HMRC must introduce measures that will make Online Platforms collect VAT.
Tackling Online VAT Evasion has now become a top priority for governments and authorities across the globe. The general consensus is to make Online Marketplaces collect the VAT. The EU estimates €5 billion of VAT is lost each year in the EU due to non-compliance on cross-border online sales.
EU Tax and Customs – Modernising VAT for e-commerce
The EU has announced new VAT rules for e-commerce that come into force in January 2021. The new rules include:
- Making Online Marketplaces responsible for collecting and paying VAT on sales that are made by companies in non-EU countries to EU consumers. An Online Marketplace will make a 20% VAT transaction with the customer. The Online Marketplace will make a zero rated transaction with the seller. This means the VAT element of the transaction will be paid by the Online Marketplace and the seller will only receive the transaction amount minus that VAT. This rule will apply to EU registered Ltd companies who have overseas directors and overseas companies distant selling into the EU
- Abolishing Low Value Consignment Relief (LVRC). Under current rules, imported goods bought online from non-EU countries are exempt from VAT if they cost below €22. Companies based outside the EU can fraudulently mark expensive goods such as mobile phones and tablets as costing no more than €22, meaning that no VAT is paid. This puts EU businesses at a clear disadvantage to non-EU businesses.
- Destination Principle VAT System. VAT will be paid to the EU country where the customer is based via a One Stop Shop.
- Non EU suppliers of distant sold goods from outside the EU will become responsible for paying VAT. Currently customers pay the VAT on the arrival of these goods. The majority of these goods are mis-declared as gifts with values of less than €22 so no VAT is paid.
EU TAX and Customs has confirmed that these regulations will apply to all UK Ltd Companies that have Overseas Directors
OECD says e-commerce marketplace should be responsible for collection of VAT/GST:
OECD proposals to make e-commerce marketplaces liable for the VAT/GST on sales made by online traders through their platforms were endorsed by delegates from over 100 jurisdictions at the Global Forum on VAT conference recently held in Australia. Other measures proposed at the Forum include data sharing and enhanced co-operation between tax authorities and online marketplaces.
Approximately 300 participants met in Melbourne, Australia on 20-22 March 2019 and discussed measures proposed in a new report by the OECD on The Role of Digital Platforms in the Collection of VAT/GST on Online Sales. According to OECD analysis, two-thirds of all cross-border e-commerce sales of goods are made via online marketplaces.
Changing tax rules to make e-commerce marketplaces liable for the VAT/GST on sales made by online traders through their platforms, will allow tax authorities to focus their compliance efforts on the relatively small number of marketplaces rather than on the millions of small traders operating through them according to the OECD.
Germany’s Bundestag Tackles Online VAT Fraud
Since 1st January 2019 Germany has passed a new VAT law that makes marketplaces liable for any kind of VAT fraud that happens on their platforms. To avoid liability, Amazon and eBay ask sellers to provide them with a new VAT form (F22). This will excluded the platform from being liable and at the same time allows the authorities to access all sales data from the past.
The F22 VAT Form is only issued to the seller by Bundestag once they have reviewed all the sellers VAT returns, Import Invoices and Online Marketplace Accounts.
In the cases of the Amazon Marketplace, if a seller is found to be non-compliant, Bundestag issues a notice to freeze funds and stock. Meanwhile, HMRC’s approach is to send the stock back to the seller and allow them to withdraw all their funds and setup a new account.
In December 2018 the German Tax office Bundestag approached us and asked if we could help with any intelligence on sellers. We were happy to help, providing a list of 80,000 seller accounts.
State of Pennsylvania is now making Online Marketplaces collect VAT/Sales Tax
Pennsylvania is now making Online Marketplaces collect VAT and is making millions more than expected. They raised $151.4m from 3rd party sellers in 9 months. It had estimated $50.5m a year. Officials now expect to earn $200m a year. Nearly 4 times more tax revenue than initially expected.
Australia collects 300% more VAT/GST than forecasted via Online Marketplaces:
Australia collected £43m in first 3 months from low value import tax via Online Marketplaces.
The Treasury Laws Amendment (GST Low Value Goods) Act 2017, which went into effect July 2018 makes Online Marketplaces collect the 10% GST/VAT on behalf of distant sellers. Deputy Commissioner Tim Dyce said GST collections on low-value imports have already exceeded the agency’s full-year revenue estimate of AUD 70 million and was on track to be over 300 percent of forecast.
Italy: Online marketplaces will be liable for VAT due on low-value imports:
Italy has recently approved a law making online marketplaces liable for the VAT due on sales below €150 by non-EU sellers. The measure aims mainly to electronic goods such as mobile phones, tables, PCs and laptops, games consoles and video games, etc being imported from non-EU, third countries.
Sweden Charges £6.26 handling fee for all non-EU Parcels
In Sweden Postnord first introduced a flat 75 kronor (£6.24) administration fee for letters and parcels from non-EU countries in March 2018 as a way to ensure the state didn’t lose out on VAT. After the new fee was brought in, the number of parcels arriving from China to Sweden fell from 150,000 per day at the start of the year to under 15,000 per day.
Sweden has now made an agreement with one of the largest e-commerce sites, Wish, means shoppers will now be charged VAT at the point of purchase, rather than paying an extra fee when they collect their goods in Sweden.