The aim of the system is to tighten the collection of VAT and also facilitate settlements in cross-border e-commerce between businesses and consumers (B2C). Simplification of VAT in cross-border e-commerce is part of the EU’s overall Digital Single Market strategy.
Who is affected by the changes?
- Businesses selling goods at a distance in the EU
- Businesses selling goods from outside the EU to consumers in the EU
- Online platforms facilitating the supply of goods to customers in the EU
- Service providers whose place of taxation is in EU territory
- Postal operators and couriers
Settlement of VAT on the sale of goods
Businesses operating online shops will be particularly interested in the change in settlement of VAT on the sale of goods to consumers from other countries in the EU. Until now, member states have set their own thresholds for distance sales (within limits allowed by EU law) beyond which the seller has had to register for VAT in the country of consumption. This procedure has been difficult for taxpayers because of the range of administrative actions required—the taxpayer not only had to deal with the process of registering in the country of consumption but also was required to file VAT returns in the given country in line with local requirements.
From 1 July 2021, distance sales will be replaced by intra-EU distance sales of goods (IDSG), and most importantly, transactions of this type can be settled under rules similar to those under which certain services have been settled in the “mini one-stop shop” (MOSS) procedure. This change will be a great simplification for businesses.
New unified sales threshold
The thresholds beyond which VAT cannot be settled in the country from which the goods are dispatched or the service provider is established will be lowered. Beyond €10,000 (excluding VAT), the entity will be required to register in the country in which it makes sales or supplies TBE (telecommunications, broadcasting and electronic) services. The threshold will be calculated based on the sum of all IDSG and TBE services delivered to consumers in the EU.
This threshold applies exclusively to EU member states. Other businesses, e.g. from the UK, supplying such services or conducting distance sales of goods will not be able to settle such transactions in the country where they are established. They will be required to register in every member states and settle VAT there on such transactions, or apply a modified, simplified procedure.
One-Stop Shop (OSS)
The procedure under which IDSG and supply of services to consumers from the EU can be settled will be the One-Stop Shop. The MOSS procedure, currently applied to TBE services, will be modified and expanded to cover IDSG and all other cross-border services for which the place of supply is specified in the EU member state of consumption. Introduction of OSS procedures will allow sellers to avoid registration in numerous member states to which goods are sold or services are supplied.
In the OSS, it will be possible to file one VAT return covering all EU member states and settle VAT there in this respect. The taxpayer will file a return with the tax authorities of its member state of identification, i.e.:
- The member state where the entity is established or has a fixed establishment, or
- If the entity has more than one fixed establishment but is not established in the EU, it may choose one of the states where it has a fixed establishment to be its member state of identification, or
- If it is not established in the EU and does not have a fixed establishment in the EU, the state from which it dispatches the goods will be its state of identification. If there is more than one such state, the entity will choose which of them will be its state of identification.
Entities from outside the EU will also be able to use the OSS procedure.
An entity from the UK conducts B2C sales of goods. The place where dispatch of the goods begins is a warehouse in Poland. The goods are dispatched by or for the supplier to consumers in other EU member states. In that situation, the entity from the UK must register in Poland for VAT purposes and also register at the OSS, indicating Poland as its State of Identification. At the OSS, it will be able to settle for all supplies to consumers from other EU member states, without having to register in each one of them.
Use of this procedure will be optional. Significantly, if the taxpayer decides to register for purposes of the Union procedure, it must declare and pay VAT through the OSS for all goods or services that can be the subject of this procedure. It cannot declare and settle selectively, i.e. a portion in VAT returns for the OSS and a portion in national VAT returns of the member states of consumption. If the entity is not established in the state of the OSS, and does not have a fixed establishment in that state, it can settle only IDSG, and the state of identification will be the state from which the goods are dispatched, or one of the states if goods are dispatched from more than one EU member state.
Meanwhile, such an entity will be able to settle services in another procedure provided for that purpose, the non-Union procedure for services.
Non-Union procedure for services
This will apply to all B2C services where the place of performance is the member state of consumption of the services.
In this case, the state of identification will be an EU member state chosen by the taxpayer by filing a notification, and in which the taxpayer decides to file returns in electronic form for quarterly periods, indicating the sale of services to specific EU member states.
Distance sales of imported goods (DSIG)
An interesting solution is another type of transaction, concerning distance sales of imported goods (DSIG). These transactions will be exempt from import VAT exclusively with respect to goods in consignments with a value not exceeding €150 – but only in the event of registration and use of the IOSS system (the special import procedure known as the Import One-Stop Shop).
In the IOSS, similar to the OSS, it will be possible to settle VAT due on these transactions without the need to register in each EU member state.
Need to appoint an intermediary
In certain instances (taxpayers not established in the EU and without a fixed establishment in the EU) it will be necessary to appoint an intermediary who will be responsible for collection and settlement of VAT on these transactions. In certain circumstances, this obligation will not apply to taxpayers from, for example, the UK or Norway, because the EU has concluded with these countries an agreement on mutual assistance in recovery of taxes, customs duties, and other claims, administrative cooperation, and combatting VAT fraud.
To avoid the necessity of appointing an intermediary, the goods under DSIG must be dispatched to consumers in the EU from one of these countries.
An entity from the UK, not established in the EU and without a fixed establishment in the EU, supplies goods under the DSIG to consumers in the EU. In this case, the settlement of the transactions in the IOSS will be conducted:
a) Directly by the entity from the UK if the goods are dispatched from the UK, or
b) Via an intermediary, if the goods are dispatched not from the UK, but from another country outside the EU.
If the seller does not decide to use the IOSS procedure, it can use another simplified procedure for the import of goods in consignments with a value not exceeding €150. The tax will be collected from the recipient for the customs authority by making a monthly payment (under the special arrangements for declaration and payment of import VAT). In that case, however, the goods will be taxed at the basic VAT rate, which in Poland is currently 23%.
Changes for internet platforms
The e-commerce package also introduces changes for internet platforms, which in certain situations may be treated as if they themselves were involved in such transactions and made the supply of products.
These entities will be required to collect and pay VAT if they facilitate sales as part of IDSG, but only if the seller is not established in the EU and does not have a fixed establishment in the EU, and in any event if the sale meets the definition of DSIG.
Operators of electronic interfaces will also be required to maintain records of these transactions in electronic form. They will also be able to use the simplifications in settlement of VAT under the same rules as other taxpayers conducting transactions of this type (OSS and IOSS procedures).