Amazon PAN EU: What should be considered at Value Added Tax?

Sooner or later, almost every Amazon seller is confronted with the question of whether “pan-European shipping” (PAN-EU for short) should be activated in Seller Central. The main idea behind this is that your stock is closer to your customers by storing it in other EU countries.

Behind the PAN-EU programme is a high-tech cross-border logistics structure, which is spread across numerous other EU states in addition to Germany.

While many sellers push ahead with this plan on their own initiative after successfully launching their Amazon business, in many cases it is Amazon itself that actively approaches sellers and encourages them to participate in the Pan-EU programme.

The advantages of the PAN-EU programme appear attractive:

• Reduction of shipping costs
• Shorter delivery times
• the labelling of products with the Prime logo on the respective marketplace
• Better rankings in the Amazon product listings thanks to the Prime logo

Until recently, this was the “PAN-EU 6” programme, which could be activated with a single tick in Seller Central. Storage in Amazon’s FBA warehouses in all the following countries was activated by default (FBA = Fulfilment by Amazon):

• Italy
• France
• Spain
• Great Britain
• Poland
• Czech Republic

New 2021: PAN-EU storage countries can now be selected individually

Amazon recently (summer 2021) made two significant changes to the PAN-EU settings:

1. The individual countries can be selected flexibly; it is no longer necessary to activate all available PAN-EU countries as a whole.
2. Sweden (newly selectable since summer 2021, but currently no local storage possible according to Amazon) and the Netherlands are now also available.

Amazon PAN-EU: Storage in various FBA warehouses in large EU markets entails VAT obligations

Participation in Amazon’s PAN-EU programme entails tax obligations abroad

Despite advice from Amazon when activating PAN-EU, many retailers overlook the VAT requirements that must be met before (!) the programme is activated.

The 3 most important requirements are as follows:

1. VAT registrations in all EU countries in which an FBA warehouse is used.
2. Ensuring regular – e.g. monthly or quarterly – VAT returns in these countries.
3. The correct reporting of distance sales via the “One-Stop-Shop” (OSS) in your country of residence.

What do these requirements mean in concrete terms?

1. sales tax identification numbers in the PAN-EU storage countries

In every EU country in which you use an FBA warehouse, you must have a VAT identification number (VAT ID) for the respective country. This also applies after the introduction of the OSS procedure on 1 July 2021.

Experience has shown that VAT registration in an EU country takes between eight and twelve weeks.

The decisive factor is that the VAT IDs must be available before storage begins.

If you activate storage in an EU country without being registered for VAT there, you risk major financial losses, as all deliveries to the respective warehouse would already be fully taxable without a single sale having taken place.

2. regular VAT declarations in the countries of storage

In all countries listed in point 1, you must be able to regularly submit the required local VAT returns in accordance with the requirements of the respective country.

In principle, each EU country has its own requirements and individual reporting intervals in which VAT returns must be submitted. Communication with the respective tax authorities generally takes place in the respective national language.

In principle, you need local tax advisors in the respective country who are familiar with the local peculiarities and can liaise directly with the local tax authorities.

3. one-stop shop for reporting remote sales in the country of domicile

The OSS has made many things easier in cross-border online trade in the EU since 1 July 2021. However, the requirements listed under points 1 and 2 must still be met.

You report your distance sales to other EU countries via the OSS in your country of residence (i.e. in Germany if you are a German online retailer). For this purpose, you must be able to decide for each individual transaction whether it must be reported as part of the local VAT returns in the country of storage (see point 2) or via the OSS in your country of domicile.

Why is it all so complex?

By activating PAN-EU, you allow Amazon to deliver and store your stock in the respective countries using FBA. The decisive factor here is that Amazon can transfer your stock independently.

As soon as a foreign FBA warehouse is used for storage and shipping, there is an obligation to register for VAT in the respective country and to submit regular VAT returns. This applies from the very first product.

If goods are transported between the different Amazon warehouses, the following transactions must be reported for VAT purposes:

• the tax-free intra-Community transfer in the country of departure of the goods
• the intra-Community acquisition in the country of receipt of the goods

You can read more about intra-Community transfers here. However, you don’t need to deal with the complex details of all the VAT requirements mentioned if you integrate Taxdoo.

How well does Amazon support its PAN-EU traders in fulfilling their VAT obligations?

As described above, Amazon is trying to persuade sellers to participate in the Pan-EU programme – because more sales for sellers leads to more commissions for Amazon. In order to reduce the sales tax hurdles for sellers described in this article, Amazon buys quotas from large tax consulting firms and offers the Amazon sales tax services free of charge at the beginning (currently for 6 months). From our point of view, there are two things in particular that need to be considered with Amazon VAT services:

Retroactive declarations or voluntary disclosures often not possible

Many sellers mistakenly do not start the Pan-EU programme on the date on which all VAT registrations are completed, but often much earlier. As part of the Amazon VAT services, most service providers often do not have an (automated) process for the retrospective declarations required as a result, so many sellers simply start with the current declarations.

VAT registrations can take years or be carried out incorrectly

Registration processes often stall without any reason being given or sometimes take many months or even years to complete. Most EU countries require extensive documentation as part of the registration process. In many EU states, for example, proof must also be provided that taxable services, which lead to tax and therefore registration obligations, are actually provided locally. To this end, receipts for goods shipments or sales in these countries must be regularly generated and submitted to the tax authorities. However, this is where the automated processes of Amazon’s VAT services seem to stop in many cases.

Taxdoo: We handle PAN-EU VAT obligations for you in full and from a single source

As you can see, PAN-EU offers numerous advantages, but also some VAT challenges.

Taxdoo takes care of all the VAT topics described here with regard to a complete PAN-EU setup for you automatically and from a single source.

Thanks to our network of local tax advisors in the individual EU countries, you don’t have to worry about setting up an EU-wide tax advisor network yourself. For more than 5 years now, PAN-EU VAT processing for Amazon and multichannel retailers has been one of our core products.

Via our interfaces to marketplaces (e.g. Amazon and eBay), shop systems (e.g. Shopify) and ERP systems (e.g. Xentral, JTL, plentymarkets, Billbee), we can offer you an automated process without manual uploads or similar.

With a central contact person in our Hamburg office, you have a complete overview of all EU countries and don’t have to deal with the individual requirements of each country.

Would you like to know more about how we at Taxdoo can support you? Then arrange your personal – free and non-binding – consultation appointment with our VAT experts now.