Value added tax reform 2021: Amazon must rethink Pan EU & CEE

Update: The reform explained below is a major challenge for all companies in online trade. A continuously updated presentation on the EI VAT reform, the One Stop Shop procedure and its effects can be found in our OSS Knowledge Pool.

Amazon has been fine-tuning fee structures for years to ensure that its hundreds of thousands of marketplace traders have the financial incentive to participate in the two Pan EU and CEE programmes.

Background: Within the framework of Pan EU and CEE, goods are shipped to fulfilment centres in numerous other EU countries. This relieves the logistics structure in Germany. On the other hand, it increases the retailer’s reach and thus also the income for Amazon.

A legislative reform in 2021 will mean that those responsible for Amazon in Luxembourg will have to change a few things in the coming months within the framework of these programmes.

The history of this reform is long. In the following section we summarise the most important points once again. You can also skip it if you are a regular reader of our blog.

History of the VAT E-Commerce Package

The history of the so-called VAT E-Commerce Package is long and started in the early 2010s.

The digital economy experienced its second springtime in these years – after the collapse of the New Economy or New Market at the beginning of the 2000s.

It became apparent that digital business models – especially online trade and increasingly digital services – encountered VAT legislation that was not compatible with them and still is not.

This sales tax law is still largely the same as in 1993, when thick catalogues with pre-franked order cards formed the zenith of the mail order business as coined by Neckermann and Quelle – names that no longer play a role in electronic online trade.

On 5 December 2017, something happened in Brussels that hardly anyone had thought possible. The Member States unanimously voted in favour of the adoption and implementation of the VAT Ecommerce Package by 1 January 2021

From 1 January 2021, B2C supplies in online trade should be taxed from the first cent – due to the abolition of all delivery thresholds – where the end consumer is located. From an economic point of view, this is the solution of first choice – first best – in a community like the EU. Otherwise, countries with strong exports, such as Germany, for example, would siphon off a large part of the other countries’ value added tax revenue.

However, so that not every small and medium-sized trader has to register for tax in almost all EU countries and submit tax returns there on an ongoing Value Added Tax basis, the One-Stop-Shop (OSS) should provide the solution for central Value Added Taxcompliance in the trader’s country of residence.

VAT E-Commerce Package: It comes partly differently than (from many) hoped

As we have been explaining for several years now: the great reform including its technical companion OSS is out of time and outdated by technological developments in online commerce.

Merchants who rely on cross-border fulfilment structures of e.g. Amazon, Zalando, … etc. will be allowed to use the OSS. In addition, they will (still) have to register for tax purposes in all EU countries where they store goods.

These traders must therefore establish two compliance strands (1. OSS & 2. local compliance). This is currently not yet reflected in any ERP or shop system.

Intra-Community transfers and acquisitions in the Amazon CEE

The legislative reform does not bring any relief for this rapidly growing segment of companies – on the contrary.

In addition, the Netherlands and Germany have expressed serious concerns and would not like to start implementation until 2022 at the earliest.

What does the largest provider of such fulfillment structures in the EU – Amazon – think about this?

Inside Amazon & EU Commission

If you have talked to current and former Amazon- Value Added Tax-insiders in recent years and months, they were well aware that the previous Value Added Tax-cooperation with alleged industry giants was a disappointment for everyone. Amazon had purchased or heavily subsidised these services. The list of traders who have to pay penalty and default interest despite these services is still growing daily.

The headquarters in Luxembourg had therefore been very much hoping for a political solution – the one-stop shop.

Conclusion: Good intentions – partly the opposite achieved

The implementation of a consistent destination country principle and the reduction of compliance costs by means of a one-stop shop was well-intentioned but has fallen out of time.

Can the EU Commission be accused of ignorance? No! Of course competent and motivated people work there as well. The reason why the OSS will be partly in vain is that the Member States wanted to exclude B2B transactions – i.e. also i.e. also i.e. shipments – from the application. There are a few understandable reasons for this, which we will explain elsewhere – including a guest commentary for the trade journal DER BETRIEB in the near future.

In addition, the reform contains other important aspects such as the liability of Amazon & Co. for those Value Added Tax of third country traders, e.g. from the PRC.

Taxdoo provides you with what the politicians and Amazon can not offer to you

… and provides the leading online traders in Europe with the handling of ongoing EU-wide Value Added Taxcompliance, Intrastat and financial accounting (Taxdoo is partner of the DATEV) offers numerous other compliance services via a unique platform.

If you want to know more about how you Value Added Taxcan efficiently and securely map compliance, financial accounting and much more via a platform, then book your individual and free initial consultation with the compliance experts from Taxdoo!

You are also welcome to register for our regular demo webinar in which we will introduce Taxdoo and our compliance services and answer your questions personally.