In the second article of our new series, we explain when online marketplaces are liable for VAT on the B2C sale of goods that they facilitate via their platforms to customers in the EU.
This series focuses on issues for online marketplaces ahead of the July 1, 2021, introduction date of new EU VAT rules. Previous articles in the series are here:
What is an online marketplace?
Before we assess an online marketplace’s potential liability, the first question to ask is: what is an online marketplace?
According to the EU explanatory notes for the July 1, 2021, rules the definition of an online marketplace is deliberately broad to bring as many marketplaces as possible into the scope of the new rules. The notes state that an online marketplace “could encompass a website, portal, gateway, marketplace, application program interface (API), etc.”
When is an online marketplace the ‘deemed supplier’?
An online marketplace is the deemed supplier and liable for VAT when it facilitates the sale. The concept of facilitating means the use of an online marketplace to allow a customer and a supplier, offering goods for sale through the online marketplace, to enter into contact.
There are exceptions, and online marketplaces shall not be considered as the deemed suppliers when they only provide any of the following:
- The processing of payments concerning the supply of goods;
- The listing or advertising of goods; or
- The redirecting or transferring of customers to other online marketplaces where goods are offered for sale, without any further intervention in the supply.
What transactions are impacted by these new EU VAT rules?
Online marketplaces will be treated as the ‘VAT deemed supplier’ and liable for the VAT for the sale of B2C goods that they facilitate via their platform in the following scenarios:
- The underlying sellers on a marketplace are outside the EU but the goods being sold are already within the EU
- The goods are being imported from outside the EU and have a consignment value that does not exceed €150, and the marketplace is registered for the new Import One-Stop Shop (IOSS) scheme
Indeed, goods imported will have to be reported through the IOSS. If the online marketplace does not opt for IOSS then they may not have a liability. In the case of goods within the EU and with the seller based outside the EU, the online marketplace will have the option to register for the OSS, or to register in each EU country.
Are there deviations to the general rule within the EU?
Yes, there are. In France, for example, online marketplaces will be held liable for VAT purposes when it is facilitating B2C sales of imported goods with a value exceeding EUR150. This situation arises as France has chosen to appoint online marketplaces as the importer of record. Since the value of the goods exceeds EUR150 the IOSS cannot be used. Moreover, when the value of the goods does not exceed EUR150, and the marketplace did not opt to register with the IOSS, the marketplace will still be liable as the importer of record in France.
Goods released for free circulation in a country different from the destination country
Liability assignment can be impacted for goods in consignments valued above EUR150 if the online marketplace is aware that the imported goods after being sold are first put into free circulation in a country different from the destination country before being delivered to the end customer. Indeed the liability in the destination country can switch to the importer of record, and additional VAT registration there will be due. It is key that the online marketplace has information not only on the products sold but also on logistical details after the sale.
Taxamo’s Line Item Liability Assessment (LILA)
A robust process must be adopted to determine the correct liable party for the collection and remittance of VAT on sales (on a per line item basis) made via marketplaces. We refer to this determination as Line Item Liability Assignment (or LILA).
LILA is the real-time determination of liability at the line-item level. For example, in any given customer’s checkout basket there may be multiple differing products from different sellers and for differing amounts. It is conceivable that each line item also results in a different liability assignment. The marketplace could be liable for the collection and remittance of VAT on some products while sellers, or customers, on the same marketplace, may be liable for others.
Our LILA automatically calculates how the consignment value, the location of the seller, and the origin of the goods, may affect liability, including converting the sale currency to the local currency where applicable.
For more information on Taxamo’s offering check out the Taxamo Marketplace page here: https://www.taxamo.com/marketplace.html
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