New 2021 VAT Rules Will Simplify Filing, but Complicate Calculation

Vertex VAT Director, Peter Boerhof, shares advice for global retailers to prepare for upcoming complex tax calculations in 2021, which include new VAT rules for U.S.-based businesses selling to final consumers in Europe.

While these news rules originated in the EU (with similar concepts in the U.K., Norway and Switzerland), they are crucial for U.S.-based vendors to understand — especially when it comes to new ways of reporting, including the Import One Stop Shop (IOSS).

It’s critical to understand why the EU decided to make these changes. Many member countries voiced concern about unfair, albeit legal, VAT practices that made for an unlevel playing field for EU vendors.

Some customers have moved to buy cheaper products overseas rather than from their local shops. That’s because currently there is no VAT on imported goods valued under €22. However, those same goods purchased locally would incur that country’s VAT rate.

Called the “low value consignment stock relief,” the threshold was intended to reduce the administrative burden in customs compliance. The unintended consequence was that it gave international sellers a distinct pricing advantage.

The new rules broadly extend a 2015 VAT adjustment for certain sales of digital, telecommunications and broadcast services to include ecommerce goods. Thankfully, the EU decided to push the compliance deadline from Jan. 1, 2021 to July 1, 2021 due to the coronavirus pandemic, but U.S. retailers should be thinking now about how those changes will affect their businesses.