VAT | 14. July 2020

Online marketplaces as tax debtors

From July 2021, new VAT rules will apply to digital marketplaces for supplies from third countries to the European Union. Online marketplaces will become the debtor of the value added tax. by

Every year, EU member states lose hundreds of millions of euros in tax revenue when traders from third countries sell their goods to the EU via online marketplaces such as Amazon or Ebay, but do not pay the corresponding sales tax. The new legal regulation now aims to prevent losses by companies not registered in the EU for VAT purposes and to make the competitive conditions for European suppliers fairer. Australia, New Zealand and Norway have already introduced similar changes in 2018, 2019 and 2020.

The new Art. 14a VAT Directive applies to marketplaces, platforms or portals that enable distance selling. A distinction is made between distance sales within the EU and distance sales from third countries to an EU Member State.

When the new e-commerce directive comes into force on July 1, 2021, electronic marketplaces will be included in a defined VAT supply chain for deliveries from third countries. The first part of the delivery from a trader from a third country such as China to the online marketplace will always be treated as a ‘dormant delivery’. In order to avoid VAT fraud, this delivery is exempted from tax by the also new Art. 136a VAT Directive.

The second part, however, the supply of the online marketplace to the private buyer in, for example, Italy, is regarded as a ‘moving supply’ and is taxable. The marketplace becomes the tax debtor and must pay the Italian VAT debt.

What do these changes mean for online marketplaces?

The electronic marketplaces are fictitiously included in the supply chain for VAT purposes and are themselves suppliers and sellers within a ‘series’: if goods are imported into the EU from third countries and the real value of the goods does not exceed 150 euros, the law treats electronic marketplaces as if they had received and supplied articles themselves (Art. 14a (1) VAT Directive). The same applies, without limitation of the amount, to supplies within the EU by a trader established in the third country if the goods are sold via an electronic marketplace (Art. 14a para. 2 VAT Directive).

Online marketplaces are responsible for collecting all data on transactions carried out on their platform. This obligation to record has already been implemented in Germany in § 22f UStG in connection with the so-called marketplace liability (§ 25e UStG). However, the reform goes far beyond the marketplace liability already introduced in Germany (as of 01.01.2019) and other member states. At present, the operator of an online marketplace must be able to confirm that its sellers comply with their own obligations to comply with VAT regulations. If merchants do not conduct their business in a compliant manner, electronic marketplaces are liable for the VAT due if they are unable to provide appropriate documentation.

With the new rules, electronic marketplaces will become liable for their own VAT. They must pay the correct amount of VAT in the country of delivery and therefore know all national tax rates for the goods. Not an easy task, as each EU member state can decide for itself on the standard tax rates or the exceptions to be applied.