The VAT legislation applicable to cross-border e-commerce will be modernised at EU level by new EU e-commerce rules with effect from 1 July 2021. The new rules will allow companies selling goods online to fulfill certain VAT obligations at EU level via a digital online portal (the “One-Stop Shop”, OSS), hosted by their own revenue agencies and in their own languages. These rules have been in place for online sellers of e-services since 2015, when the “Mini One-Stop Shop” or MOSS was implemented.
By Theodor Artenie (Head of Tax) & Carmen Mazilu (Senior Tax Adviser), Noerr
Currently, EU companies selling goods to consumers within the EU in excess of a certain threshold (€35,000 or €100,000, depending on the Member State) have to register for VAT purposes, collect VAT and pay this VAT in the Member States of their customers. These rules create a significant administrative burden for merchants by requiring them to register for VAT purposes in several Member States. In other words, the existing VAT system creates barriers to intra-community trade for economic operators that do not have the financial and administrative resources to manage a pan-European tax presence.
The new VAT rules aim to create a new paradigm for e-commerce, on the one hand by simplifying VAT obligations for sellers of goods and services to consumers in the EU by up to 95%, and on the other hand by repealing the import VAT exemption for small consignments with the aim of eliminating abusive practices and the commercial advantage of third-country companies over competitors in the EU. The main changes are set out below:
- Online sellers, including online platforms, will be able to register in a single Member State for the purpose of declaring and paying VAT on sales of goods already in free circulation in the EU and for the cross-border supply of services to consumers in the EU. In other words, a merchant in Romania will collect VAT from all Member States where it has customers, but will declare and pay this VAT in Romania using the OSS system (available, but not yet operational on the ANAF website).
- The thresholds for distance sales of goods within the EU will be abolished and replaced by a new threshold of €10,000 valid for all Member States. Below this threshold, all supplies of services and sales of goods to EU consumers will remain taxable in the Member State where the supplier is established.
- Special provisions have been introduced for online platforms that bundle offers from several merchants (“electronic interfaces”). In certain cases, for VAT purposes, these e-interfaces will be deemed to buy and resell the goods offered to consumers by the aforementioned merchants (the term will be “deemed supplier”).
- The VAT exemption for imports of goods with a value of less than €22 is abolished, meaning that all goods imported into the EU will be subject to VAT. However, a new scheme (Import OSS or IOSS) is introduced to simplify the declaration and payment of VAT on certain qualifying imports. Briefly put, for goods brought in from outside the EU (in consignments with an intrinsic value lower than €150) and sold directly to EU consumers, the new scheme allows merchants to exempt from VAT the import of the respective goods and to only collect the VAT applicable in the Member State of the consumer under certain conditions. IOSS will operate similarly to OSS for sales of goods already in free circulation within the EU.
Therefore, building on the success of MOSS for electronic services, from 1 July 2021, this concept will be extended and transformed into OSS. The extended OSS covers three special schemes for sales of goods and provision of services to EU consumers (B2C):
- EU (OSS) scheme – applicable to (i) EU companies for distance sales of goods and provision of services, (ii) third-country companies for distance sales of goods and (iii) electronic interfaces established in and outside the EU for supplies of goods within the Community;
- Non-EU (OSS) scheme – applicable to non-EU companies for supplies of services to consumers within the EU;
- Import (IOSS) scheme – applicable to companies in and outside the EU for distance sales of goods (excluding excisable goods) imported from third countries in consignments with an intrinsic value of less than €150.
It should be noted that these new rules are intended to be a simplification and are therefore optional; merchants have the option of retaining the scheme applicable until 1 July 2021.
The new schemes will allow companies to register online via the portal provided by the revenue agency of the Member State in which they are established, to submit a quarterly return regarding all provision of goods and services in all EU Member States under these schemes and to make a single VAT payment on these transactions.
In Romania, the new rules have just been officially implemented in national legislation by means of Government Emergency Ordinance no 59 which enters into force on 1 July 2021.
Last but not least, even if the spirit of the new rules is to provide simplification, we anticipate certain problems that will result from their initial application, problems that will most likely be solved based on the experience of the merchants and tax authorities. By way of example: possible inconsistencies in national legislation resulting from the transposition of the EU law package (in the primary or secondary legislation), exchange rate differences arising in relation to VAT amounts collected in different currencies, automation of VAT returns required by the new tax rules, application of the correct VAT rates in force in the Member States where merchants will be selling their products, monitoring the tax legislation of the Member States concerned to catch relevant changes in time, adapting the systems used by online platforms so as to make it possible to display prices according to the delivery address chosen by the consumer, implementing the security measures necessary to limit the liability of online platform operators for the tax conduct of merchants who are business associates, managing tax inspections requested by the tax authorities of the Member States whose VAT revenues are collected by Romanian merchants, etc.