In this article we will focus on the changes to the VAT treatment of the online supply of goods to consumers in the EU. These rules have been impacted not only by Brexit but also by significant changes to the VAT treatment of such supplies introduced by the EU Commission on 1 July 2021.
Pre Brexit supplies of goods from the UK to consumers in another EU country were subject to the distance selling rules. This meant that such goods were subject to UK VAT until distance sales to the other country exceeded the relevant threshold (either 35k Euros or 100k Euros) requiring the UK company to register for VAT in the other country and charge VAT at the rate prevalent there.
On 1 January 2021, the UK became ineligible for the distance selling rules with immediate effect. The sale of goods to consumers in the EU now qualifies for zero-rating as exports. However, EU import VAT and potentially customs duty, depending on the origin of the goods, is now payable in the EU country of arrival. UK online retailers now face the dilemma of burdening their customers with the payment of import VAT and possibly duty before they can receive the goods or put in place alternative arrangements to avoid the risk of upsetting customers. Websites have needed to be updated and contracts changed to reflect the changing landscape.
On 1 July 2021, the rules changed again with the introduction of the One Stop Shop (OSS). The UK had been on notice regarding the forthcoming changes at the time of leaving the EU and it had been hoped that the one stop shop would serve to reduce the administrative burden of supplying goods from the UK to consumers in the EU.
The seed for the OSS can be traced back many years. In December 2017, the European Council adopted a VAT e-commerce package including major change to the VAT reporting of online sales of goods to consumers in other EU countries.
The Mini One Stop Shop (‘MOSS’) which was introduced in January 2015 in relation to the supply of electronically supplied services to consumers had been a success and the decision was made to extend it to the online supply of goods to consumers. Thus, the old distance selling regime was replaced by a new one offering online retailers the possibility of being able to report all eligible EU sales through a single EU OSS registration.
So far so straightforward. However, as the UK is no longer in the EU, UK businesses not having an EU establishment can only use the new EU OSS for intra-Community sales. There is a non-Union OSS for non-EU established businesses but that is only available for services.
Non-EU established suppliers who sell goods from outside the EU to consumers within the EU can, however, register for the Import One Stop Shop (‘IOSS’) in one EU country of their choice. As with an EU OSS registration, a registration under the Import OSS means the submission of one return each reporting period. One major limitation of the scheme is that it is limited to supplies of goods with an intrinsic value of no more than €150.
At first glance this seemed like an attractive solution for charities who make small numbers of sales of journals or other items to consumers in multiple EU countries. However, we now know it may not be quite so straightforward.
If a non-EU established supplier wishes to register for the IOSS, they can only do so directly if they are established in a third country with which the EU has a VAT mutual assistance agreement in place and the goods are supplied from that third country to the EU. It transpires that the EU Commission is currently of the view that the EU-UK Trade and Cooperation Agreement is not sufficient to enable favourable treatment for UK businesses.
This means that UK businesses must use an EU established intermediary to register for IOSS and to submit their IOSS returns.
Such intermediaries will be jointly and severally liable for the business’s VAT liabilities under IOSS, which makes it considerably less attractive for firms to register as intermediaries.
We are aware that the Irish tax authorities will only invoke this condition in exceptional circumstances where compliance issues have been identified. We have also become aware that the Italian tax authorities are saying it is permissible for UK established entities to register directly for IOSS in Italy.
The lack of clarity in this area has led to confusion and we can only hope that in time the IOSS scheme will become more workable for UK businesses.
However, as the IOSS is only relevant for supplies with a maximum consignment value of €150, it may ultimately be more beneficial to continue to sell the goods Delivered Duty Unpaid and to ask the customer to pay any import VAT or duty due.
If they demur, the UK business could refund the VAT element and can ensure this is reflected in the pricing strategy.
The new EU e-commerce simplifications are a salutary reminder that we are now outside the club and that the IOSS feels more like receiving scraps from the table.
It is of course still possible to sell goods to consumers in the EU. Clear communication on the ‘shop’ page of an entity’s website is key so that there are no unpleasant surprises when the goods arrive.
If you would like to know more about any of the points raised in this article or have another issue you would like to discuss, please contact us or speak to your usual PEM adviser.