Between 2022 and 2024 the EU will introduce a comprehensive VAT reform. In order to ensure greater clarity by then about Series transactions, intra-community transfers and Consignment stock the so-called "quick fixes" will be available as immediate measures.
The current VAT rules of the European Union are in fact only a temporary solution of the EU - although they have been in place for decades. With a Union action plan, the so-called Quick Fixes, it now wants to meet the new requirements of international networking and digitisation - and, by the way, to create a simpler principle for VAT in Europe, which should limit abuse. In this article we would like to show you what this means, what steps are necessary and how you can ultimately benefit from it.
Prior to the quick fixes for 2020, there was already a change in the law for online platforms and European merchants on 1 January 2019: Since then, it is no longer the merchant himself who is liable for unpaid VAT, but the online platform. As a result, Amazon, eBay & Co. will in future use a Certification according to § 22f which provides them with evidence of the correct payment of VAT by traders.
One of the areas affected by the reform now under way is the destination principle. This is to be changed to the effect that there will no longer be an exemption in the country of origin of an intra-EU (or intra-Community) supply. Instead, sales tax is incurred in the country of the company receiving the service. With regard to third countries the current arrangements but pass.
Quick Fixes as an immediate measure against abuse
The Quick Fixes are only a first step towards new, definitive regulations on value added tax in Europe. They shall enter into force on 1 January 2020 in the form of emergency measures. In the years 2022 to 2024, all measures should finally take effect and the uniform laws should become legally binding.
The main purpose of emergency measures is to prevent fraud and abuse. In particular, intra-Community trade in goods should benefit from the changes by making it simpler and more difficult to abuse.
There will therefore be many innovations with regard to the European VAT system from 2020 onwards, for example concerning chain transactions, intra-Community deliveries and consignment stocks. I'll explain what that means in a moment.
Which Quick Fixes will be available soon?
In the following we summarize the changes of the reform for you. With this we would like to give you an overview of what you need to consider from 1 January 2020 in your company - so that you
- Save taxes,
- can work in a legally compliant manner and
- can save you the trouble of studying the new case law yourself.
Definition: Series business
In a series business, not only two companies are involved in one delivery. In addition, a middleman helps with the transport of the goods. A chain transaction is when the same item is delivered one after another and transported directly from the first supplier to the last acquirer.
For the first time, the Quick Fixes will introduce an EU-wide directive with regard to the taxation of medium-sized enterprises. So far, the composition of taxes has varied from one EU member state to another - despite the same situation.
The situation is different if the transport of the intermediary is for the account of the first or the last trader: In this case, the dispatch of the goods is attributed to the first or last entrepreneur.
What does this mean for you and your online shop?
Online merchants should review their internal procedures and processes with regard to the upcoming changes. Do internal adjustments need to be made? Do international sales have to be recalculated because of the reform?
Overall, the quick fixes are intended to make the processing of value-added tax more cost-effective and easier for online traders. And those who inform themselves in good time can certainly benefit from this.
Definition: intra-Community supply
An intra-Community supply is a cross-border supply of goods and products within the EU. This is exempt from sales tax.
In the future, stricter conditions will apply to Exemption from tax on intra-Community supplies. The material conditions for exemption of these supplies are supplemented as follows:
- The sales tax ID of the purchaser is available.
- The purchaser is registered for VAT purposes in an EU Member State other than the country in which the dispatch originates.
- The sales tax ID is in the VIES system (also known as the VIES system).
- The delivery is correctly summarized.
If the purchaser does not have a valid VAT identification number, the intra-Community supply becomes immediately taxable. At present, it is still the case that only fines are due if the regulation is not observed. A tax liability has not yet arisen as a result.
What does that mean in concrete terms?
