Exactly three months after the date on which the Czech Republic became obliged to implement the e-commerce amendment in its legislative, it actually did so.
As we already described in our newsletter from May this year, the e-commerce amendment sets forth new rules that will apply mainly to trading in the digital environment. According to the European Commission, this change mainly aims to simplify certain types of cross-border transactions and, with it, reduce the costs for traders who currently have to fulfil their tax obligations in several EU Member States at the same time. The amendment should also help level the playing field between traders in the EU and traders outside the EU. Last but not least, the European Commission expects the amendment to reduce the scope for potential tax evasions and to increase annual VAT revenue by €7 billion.
What are the core pillars of the e-commerce amendment?
First, it regulates the rules for remote shopping with delivery (now termed “distance selling”) in cases when a seller supplies goods from one EU Member State to an end customer in another EU Member State for whom this purchase is not taxable. The major change here is a modification of the rules for determining the place of performance, which are based on the shipment’s value. The limit for a shipment’s value is reduced from the current €35,000 or €100,000 (every Member State currently applies an equivalent of one of these two figures; in the Czech Republic, it’s CZK 1,140,000) to €10,000. This limit will be universally valid across the union, which means that it will apply to all distance selling in all EU Member States. The limit also includes all telecommunication services, radio and TV broadcasting services and electronically provided services supplied to a non-taxable person. Once the threshold value is crossed, the place of performance is no longer the state from which the goods are shipped, meaning that the trader has tax obligations towards the destination country. With this new amendment, it is likely that the place of performance will be located outside the trader’s country much more often than before, which means they will have tax obligations (registering for VAT, filing VAT returns etc.) in multiple Member States.
So what makes this easier?
The answer is the One Stop Shop (OSS), a single place within the EU where a trader may register, declare and pay their VAT for all EU Member States where they have an obligation to do so. This mechanism is an extension of the current Mini One Stop Shop (MOSS). In this context, it should be noted that once a trader registers for the OSS system, all their performances that fall within the scope of the system must be declared in this way. On the other hand, certain performances, such as received fulfilment for which the trader wants to claim a tax deduction, or the transfer of the trader’s own goods to another EU Member State, will not be declarable through OSS. As a consequence, even if a trader has an OSS registration, it will be advisable to also keep the usual VAT registration or to newly register for VAT in multiple EU Member States.
The second pillar of the amendment are new rules for the import of low-value goods. The exemption for imported goods with a total value of less than €22 will be abolished in order to level the playing field between traders in the EU and outside the EU to whom this situation presents a competitive advantage. There will also be new alternative methods for collecting VAT for imported consignments that are not subject to excise duty and whose value is less than €150. One of these methods is the Import One Stop Shop (IOSS), i.e. an import mechanism using a single administration point. This will be particularly relevant for traders who are sending goods from third countries to end customers in an EU Member State; these goods will be released to the free market on the trader’s account.
Inclusion of electronic interface (marketplace) operators
Last but not least, the e-commerce amendment also includes electronic interface (marketplace) operators in the collection of VAT. An electronic interface operator is essentially any taxable person who runs an electronic platform that can mediate the delivery of goods or the provisioning of services between a trader and customer (e.g. Amazon or e-Bay). The new amendment defines certain types of transactions for which a new fiction is introduced for the purposes of VAT collection: the operator of the electronic interface will be considered a fictitious customer in relationship with the trader and a fictitious supplier in relationship with the customer.
Based on the summary of the core pillars above, it is clear that this is a very extensive amendment that may, on the one hand, make the life of certain entities easier but, on the other hand, requires certain other entities to carefully analyse whether this brings any new duties to them.
If this amendment affects you, do not hesitate to contact us. We will be happy to discuss your situation and determine whether the new amendment will make your tax obligations simpler or whether it will impose new duties on you.