While the EU intends to modernize and simplify the VAT system for online sales of goods, the new rules also aim to raise VAT revenues and combat VAT fraud. These changes will have a significant impact on e-commerce businesses. We would like to guide you through the complexities and implementation, for you to get your data, systems and processes ready in time.
E-commerce is booming, it has disrupted both consumer shopping and the logistics of distributing consumer goods. In 2017, the European Commission had already estimated that online sales in the EU were worth EUR 550 billion, of which EUR 96 billion were cross-border sales.
To raise VAT revenues and combat VAT fraud in the EU, the rules for e-commerce sales will change significantly in 2021. Online sellers, marketplace operators, postal operators, express carriers, customs agents, payment service providers and potentially even consumers will all be impacted by these changes.
(*) The Council of the EU has reached a preliminary agreement to postpone the effective date (from 1 January 2021) to 1 July 2021.
What will change?
Firstly, the current VAT exemptions for imports of low-value parcels into the EU will be abolished. Sellers and/or marketplace operators will be required to account for VAT on B2C sales of low-value goods imported into the EU, while the VAT collection may in specific circumstances be shifted to postal operators, express carriers and customs agents.
Secondly, the local annual turnover thresholds for B2C sales of goods within the EU will be abolished and replaced by an EU-wide turnover threshold for small businesses.
Thirdly, One Stop Shop schemes will be introduced to simplify VAT registrations, ongoing compliance and invoicing obligations, while imposing significant record keeping requirements.
These changes are scheduled to take effect in 2021 (the Council of the EU has reached a preliminary agreement to postpone the effective date from January 1, 2021 to July 1, 2021). Additionally, Payment Service Providers engaged in settling payments for e-commerce transactions will be faced with reporting and record keeping requirements as of January 1, 2024.
What are the key challenges organizations are facing?
Some of the key challenges facing organizations include:
- The policy discussion – with little lead time remaining until the effective date of the changes, many issues are still to be resolved, both from a technical VAT perspective and with regard to the systems and procedures used by tax authorities.
- Data, systems and processes – updating front-end systems, identifying and implementing the required data points, mapping transaction flows to VAT accounting and reporting obligations, updating system tax codes and logic, and aligning businesses processes both internally and with key external stakeholders.
- Registrations and ongoing compliance – shifting from a local-to-local approach to One Stop Shop systems, implementing marketplace liability rules and deferred VAT accounting schemes.
- How to align the Customs processes and identify their impact.
- Implementation of controls and record keeping requirements.
The overarching issue for organizations is the expected business impact and the customer experience: how will these tax changes impact supply chains and transaction volumes, logistics flows and the required storage capacity, which stakeholders need to be engaged, and what needs to be done to ensure a smooth customer experience?
How can KPMG assist?
Are you asking yourself where to start and how to structure the implementation of these VAT changes? We have developed a holistic and practical framework to assist organizations with the implementation – addressing the legal and commercial side; data, systems and processes; tax and customs authority procedures; and documentation and controls. We have designed a framework for each of the key stakeholders, being sellers located in the EU, sellers located outside the EU, marketplace operators, postal operators, express carriers and customs agents, and Payment Service Providers.