The VAT e-Commerce Package: VAT Changes for B2C Trade

The main purpose of the VAT e-commerce package is to facilitate cross-border trade within the EU, while easing the administrative burden on business entities. It has been one of the EU’s priorities under the Digital Single Market Strategy. Furthermore, the solutions contained therein are intended to level the playing field for EU and third country entities, especially given that the latter have long been using the opportunity to make VAT-free dispatches and successfully avoid becoming registered EU VAT payers.

Given the scale of the package and the magnitude of amendments it brings to the B2C trade, it seems of paramount importance for companies (even those making moderate cross-border sales to consumers) and online marketplaces to thoroughly analyse the impact it may have on their operations, so that they are able to adjust their operations to the new requirements, keep their competitiveness, and make the best possible use of the solutions offered (e.g. VAT-OSS and VAT-IOSS measures which, although voluntary, may boost business expansion across new EU markets). 

The key changes brought by the EU VAT e-commerce package were presented below.

At present, suppliers making mail-order sales (i.e. B2C, meaning entering into transactions with consumers from other Member States) may choose to charge local VAT in the country of dispatch, as long as they stay below the sales threshold set by each EU country (raging from EUR 35,000 to EUR 100,000). Yet, once the sales threshold is exceeded, the supplier must register for VAT purposes and settle local VAT in the country of destination.

Consequently, many small businesses managed to avoid registration for VAT purposes in the country of destination, thus dodging supplementary costs related to VAT registration, VAT compliance, and tax/legal support.

Example 1.

A Polish company sells electrical equipment to consumers across various Member States. In 2021, the company has sold goods for a total of EUR 33,000 to French consumers and goods for a total of EUR 99,900 to German consumers and has just received an order worth EUR 10,000. Last year, the company did not exceed the sales thresholds set by France (EUR 35,000) and Germany (EUR 100,000).

Consequently, since the French VAT threshold was not surpassed, the company taxed the French sales at the Polish VAT rate and settled the VAT due in Poland (i.e. the country of dispatch). The distance sales to France were declared by the company in JPK_V7M and marked with the “SW” designation.

Regarding sales to German consumers, the distance sales of EUR 99,900 were settled by the company in Poland, while the latest order worth EUR 10,000, along with each subsequent one, should be taxed in Germany, which will require registering in Germany for VAT purposes and submitting German VAT returns.

Importantly, the VAT e-commerce package introduces the definition of intra-Community distance sales of goods, which is to replace the one of distance sales of goods. Moreover, it provides for levelling the sales threshold across the entire EU, which is now to amount to EUR 10,000 and cover intra-Community distance sales of goods along with telecommunications, broadcasting and electronic (TBE) services provided to consumers within the EU. Once the threshold of EUR 10,000 is exceeded, the sales made by the taxable person will become subject to VAT in the Member State of destination, in line with the applicable rate.

Importantly, in some instances the threshold of EUR 10,000 will not be applied at all, as in the case of 1) intra-Community distance sales of goods made by taxable persons who have established their business outside the Community; 2) supplies of goods made by suppliers who are established or have their fixed establishment in more than one Member State. In fact, the VAT sales threshold applies only to goods dispatched from the Member state of registered seat.

Lowering the threshold will translate into covering a wider group of entities performing the above-mentioned sales with the obligation to register for VAT purposes and settle VAT in the Member States to which they deliver goods. Nonetheless, entities may avoid registering for VAT activities if they decide to apply the newly introduced VAT-OSS procedure.

Example 2.

A Polish company sells goods and electronic services to consumers across the EU. The total value of the company’s cross-border sales has exceeded EUR 10,000, while the value of sales to each Member State remains below the threshold of EUR 10,000 (EUR 6,000 for Germany, EUR 5,000 for France, and EUR 6.000 for Spain, respectively).

Starting from 1 July 2021, the threshold will be set at EUR 10,000 annually to cover all intra-Community distance sales of goods and TBE services made to all purchasers across Member States.

