The European Union introduced major VAT reforms aimed at closing an estimated €7 billion annual tax gap caused by ecommerce transactions. Particularly sales made through online marketplaces by non-EU sellers. The reforms were designed to ensure that VAT is properly collected on goods sold to EU consumers. It create a fairer competitive environment for businesses operating within the EU.

Why the change was needed

Before the reforms, many goods imported into the EU especially low-value consignments.  It could avoid VAT due to reporting gaps and exemptions. Tax authorities often struggled to collect VAT from overseas sellers. It result in billions of euros in lost revenue each year. EU-based businesses faced a competitive disadvantage because they were generally required to charge VAT correctly.

Marketplace responsibility

Online marketplaces such as Amazon, eBay, and Alibaba became responsible in certain situations. It ensure VAT is collected on sales made through their platforms. This “deemed supplier” approach shifts part of the compliance burden from individual overseas sellers to the marketplace facilitating the transaction.

Removal of the low-value import exemption

The EU eliminated the VAT exemption for imported goods valued below €22. As a result, virtually all imported goods sold to EU consumers are now subject to VAT.  It reduce opportunities for under-declaration and tax avoidance.

One Stop Shop (OSS) system

The reforms introduced the One Stop Shop (OSS) and Import One Stop Shop (IOSS) systems. It allow businesses to register in a single EU member state and report VAT for cross-border sales throughout the EU via one portal. This significantly reduces administrative complexity for compliant sellers.

One stop shop is the new rules will come into force on 1 July 2021. There are design to make life simpler and fairer for all and close a €7 billion ($8.38 billion) tax loss, the EU says. 

The European Commission reports that EU member states are losing out on an estimated €7 billion ($8.38 billion) in VAT revenue each year. As the boom in online shopping grows and low value goods, like inkjet cartridges, are exempt from VAT when imported into the EU. At the same time, this exemption is not available for sales of low value goods produced within the EU.

Expected benefits

The new rules aim to:

• Recover billions of euros in lost VAT revenue.
• Reduce VAT fraud and tax evasion.
• Create a level playing field between EU and non-EU sellers.
• Simplify VAT compliance for businesses engaged in cross-border ecommerce.
• Improve transparency and reporting for tax authorities.

Main changes at a glance for One Stop:

1. Suppose you own or run online marketplaces/platforms/One stop. In that case, special provisions will introduced whereby. If you are facilitating supplies of goods. You will be deemed for VAT purposes to have received and supplied the goods themselves (“deemed supplier”).
2. The EU will remove the EUR 22 VAT exemption on the importing of small consignments will be removed. All goods imported in the EU will now be subject to VAT.
3. A new Import One Stop Shop (IOSS) scheme for distance sales of low value goods imported from third territories. It has been created to simplify the declaration and payment of VAT.
4. The EU will introduce a new EU-wide threshold of EUR 10 000 for distance sales of goods will be introduced. After crossing new distance selling VAT threshold 10,000 euro in German, Spain, Italy and Poland. It will paid to the France Tax Office Authorities via OSS return.  Sales below this EUR 10 000 threshold, including the supplies of TBE (telecommunications, broadcasting and electronic) services and distance sales of goods within the EU. It may remain subject to VAT in the Member State where the taxable person is established.

The EU’s VAT ecommerce reforms represent one of the most significant changes to online sales taxation in recent years. By making marketplaces more accountable and modernizing VAT collection systems. The EU seeks to close a loophole worth approximately €7 billion annually while making cross-border online commerce fairer and more efficient.