2020 VAT quick fixes
As of 1 January 2020, EU Member States are required to implement four quick fixes in their national legislation which should ease the cross-border trade of goods between businesses in the EU. In the current EU VAT rules, there are a number of legal uncertainties for taxpayers with respect to the VAT treatment of cross-border trade of goods in the EU.
The quick fixes consist of the following changes:
- the VAT ID number of the customer and the filing of the EU Sales Listing become material conditions for the application of the zero VAT rate for intra-EU supplies;
- harmonization of documentary evidence required as proof of the transport of goods to another EU Member State to apply the zero VAT rate for intra-EU supplies;
- simplified and uniform treatment for call-off stock, which may result in the supplier no longer being required to register for VAT purposes in an EU Member State where it stores goods; and
- uniform criteria for intra-EU chain transactions determining which supply qualifies as the zero rate intra-EU supply.
Businesses that perform cross-border supplies of goods in the EU as part of their operations should carefully review their supply chain and the impact of these new rules on their business. In particular, businesses should correctly reflect the new VAT rules in their ERP system to avoid future VAT liabilities.
In the wake of the UK general election earlier this month, the Withdrawal Agreement between the UK and the EU27 will be signed in January 2020. Following Brexit, a pre-determined transition period will start immediately, which at the time of this alert is set to end on 31 December 2020, although it could be extended for two years, if the UK and the EU27 agree. Boris Johnson, the UK Prime Minister, has said he is reluctant to ask for an extension to the transition period.
During the transition period, cross-border VAT and customs application will largely continue as is. Still, EU and UK businesses alike should use the allotted time to assess the impact of Brexit on their business and review their contractual arrangements, supply chains (including warehousing) and corporate structures accordingly.
The exact impact of Brexit will depend largely on the agreement that is eventually agreed between the EU and the UK, which may depend on how similar the UK is prepared to make its regulatory laws to those of the EU. Boris Johnson has indicated again that the UK will leave the Single Market and the Customs Union.
This article provides examples of the main tax changes to anticipate.
VAT e-commerce package
On 21 November 2019, the Council adopted Directive (EU) 2019/1995, amending Directive 2006/112/EC and Council Implementing Regulation (EU) 2019/2026 amending Implementing Regulation (EU) No 282/2011. Both the directive and the regulation shall apply from 1 January 2021 and are part of the set of legislation which is referred to as the EU VAT e-commerce package.
The EU VAT e-commerce package consists of the following changes:
- extension of the current Mini One Stop Shop (MOSS) to all services and distance sales, abolition of distance sales thresholds;
- abolition of low value consignment relief (parcels with a value less than EUR22) for VAT;
- simplifications for non-EU parcels (with a value less than EUR150); and
- electronic interfaces will, in certain situations, be deemed for VAT purposes to be the supplier of goods sold to customers in the EU by companies using the interface. Consequently, such interfaces will have to collect and pay the VAT on these sales.
Businesses operating online – in particular those selling products through electronic interfaces (such as online platforms and marketplaces) – should review their supply chains and assess how these changes will impact their business.
Payment service provider (tax) recordkeeping requirements
At the Economic and Financial Affairs Council meeting on 8 November, European finance ministers reached political agreement on new rules requiring payment service providers to keep records of their e-commerce transactions, which will be stored in a new electronic system and shared between EU tax administrations and law enforcement bodies. It is proposed that these rules will enter force in January 2024.