This means that the company has exceeded the sales threshold of EUR 10,000. Consequently, the place of supply of intra-Community distance sales of goods and TBE services will be the Member State to which the goods are dispatched. To settle the VAT due, the company may:

a) register for VAT purposes in each of the Member States of destination, to consequently declare and settle the VAT due via local VAT returns or

b) register for the VAT-OSS procedure in Poland. Once registered, the company will be able to declare and settle the VAT due in the Member States of consumption under the One-Stop Shop (OSS) scheme.

The VAT e-commerce package provides for extending the currently applicable special procedure for settling VAT on telecommunications, broadcast and electronic services rendered to consumers, commonly referred to as the Mini One-Stop Shop (MOSS), establishing a new One-Stop Shop (OSS) procedure, and introducing the Import One-Stop Shop (IOSS).

Under the VAT-OSS procedure, a single return containing information on all the sales made to consumers from various Member States (taxed at local VAT rates) must be submitted to tax authorities of the Member State of identification. Next, the Member State of identification will accordingly transfer the remitted VAT to the Member States of consumption.

The VAT-OSS procedure may be applied to settle VAT on:

• intra-Community distance sales of goods,
• certain consumer-provided services, the place of supply of which is determined under the special rules (services for which place of supply is in the territory of the Member State of consumption, e.g. access to cultural events or accommodation), and
• supplies of goods inside a Member State (domestic supplies) made via electronic interfaces facilitating such supplies within the meaning of the proposed Article 7a.

The sugar tax is settled monthly and remitted by the 25th day of the subsequent month to an individual tax account. The tax is settled via CUK-1 form, a type of tax return in which information on the amount due must be provided. The form is submitted electronically and authenticated by a qualified digital signature, via dedicated website of the Ministry of Finance, with no possibility of submitting it on paper.

Where the tax is not paid on time, sanctions may be imposed. The competent authority may, by way of decision, impose on the payer a sanction fee in the amount corresponding to 50 percent of the amount of the fee due.

A tax authority competent for sugar tax-related matters is the head of the tax office competent for the place of residence or seat of the taxpayer.

• Under the VAT-OSS procedure, Polish companies obliged to settle VAT on sales in other Member States (as a result of exceeding the EUR 10,000 sales threshold) will not have to register for VAT purposes in the Member States to which they supply goods, but will be able to submit a single VAT declaration in Poland.
• To use the VAT-OSS procedure, a company must firstly submit a registration application. As a rule, the application should be submitted before the first day of the calendar quarter from which the procedure is to be applied (yet the regulations provide for some exceptions).
• Importantly, the VAT-OSS return will be submitted quarterly and will be independent from the JPK_V7M / JPK_V7K forms.
• Taxpayers using the VAT-OSS procedure will have to analyse the VAT rates applicable in the Member States of consumption to properly calculate the VAT due on each supply.
• Using the VAT-OSS procedure is optional, yet, once OSS-registered, the taxable person will be obliged to use the procedure to declare and remit VAT on all services and supplies covered by the procedure’s scope. This means that the services or supplies cannot be declared and settled selectively, i.e. some via the VAT OSS return, and some via domestic·tax returns of the Member States of consumption.
• It should be noted that the VAT-OSS procedure cannot be used to recover the input VAT. This means that companies remitting VAT abroad, not having a local VAT identification number in that Member State, will still be required to apply for a VAT refund (under Directive no. 8 or 13).

As it was already indicated, one of the aims of the EU VAT e-commerce package is to tackle the practice of circumventing the requirement to settle VAT on goods imported from third countries within the EU.

In order to achieve this goal, the VAT exemption on imported goods in consignments of an intrinsic value not exceeding EUR 22 will be revoked in all the EU Member States (in Poland, said exemption has been inapplicable) and the concept of distance sales of imported goods will be defined.

By definition, distance sales of goods imported from third territories or third countries means a B2C transaction under which the goods (other than excise goods) are dispatched or transported by the seller or on their behalf from outside the European Union to a Member State.