For you as an operator of a B2B online shop, this means that you now have to play it safe when requesting your VAT ID. If you make mistakes here, you are liable to pay taxes - and thus a real loss of money. In order to ensure that all the information in the summary of intra-Community supplies is correct, new internal structures and processes may be necessary - for example, to WooCommerce and German Market to be able to make a secure and regular request for the VAT ID of the acquirer
Evidence from interested parties
In addition, the Quick Fixes require both parties to an intra-Community supply to provide evidence. It goes without saying that they must not contradict each other. This evidence can be of various kinds: be it CMR bills of lading, invoices from the forwarding agent, bill of lading or air freight invoices.
Substitute documents for supporting documents
However, should it be the case that only one proof is available, the following documents can serve as a substitute for the second proof:
- Bank documents proving that the shipment was paid for or an insurance policy for the shipment.
- Official documents, e.g. from a notary public, confirming that the goods have arrived in the Member State of destination.
- A receipt signed by a warehousekeeper in the Member State of destination certifying that the goods have been stored.
Advantages and disadvantages of the innovation
The new regulation has the following advantages and disadvantages for European companies:
A negative aspect is the increased administrative burden, as two documents or proofs will be required in future.
On the positive side, the standardization of regulations means that it is no longer necessary to study the laws of the individual EU member states. Instead, there is a simpler, unified solution. Tax fraud can also be reduced and a fair market promoted.
If we look at the cross-border View consignment warehouse equipmentwe come across different regulations and obligations to provide evidence throughout Europe.
Definition: Consignment store
Consignment stores are warehouses that are located in the vicinity (that is, at least in the same state as) the customer. Here, the goods remain in the seller's stock until the buyer removes them.
With the introduction of the quick fixes on value-added tax in 2020, a new Europe-wide directive will come into force that will rule out distortions of competition in the future and draw a clearer, simpler picture of the regulations. No matter in which member state of the European Union an entrepreneur is located.
For example, there were previously unresolved questions concerning the determination of the taxable amount in the case of an intra-Community purchase and subsequent supply.
What will change?
Thanks to the new laws, the supplier in the country of destination is relieved of some registration and declaration obligations. Intra-Community supplies may be accepted in the future under the following circumstances:
- The goods are delivered to a consignment warehouse in another Member State and from there to another operator.
- The supplier is not established in a Member State of destination or in the establishment there of a permanent establishment to which the products are transported.
- The supplier is responsible for the identity and the Turnover tax identification number of the buyer already known.
- The Supplier and the Customer each have a separate register.
- The goods must be delivered to the customer within one year of being placed in the consignment warehouse.
In this case, the intra-Community supply and acquisition only take place when the goods are removed from the consignment warehouse. This makes it possible to avoid a VAT registration of the first entrepreneur in the country of destination.
Assume that the items are returned to the country of storage over a period of twelve months and the process is recorded accordingly: In this case, there is no movement, although the requirements are met. As a result, the deferral period between storage and retrieval of the goods is uniformly set at twelve months.
In addition, it is now possible to replace the purchaser by another purchaser - provided that this change is entered in the register and the other requirements are also met.
Ultimately, it is therefore advantageous for the parties involved to be able to act more flexibly and with legal certainty if they wish to assess the consignment stock for VAT purposes.
- Stricter sanctions for tax fraud
- Fair competition
- Higher delivery thresholds
- Clear definition of consignment stores and chain transactions
- Administrative effort
- More control and evidence
In summary, this means that the quick fixes with regard to VAT now ensure clear conditions throughout the European Union: no more lengthy research when working with a new EU member state, no more costly legal advice and a significantly reduced risk in processing.
After all, the applicable laws from Germany are known and applicable throughout Europe.
But it is equally clear that the quick fixes are only a first step in the VAT reform and not the end. The European Union is striving for a completely uniform reform for the years 2022 to 2024. Until then, the quick fixes will show the direction in which things are heading - regardless of the Member State.
Unfortunately, the subject of quick fixes is quite complicated, especially at the beginning, and requires some knowledge of taxes. If you have further questions or if something is still unclear, please leave me a comment!
Pictures: Hello I'm Nik | Unsplash, hellotax