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Online retailing – Value added tax is going to be restructured

Online retailers and online marketplaces will have to accommodate numerous changes related to VAT from 1.7.2021 at the earliest. These changes are contained in the draft of the 2020 Annual Tax Act, which was passed by the lower house of the German parliament [Bundestag, BT] on 25.9.2020 (BT printed matter 22850). Consequently, the agreements concluded by the EU member states, in 2017, on the “VAT E-Commerce Package” as well as current Federal Fiscal Court and ECJ case law will be taken over into the VAT Act (Umsatzsteuergesetz, UStG).

Distance selling instead of mail order retailing

The previous designation, for VAT purposes, of “mail order retailer” for an online retailer will be replaced by the term “distance seller”. If an item is delivered across borders within the EU or from a third country, in each case, to private individuals and if the distance seller arranges the transport then this would be deemed a distance sale. The transport is arranged by the distance seller ...

  • if it undertakes the transport itself, collects the transport costs from the customer and passes them on to a forwarding agent, or
  • if it enables a forwarding agent to undertake the transport.

The concept of arranging transport has to be interpreted more broadly than previously. The term mail order retailing, which is contained in the German VAT Act, will no longer be used.

Intra-Community distance sale

Intra-Community distance sales will be deemed to have been made in the country of destination and will establish VAT liability there once they exceed an annual threshold of € 10,000 for the EU distance seller. The previous country-specific sales thresholds (between € 35,000 and € 100,000) will cease to apply.

If there are deliveries to various EU countries then, when the threshold is exceeded, distance sellers could be obliged to register for VAT in all the destination countries starting already with the first sale.

Please note: The group of mail order retailers affected will be expanded by the virtual abolition of the sales threshold. In future, it will be necessary to invoice at a foreign VAT rate more frequently and more mail order retailers will potentially register for VAT in EU member states.

Distance selling from a third country

Distance sales of items from third countries will always be without a de minimis threshold and VAT will then have to be charged in the country of destination if the item was imported beforehand into an EU country other than the country of destination, or if the VAT is declared via the OSS scheme (see the following Section).

Reporting via the One-Stop-Shop scheme (OSS)

Distance sellers will be able to avoid registering for VAT in EU countries outside of Germany by participating in the so-called One-Stop-Shop scheme (OSS). In addition to the MOSS scheme, from 2015, businesses will now be able to centrally pay VAT that is due on distance sales in EU countries outside of Germany. This applies, firstly, to intra-Community distance sales and, secondly, to other distance sales from third countries with a maximum material value of € 150.

Please note: Distance sellers may participate in the OSS scheme consistently solely for all transactions from intra-Community distance sales, or distance sales from third countries.

Intra-Community transfers of goods between various goods depots in different EU member states, in particular, cannot be declared via the OSS scheme. It is likewise not possible to declare deliveries from goods depots within the country of destination via the OSS scheme. Input tax from other EU member states can still be claimed via the (German) input tax refund procedure.

Please note: According to the current status, it is to be feared that there will be a burdensome combination consisting of OSS reporting and local VAT returns.

Transactions via marketplaces (e.g. Amazon)

Destination principle

For distance sales via electronic interfaces (e.g. marketplaces) VAT is charged in the country of destination and indeed even if the VAT does not have to be declared via the special taxation scheme and import sales tax has to be paid.

Deliveries via online marketplaces (legal fiction of a chain transaction)

In future, when items supplied by a business from a third country are dispatched from a warehouse in the EU, or in the case of distance sales from a third country with a maximum material value of € 150, a chain transaction will be simulated between the online retailer, the online marketplace (e.g. Amazon) and the end customer. As a consequence, the delivery from the online marketplace to the end customer will constitute the active delivery within the notional chain transaction. In the case of a delivery within the EU, the online marketplace would be able to declare the sale via the OSS scheme. In the case of deliveries from a third country, the online marketplace may import the online retailer’s goods tax-free and report the output transaction via the OSS scheme.

The preceding inactive delivery from the online retailer with a warehouse in the EU to the online marketplace will be tax-exempt. Likewise, in most constellations, the delivery from the third country to the online marketplace would not result in any sales that are taxable in Germany.

In the case of a notional chain transaction, the online marketplace would become the vendor to the end customer. Considerable electronic adjustments will be necessary, for example, in order to determine the correct VAT rate or to track the goods route.

Liability in the case of deliveries via online marketplaces

In cases where a notional chain transaction does not apply, the online marketplace would continue to be liable for the VAT of the mail order retailer. The “confirmation of recording as a taxpayer” (Erfassungsbescheinigung) under Section 22f UStG, which has up to now discharged the mail order retailer from liability, will be replaced by a valid VATIN for the distance seller. The latter will form a part of the record-keeping requirements of Section 22f UStG, which have moreover been expanded.

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