Texeira Talks Tax: Decoding the New VAT Rules

Tax on e-Commerce in the EU just got simplified, but of course, it's complicated.

The EU will likely set in motion the new tax rules, presumably on the 1st of July, if all goes according to plan. IPBN Head of the Fiscal Board Pedro Texeira, Senior Partner of TaxLibris noted that Germany, among others, is calling for the new rules to be postponed for the beginning of 2022. These new rules will affect e-commerce in that an EU-wide no-limit VAT tax is coming, and many businesses are scrambling to keep within compliance. During this webinar, Accountant Pedro Texeira laid out the groundwork for what we can expect, what we need to do to prepare, and how we can budget for these new changes. 

After a short introduction from Aoife Healy, IPBN Chair of the Board, Texeira began by saying, "One month is a very short time to prepare whatever is necessary…When we are talking about taxes, nobody likes it, of course, so let’s try to be interactive here…Most people think this is totally new, but in fact, this is not a new subject…Five/six years ago the EU had a system in place for online sales that is applicable for certain types of companies.” 

With that, the accountant began a detailed PowerPoint presentation on the historical development of e-commerce, its current status, and what the new rules are for the future. He noted there has been naive thinking on tax harmonization as the rates have been fluctuating wildly from country to country. With the recent boom in e-commerce shopping and the surge in new online marketplace companies, it became clear that something needed to be done to regulate the new habits under our new reality.

Thanks to these increased VAT payments and less VAT fraud, all EU member states are set to benefit from the new regulations, however much of a headache they might seem right now. The new rules make sure that the VAT is paid where the consumption of the goods takes place, so the choice of product by origin becomes a decision the purchaser must be prepared to make. The European Digital Single Market aims to make technology work for the people in a fair and competitive digital economy, and these new rules will make product origins more transparent, something that will certainly help us purchase items in a more sustainable way. Additionally, these rules intend to re-establish fair competition between Europe and foreign e-commerce market players, and between e-commerce and traditional shops in general.

“From 2010-2015, we noticed a big increase of e-commerce in Europe, and now, especially with the pandemic, it [exploded] and something has to be done since there are a lot of holes on the tax system due to this.”   

Giants of e-commerce like Amazon, Alibaba, and others are located in low tax rate territories like the US, China, and Ireland among others, make for unfair market competition with the EU and rampant tax fraud throughout the 27 member-states, especially in Southern Europe. Now, online sellers with certain conditions, marketplace operators (electronic interfaces) inside and outside the EU, and general consumers will be affected by these new rules. In addition to the existing taxes on online sales of products and services, a new category of suppliers was created, “deemed suppliers,” like marketplaces and platforms, and the transactions made by these companies are going to be affected by the new tax rate. “This will change the game for many operators,” Texeira says. “Until now we had some exemptions regarding imports…anything under 22€ was exempt from VAT import tax, and that will finish as well.”

Companies with 100K per year turnover online were already on the hook for this tax, and up until now, Texeira says, “this was not applicable to small and medium-sized companies, and because the limit was relatively high, the control was very limited. Now, due to the huge reduction of these limit, tax authorities will be able to double-check these online sales, and most of the small and micro companies in Europe will be forced to start with this registration through the new rules system, so in fact the system is not new, but now it is applicable to everybody.” The platform for EU e-commerce and marketplaces to register is called One Stop Shop (OSS), and it’s not as complicated as it may seem.

For more detailed information and for companies to report and submit their VAT declarations to the proper authorities, Texeira shared two links with webinar attendees: the Portuguese One-Stop Shop (OSS) registration site and that of Ireland’s OSS and Import One-Stop Shop (IOSS). 

Currently, EU businesses that are selling goods within the EU above a certain threshold (35K - 100K€ depending on the member-state) to buyers located in another EU member-state need to register and pay VAT in the buyer’s member-state. However, from July 1, 2021, this rule will be abolished and replaced with a new EU-wide threshold of 10K€. Above this threshold, businesses will be able to easily register in a new OSS- where they can easily declare and pay the VAT.

Texeira fielded questions from an IPBN guest with a registered Portuguese company with an Irish bank account, informing this e-commerce business that the VAT would be paid in Portugal regardless of the destination of the shipment under these new rules. He also promised to answer some other questions more completely on the topic of electronic platforms’ liability to pay VAT on the behalf of their listed clients. Next, he shared the below informative video with webinar attendees made by the EU Tax and Customs Authority TaxUD. 

Regarding electronic platforms, Texeira clarified some points with his presentation. From July 1, 2021, if an electric interface (marketplace, platform, etc.) facilitates distance sales of goods by a non-EU established seller to a buyer in the EU, the electronic interface is considered to be the seller and is liable for the payment of VAT. To declare and pay this VAT, the electronic interface will be able to easily register on the OSS special electronic system. “That’s a huge change,” Texeira noted. “Operators that are managing electronic interfaces need to adapt their payment systems because currently, most of them collect the money through their payment system and pay back to their supplier deducting their commission. Now they will have to deduct the VAT as well because they are liable to pay it to the country where they are established.” To further illustrate these rules, Texeira shared the following TaxUD video:

Tax law is never cut and dry, which makes it difficult to manage it all alone. As it is paramount for companies to comply with the new rules, Pedro Texeira and all of us at the IPBN are here to help. Contact Arnold at arnold.delville@ireland-portugal.com if you would like us to contact Pedro on behalf of yourself or your business.