Critical importance of the online marketplace-seller relationship
The information that sellers provide to online marketplaces impacts VAT calculation, the assignment of VAT liability at a line-item level, and invoicing.
The data that online marketplaces receive from their underlying sellers and the transactions they facilitate is about to become a precious resource.
This is the third article in a series on the new EU VAT rules that impact online marketplaces:
- Part 1: Top 5 issues that online marketplaces face ahead of new EU VAT rules
- Part 2: Assessing marketplace liability for EU VAT on B2C sales they facilitate
The obligations created by the new EU VAT rules on E-commerce place great importance on the relationship between online marketplaces and the underlying sellers on their platforms. The information that underlying sellers provide becomes crucial to the operation of business-critical functions such as VAT calculation, assigning VAT liability at a line-item level, and invoicing.
While the obligations directly relate to seller information and transactional information, they also create additional seller onboarding responsibilities that will form the basis of a data set that may have to be shared with taxing jurisdictions.
Information required at the seller level
The explanatory notes explicitly state (in section 2.1.10) that the marketplace “shall regard the person selling goods through an electronic interface as a taxable person and the person buying the goods as a non-taxable person, unless he has information to the contrary.” So, the starting assumption here is that the underlying sellers on an online marketplace are businesses.
The explanatory notes also explain what information the marketplace needs to retain when it is not the deemed supplier. It includes:
- Place of establishment of the underlying seller with personal information, including bank account and tax number
- Description of goods for product classification
As the deemed supplier, the online marketplace is heavily dependent on its underlying sellers providing correct and accurate information. The onus is on the marketplace to inform their underlying sellers of the critical importance attached to the information provided by sellers.
Information required at the transaction level
Why is transaction information so important? The information contained in transactions made by sellers via digital platforms will be used for numerous business-critical functions such as VAT calculation, invoicing and assigning VAT liability at a line-item level.
Crucially, the marketplace’s liability, or joint liability, for VAT can be removed only if the marketplace can prove it made reasonable efforts to validate the data supplied by sellers. Such data will also be necessary for the additional reporting obligations that begin in 2023 when DAC7 obligations come into effect.
The type and amount of transactional information that must be collected, and retained for ten years, vary depending on the special scheme used, e.g. OSS or IOSS. However, a substantial amount of information overlaps such as:
- The Member State of consumption to which the goods are supplied
- Description and quantity of goods supplied
- The ‘Ship from’ location (based on information available up to the point of checkout)
- Date of the supply of goods
- Taxable amount indicating the currency used
- Any subsequent increase or reduction of the taxable amount
- The VAT rate applied
- Amount of VAT payable indicating the currency used
- Date and amount of payments received
- Where an invoice is issued, the information contained on the invoice
- Proof of possible returns of goods, including the taxable amount and VAT rate applied
Marketplace responsibilities for seller onboarding
As a result of the information-collecting obligations placed upon online marketplaces, there needs to be a rigorous seller onboarding process implemented by marketplaces. Once onboarded, a regular reassessment of the sellers and the products they sell is needed.
If it emerges that sellers are not compliant with EU VAT laws, then the online marketplace may, in some EU jurisdictions, become jointly and severally liable for their VAT.
Outside the EU, there are similar requirements in place. The UK’s HMRC recently published guidance on when online marketplaces must carry out VAT checks on overseas sellers. It contained this crucial information for online marketplaces:
“HMRC may hold you [the marketplace] jointly and severally liable for any unpaid VAT due on sales an overseas seller has made on your marketplace if you knew, or should have known, that an overseas seller offering goods for sale on your marketplace should have registered for UK VAT and has not.”
HMRC refer to this section as ‘The ‘knew or should have known’ test for online marketplaces’. Such tests, designed to place additional responsibilities upon online marketplaces when onboarding sellers, may also be reflected in future rule changes at the EU level.
For more information on Taxamo’s offering check out the Taxamo Marketplace page here: https://www.taxamo.com/marketplace.html
PLEASE REMEMBER THAT THIS INFORMATION HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT PRESENTED AS SPECIFIC TAX OR LEGAL ADVICE. ALWAYS CONSULT A QUALIFIED TAX OR LEGAL ADVISOR BEFORE TAKING ANY ACTION BASED ON THIS INFORMATION. VERTEX INC. ACCEPTS NO LIABILITY FOR ANY LOSS RESULTING FROM ANY PERSON ACTING OR REFRAINING FROM ACTION AS A RESULT OF THIS INFORMATION.