Importantly, for declaring and settling VAT on distance sales of imported goods in consignments not exceeding EUR 150, a new special procedure, i.e. Import One-Stop Shop (IOSS) will be introduced, also as a voluntary scheme. Where the IOSS is not used, the following mechanisms will be available for imports:

• import VAT will be collected from recipients (consumers) by the customs declarant (the e.g. postal operator, courier firm, customs agents) which will pay it to the customs authorities via a monthly payment or
• regular customs procedures, including paying VAT at the point of import.

Under the IOSS procedure, VAT on distance sales of goods imported from third territories or third countries will be settled in the Member State of consumption, via seller’s Member State of identification.

Thus, the import of goods itself will be exempt from VAT, since the goods will be taxed at an earlier stage, i.e. upon being sold.

In principle, to use the IOSS scheme, taxable persons not established within the Community will have to appoint an intermediary, which will be liable for payment of the VAT on distance sales of goods imported from third territories or third countries.

The key purpose of the IOSS scheme is to enable simplified VAT settlements on distance sales of goods imported from third territories or third countries, through:

• giving the possibility of electronic registration for VAT purposes in a single Member State, which will be treated as the entity’s Member State of identification;
• settlement of VAT under a single monthly return submitted by electronic means to the Member State of identification (according to the rates applicable in the Member States of consumption).

Records related to IOSS will have to be kept for 10 years from the end of the year in which the supply was carried out and made available electronically on request by tax authorities of Member States of identification and consumption.

Under the IOSS procedure, invoices will be issued in line with the regulations at force in the Member State of identification.

The global monthly declaration and payment of import VAT is another optional arrangement that can be made to simplify the collection of VAT where goods were imported to Poland by the consumer, but the IOSS is not used (although it could be).

Just as in the case of IOSS, the monthly payment procedure can be applied to goods (not exceeding EUR 150 and not subject to excise duties) imported by end consumers. Nevertheless, the very mechanism of operation differs significantly.

The tax due (which, in the case of Poland, will amount to 23%, regardless of the type of goods imported) on import of goods will be collected by declarants (e.g. postal operator, courier firm, customs agents) from consumers, at the latest at the time of delivery.

These entities will act on their own behalf and on behalf of the individual for whom the goods will be destined in the country where the import takes place and they will be responsible for tax collection. The monthly payment must be made until the 16th day of the month following the month when VAT is collected. This is why, under the currently developed Act, such individuals are referred to as “persons responsible for tax collection”.

Under the procedure, the declarations, submitted by the entities listed above, will constitute a monthly overview of customs declarations, made according to the place where goods are declared, containing the total amount of tax collected in the month for which they are submitted.

Persons responsible for tax collection will be required to keep electronic records of the goods imported, to store them for 10 years from the end of the year in which the tax liability arose and made them available on request by customs authorities.

Introduction of the VAT e-commerce package is to bring about major changes that are likely to impact the operations of entities managing electronic interfaces, including marketplaces, platforms, portals, or similar means. More information on this topic can be found in our next article.

Izabela Jędra, Assistant Manager, Indirect Tax Services, KPMG in Poland
Kamil Chmielewski, Supervisor, Indirect Tax Services, KPMG in Poland

In this issue:

• Introduction – Tomasz Bełdyga
• Structured invoice: a new VAT invoicing scheme – Łukasz Daniek
• VAT-slimming in practice – Tomasz Piotrowski
• The next edition of the SLIM VAT package – Natalia Kłoś, Patryk Roratowski
• The VAT E-Commerce Package: VAT Changes for B2C Trade– Izabela Jędra, Kamil Chmielewski
• VAT E-Commerce Package: Marketplaces and the new roles they are about to assume – Izabela Jędra, Kamil Chmielewski
• A draft Decree on amending the extended SAF_T file (JPK_VAT) – Izabela Jędra, Kamil Chmielewski
• Reverse charge on VAT: a landmark ruling of CJEU – Marek Bielawski
• Sugar tax – Zbigniew Sobecki, Rafał Roczniak