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The concept of VAT fixed establishments has been discussed at the European Commission level, in ECJ cases and in court cases across EU Member States - but uncertainty remained. Businesses looked to the decision of the recent Dong Yang case (C-547/18) for clarification. Would the outcome offer businesses the opportunity to avoid discussions with tax authorities?

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Monday, June 8, 2020

VAT changes for e-commerce supplies within the EU: are you ready?

Effective 1 July 2021, businesses which focus on e-commerce supplies of goods within the EU will be subject to new VAT rules

Based on new developments, this article was updated on 24 July 2020.

Minor changes to the VAT system already entered into effect on 1 January 2019. In particular, these changes concern the introduction of a yearly turnover threshold for small entrepreneurs who carry out cross-border telecommunications, broadcasting or electronic services in the EU. In the event that their yearly turnover does not exceed €10,000, these entrepreneurs can, under certain conditions, apply the VAT rules of the EU Member State in which they are established. Additionally, some invoicing and VAT return rules were changed.

Effective date for additional changes for e-commerce supplies is pushed back

Alongside these changes already in force, additional important changes for e-commerce supplies will become effective 1 July 2021. Originally, these changes were due to come into force on 1 January 2021. However, due to the measures taken in relation to containing the coronavirus pandemic and the practical difficulties involved, the European Commission requested to postpone the introduction of this new set of VAT rules. On 22 July 2020, the European Council agreed to postpone the measures for six months.

Consequently, the current rules will remain applicable until 1 July 2021.

Both the Netherlands and Germany asked the European Commission to consider a further extension of the date of implementation to 1 January 2022. The question is whether other Member States will follow. Austria, Bulgaria, France and Malta have already stated that they would like the new regulation to be implemented per 1 July 2021. But it seems that we may not have not heard the last word on this.

2021: Changes for e-commerce supplies within the EU

  • For businesses which focus on e-commerce supplies of goods within the EU, the following will change:
    The current distance selling scheme will alter. Currently, a business that supplies goods to final consumers in other EU Member States is often required to charge and pay VAT in the country where the transport of the goods ends. This can be the case when the business exceeds a certain yearly turnover threshold (the Netherlands, for example, has a yearly turnover threshold of €100,000). As of 1 July 2021, the current turnover threshold will be abolished. This implies that the business is required, as from the first distance sale, to charge and pay VAT in the Member State where the transport of the goods ends
  • For small e-commerce entrepreneurs there will be a new yearly turnover threshold of €10,000. Where entrepreneurs remain below this threshold and are only established in one Member State, they are allowed to charge and pay VAT in the country where the transport of the goods begins
  • Member States will offer businesses that are established within their borders to file one special VAT return for their cross-border distance sales in the EU. By making use of this so-called ‘One Stop Shop’, businesses will no longer have to file VAT returns in each of the Member States in which their distance sales are taxed. There will be specific conditions for applying the One Stop Shop scheme.

2021: Changes for e-commerce supplies from countries outside the EU

Increasingly, businesses make e-commerce supplies of goods from countries outside the EU. For these businesses, the primary changes as of 1 July 2021 include:

  • Under certain conditions, the current VAT rules allow the application of a VAT exemption to the importation of small consignments of goods which are shipped from countries outside the EU to customers within the EU. This VAT exemption, which applies to small consignments with a value of up to €22, will be abolished as of 1 July 2021. This implies that the importation of such small consignments will be taxed with import VAT
  • Businesses that make supplies of goods from countries outside the EU to customers inside the EU will be offered the option to make use of a One Stop Shop. This means that they have to file only one VAT return for all their distance sales from countries outside the EU. The One Stop Shop can only be used for consignments with an intrinsic value of not more than €150. In case a business opts to make use of the One Stop Shop scheme, it is allowed, under certain conditions, to apply a VAT exemption for the importation of the goods
  • There will be a special arrangement for the levy of VAT on importation in instances where the One Stop Shop scheme is not used. The arrangement allows certain businesses – generally, mail or postal companies – to collect the import VAT from the person for whom the goods are destined, to subsequently report and pay that VAT by means of monthly electronic returns. This takes away the need to pay the import VAT directly at the customs border. The special arrangement has certain conditions and only applies to consignments with an intrinsic value of not more than €150.

Other changes

In addition to the above changes, the VAT system will be amended on various other points. For example, there will be special obligations for businesses who facilitate distance sales via electronic interfaces such as (online) marketplaces or platforms (as of 1 July 2021). The four ‘Quick Fixes’ for the current intra-Community trade system became effective on 1 January 2020. And then there are the plans of the EU legislator to drastically overhaul the mentioned trade system in the future. The latter plan is, however, still in the legislative phase.

Implications for your business

If your business is engaged in (cross-border) EU trade or e-commerce, it is likely that it will be affected by the upcoming changes. Our expectation is that many businesses will have to adjust their ERP-systems and operating processes (eg administration, invoicing) – for example because of the changed turnover thresholds. This being said, the One Stop Shop scheme may lead to a simpler and more streamlined VAT reporting and payment process.

If your business already scheduled to implement the future changes from 1 January 2021, make sure that the date of implementation is changed to 1 July 2021. You may want to reconsider implementation and business changes as until that date the current set of rules remains applicable.

This article was first published on on 11 May 2020 and has been republished with the authors' permission.


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