With the EU VAT reform that entered into force as of July 1, 2021, online marketplaces that facilitate B2C sales in the European Union need to deal with a new administrative burden: charging and remitting VAT on some transactions.
In this article, we’ll look at the instances in which marketplace operators need to account for VAT, in order to comply with the new rules.
What are online marketplaces?
First, we need to look at the definition of an online marketplace in the context of the new legislation. The European Commission’s definition is broad: online marketplaces are electronic interfaces that facilitate transactions between buyers and sellers. These can come in various forms: a website, a platform, an application, a gateway, an API, a portal, or a similar interface.
In which instances do marketplaces facilitate transactions and become the deemed supplier?
Marketplaces need to charge and remit VAT if they facilitate sales transactions between buyers and sellers. The facilitation takes place if the marketplace introduces customers to suppliers (and vice versa), and defines the terms and conditions of the transaction, as, for example, Amazon, eBay, or Etsy. This is when they become the deemed supplier, i.e. the seller on record, which means that they need to charge and remit VAT.
Not all electronic interfaces (websites, applications, etc.) that put buyers and sellers in touch are considered as facilitating the sale, though. For example, if they only meet one of the following criteria, they aren’t the deemed supplier:
- They list or advertise goods or allow others to list or advertise goods
- They process payments for product supplies
- They redirect users to other marketplaces where the sale takes place.
Platforms that only meet one of the above conditions aren’t considered to be the deemed supplier.
To which sales transactions do the new rules apply?
Marketplace operators are liable for VAT on B2C transactions that take place on their platforms in the following instances:
- The seller is established outside the EU but they store the goods in the EU at the time of the sale. In this case, the marketplace can register for the OSS (One-Stop-Shop) scheme, or keep their VAT registrations in each EU country.
- Products of a value of less than €150 are imported into the EU and the marketplace is registered for IOSS (Import-One-Stop-Shop). If the marketplace is not registered for IOSS, they might not be liable.
Are there any exceptions to the above rules?
Yes. The French government, for example, has decided to extend the VAT liability of online marketplaces to sales of imported goods of a value of more than €150. In this case, online marketplaces will be considered the importer and the supplier on record, however, they won’t be able to use the IOSS scheme.
In case goods of value of more than €150 circulate freely in a country different from the final destination country, the importer on record might be liable for VAT, instead of the marketplace.