshold of EUR 10,000 is in place, which replaces and standardises the former thresholds of EUR 35,000/EUR 100,000 established by the Member States. Up to this threshold, the VAT will be due in the Member State where the supplier is established. So, if one sells glasses for less than EUR 10,000 per year, one is presumed to sell them only in the Member State where the supplier is registered.
- When does the OSS become IOSS?
Certain transactions will be declared under the IOSS, a variant of the OSS for imports. These require that the following four conditions be met: i) the goods are dispatched from a third country at the time they are delivered; ii) the goods are dispatched in a consignment of an intrinsic value not exceeding EUR 150; iii) the goods are transported or dispatched by or on behalf of the supplier (its intervention may also be indirect) from a third country to a customer in a Member State and iv) the goods are not subject to harmonized EU excise duties (e.g. alcoholic products or tobacco). Please note that the IOSS cannot be used when low value goods are bought and/or dispatched together with excise products, irrespective of whether or not the value of the consignment exceeds EUR 150.
The IOSS may be used by the suppliers and EIs (e.g. marketplaces) established in the EU, but also by those established in non-EU countries provided that an intermediary is used.
We reiterate that the IOSS is not mandatory. It may be used to facilitate the activity of suppliers because the alternative poses numerous challenges, especially for the marketplace.
- IOSS – what to watch out for!
There are a number of aspects to be taken into consideration when using the IOSS, so as to accurately identify what will require VAT declaration, registration and payment. Here are just a few of them.
First, the intrinsic value of EUR 150 is the price of the goods themselves. The VAT, transport or insurance cost will not be taken into account for the calculation of the amount of 150 EUR. They must be displayed separately from the cost of the goods (e.g. Goods – EUR 120; Transport – EUR 40;).
Secondly, actual or presumed suppliers must always apply the VAT rate corresponding to the state of consumption. To this end, when the customer places the order, the supplier/EI should prepare the means to obtain this information from the customer: what is the state of consumption? (e.g. there is an option for the customer to provide this information on the website on which the customer places the order).
In the special case of the electronic interfaces such as the marketplaces, they will have to provide the actual suppliers (marketplace collaborators) with the IOSS VAT code, if such actual suppliers organise the transport, so that they can submit the IOSS VAT code to the customs authorities. This requirement can lead to abuses in the light of the knowledge of the IOSS VAT code by these actual suppliers. It is important that the EI imposes contractual clauses to discourage misuse.
- If you do not want to use/cannot use the IOSS, try the special mechanism!
The special mechanism is another special, optional scheme that is separate from the OSS and IOSS. It was established, in principle, specifically for postal operators, express carriers or other EU customs agents who usually declare goods of low import value, either as direct or indirect customs representatives.
The transactions that may use the special mechanism are similar to those covered by the IOSS. In the case of the special mechanism, the postal operator/carrier, etc. will collect the VAT from the final customer to whom it delivers. The benefits of the special mechanism are: (i) the state will receive the VAT collected by the carrier/postal operator on a monthly basis, with no interim payments; (ii) the customer will not be required to make the payment to the customs authorities, but will wait for the goods to arrive directly at the place of delivery and will pay to the carrier; (iii) the Member States may regulate the application of the single VAT rate for all products in order to simplify imports (the Romanian State has chosen this option by O.U.G. 59/2021).
The aspects presented above, although they do not cover the multitude of situations that suppliers will have to face, are meant to shed some more light on the OSS and IOSS schemes so that they can be used effectively from 1 July 2021.