The rise of online marketplaces has revolutionised the way businesses operate, providing ways for even the smallest businesses to reach customers on a global scale. In response, tax authorities are working to level the playing field from a VAT perspective for the new emerging business models within the marketplace ecosystem. In the European Union (EU),
VAT marketplace rules are evolving and from a tax perspective the definition of marketplaces is broadening. Navigating the complexities of online marketplace VAT rules can be especially daunting if you're not an indirect tax specialist, but it’s still essential for marketplace operators and sellers to understand and abide by the rules for VAT compliance.
The EU VAT Regulations of July 2021
In July 2021, new VAT regulations were implemented regarding the roles of marketplace facilitators. These regulations hold EU marketplace operators accountable for collecting the appropriate taxes that ordinarily sellers are liable to charge their end customers. The tax collection process is determined based on several factors, including the nature and value of the goods, the location of the seller and buyers, and the role of intermediaries in enabling the sale. Marketplace operators and sellers must take into account the various complexities that arise due to different jurisdictions, currencies, and the potential impact of foreign exchange rates on VAT calculations and collection.
Determining Liability for Marketplace VAT
Understanding which party is liable for VAT is crucial for both marketplace operators and sellers. Product classification also helps determines what ‘VAT rate’ applicable to a product, therefore the information provided by sellers to online marketplaces is absolutely key. Marketplace operators and sellers need to assess each transaction against compliance with the EU marketplace VAT rules. For example, an online customer’s basket may include products from different sellers in different locations. The origins of each item can vary and the sale value may also attract different and complex liability assignments. The marketplace could be liable for the collection and remittance of marketplace VAT on some products, while sellers, or even customers, on the same marketplace, may be liable for other product categories.
Looking Ahead to ViDA
ViDA (VAT in The Digital Age) is an indirect tax evolution impacting EU marketplace VAT rules. This VAT e-commerce package refreshes the existing EU VAT directive with digital commerce front and centre. It will likely both expand and refine the scope of VAT obligations for marketplaces with the aim of both simplifying marketplace VAT rules and increase VAT revenues. The proposed changes include broadening the definition of marketplaces and extending the responsibility for tax collection so that platforms or similar intermediaries are responsible for smaller sellers’ VAT obligations. Marketplace operators and sellers ought to stay informed about these proposals and keep them in mind so they are best prepared for the potential impacts on their business that may come into play from 2025.
The Shifting Scope of Marketplace VAT Compliance
It’s also important to consider that for compliance with online marketplace tax rules, you need to address more than just tax calculation and determination. Marketplace operators and sellers need to take control of a raft of business processes from registration, business ID validation and liability assignment, through to e-invoicing and VAT return filings. Change is inevitable and VAT regulations will continue to evolve in response to the rapidly changing landscape of online marketplaces. It is essential for marketplace operators and sellers to stay informed and be prepared with solutions that can adapt to the rapidly changing regulations.
Marketplace operators looking to simplify the process and achieve peace of mind can adopt indirect tax solutions, such as Vertex for Marketplaces.
Tax automation for EU marketplace compliance includes:
- digital invoicing
- B2B VAT ID validation
- foreign exchange source management
- marketplace reporting
- seller onboarding
- liability assignment (LILA) - along with calculation and determination capabilities.
By leveraging indirect tax solutions, marketplace operators can ensure compliance with the EU VAT rules while streamlining their VAT processes.
Please remember that Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.