EU: VAT implications of proposed EU Customs Union Reform

The European Commission (EC) on 17 May 2023 published the first draft of proposals for a reform of the EU Union Customs Code (UCC). While most aspects of the draft are directly related to changes in customs procedure and rules, some of these changes—if enacted—will have VAT implications, effective 2028.  

The proposals include measures to introduce a new “EU Customs Data Hub” that would allow businesses importing into the EU to log all the information on their products and supply chains into a single online environment, the use of artificial intelligence and a smarter approach to customs check, and changes to cross-border e-commerce process and procedure.

Read a May 2023 report prepared by the KPMG member firm in the Netherlands 

Particularly with respect to VAT, it proposes to remove the €150 consignment threshold currently applicable to determine the liability of vendors and e-commerce platforms when selling imported goods to consumers in the EU. If enacted, the removal of this threshold will have the following VAT compliance simplification implications:  

• Extension of the “import one-stop shop” (IOSS) simplification
  • The EU 2021 VAT e-commerce package introduced the IOSS mechanism, which is a simplification measure that eases the VAT compliance burden for non-EU traders selling goods to consumers in the EU. Under the IOSS mechanism, non-EU traders may exercise an option to not register for VAT in every EU country in which they make sales. The trader may register and account for VAT in only one EU country and that country will remit the relevant VAT to other countries that the trader makes sales. In addition, when the IOSS is used, the VAT due on those sales is collected upfront at the time of the sale, thus, import VAT does not have to be collected at the time of importation. However, the IOSS mechanism is currently limited to imports with an intrinsic value not exceeding €150. Removal of this threshold would extend the application of the IOSS simplification to all sale of goods to consumers imported from outside the EU into the EU, irrespective of their value.
• Extension of the “deemed seller” regime
  • The VAT e-commerce package also provided for the deemed liability of marketplaces and platforms where they facilitate the sale of goods to consumers in the EU with an intrinsic value not exceeding €150. Where this regime applies, individual sellers on marketplaces do not have to register for VAT in respect of sales covered by the deemed seller regime. It removes the compliance burden from sellers who operate via marketplaces by deeming the marketplace as the person liable to declare and pay the VAT due on those sales. Removal of this threshold would extend the application of this regime to all sale of goods to consumers imported from outside the EU into the EU, irrespective of their value.
• Extension of the “special arrangements” simplification
  • The VAT e-commerce package also introduced a “special arrangements” simplification. Under this regime, when certain conditions are met, postal operators, express carriers, customs agents, and other operators who fulfil the customs import declarations on behalf of the customer are allowed to declare and remit the collected VAT on those imports on a monthly basis. Just like the IOSS mechanism, the special arrangements are an optional simplification and apply, subject to conditions, to the importation of goods with an intrinsic value not exceeding €150, excluding excise goods. Removal of this threshold would extend the application of this simplification to all sale of goods to consumers imported from outside the EU into the EU, irrespective of their value.
• Introduction of a “deemed importer” regime
  • The reforms propose to introduce the concept of a “deemed importer.” This is defined as any person involved in distance sales of goods to be imported from third territories or third countries and who is authorized to use the IOSS simplification. Under this proposed regime, traders would incur a customs debt when the payment for the sale is accepted, and would be able to apply a simplified tariff treatment for sales made to consumers when determining the appropriate customs value. Under the simplified tariff treatment, the deemed importer can apply one of the “bucket” tariffs to the customs value. The deemed importer would therefore have all the information required, including the duties due by reason of importation, to properly calculate the taxable amount upon which VAT must be applied.
     

For more information, contact a KPMG tax professional:

Philippe Stephanny | philippestephanny@kpmg.com

Chinedu Nwachukwu | chinedunwachukwu@kpmg.com