Amazon’s Value Added Tax calculation service (VCS) and OSS

The strengths and weaknesses of the VCS are well known. The exciting question at the moment is: (How) does the VAT calculation service work since the major VAT reform on 1 July 2021 and in connection with the use of the One Stop Shop?

The following can be said in advance and summarised.

Anyone who does not select the correct tax settings for the VCS and does not make it clear to Amazon that they are guaranteed to pay their VAT on cross-border sales in the EU to private individuals – so-called distance sales – risks having their foreign deliveries blocked and thus suffering considerable losses in sales.

Below you can see this case, which is currently being repeated very frequently: Amazon blocks the cross-border sale of merchants due to a missing foreign VAT ID or proof of OSS participation.

From a merchant forum: Amazon blocks cross-border sales due to missing foreign VAT ID or proof of OSS participation

There are many reasons for this. We therefore take a look at the most common stumbling blocks and start with the problem that currently occurs most frequently in the interaction between VCS and OSS.

Firstly, let’s remember how you used to ensure that the VAT calculation service always calculated the correct VAT. In some cases, this is still the case today.

VAT IDs and the VCS

Before 1 July 2021, the world and the VCS were simple. If you were liable for tax in a certain EU country, e.g. because you had exceeded the national delivery thresholds that were abolished on 1 July, you had to file your VAT ID for that country.

If you forgot to do this or countries such as Spain refused to issue you with a VAT ID, the VCS would continue to stubbornly charge the VAT of the country of origin and you would have a serious or double problem.

Excursus: Whenever you – or the VCS – show a certain VAT rate or amount on an invoice, although you owe VAT in another country, Section 14c (1) UStG means that you owe VAT twice: 1. the VAT shown on the invoice & 2. the VAT that you owe in the other country anyway. Important: This basic rule continues to apply and represents one of the greatest financial risks in online trading.

But that would mean that you would need VAT IDs for almost all EU countries due to the new VAT rules as of 1 July 2021! (Is anyone still asking themselves at this point: Why is that? If so, then this will help).

This is theoretically and practically the case. But there is a possibility that prevents you from having to register locally in all EU countries if you want to use the VCS.

VAT IDs and OSS

With the One Stop Shop, there will be another option for paying VAT in other EU countries from 1 July 2021.

In this respect, you can also signal to Amazon that you are tax compliant and actually want to pay the VAT for your sales on Amazon.

This means you have two options to prevent Amazon from blocking you from certain foreign markets.

• You continue to file a foreign and valid VAT ID for the EU countries in which you are liable for tax, or
• You confirm that you are registered for the OSS.

Below you can see an extract from the current documentation for the VCS.

Amazon demands: Either deposit foreign VAT ID or confirm OSS participation. Extract from the VCS documentation, as of 1 July 2021

But there is also a third option – a combination of both.

Many of you may receive the following message at regular intervals.

The VCS requires 6 VAT IDs! Why?

What is behind the following notice that many of you regularly receive, even if you have confirmed your participation in the OSS to Amazon?

If you take part in the Amazon Pan EU programme and use the VCS, then you are probably familiar with this notice.

If you participate in the Amazon Pan EU programme and have your invoices created via the VCS, you also make local deliveries in the following EU countries – e.g. from an Amazon warehouse to a consumer in France.

• Germany
• France
• Italy
• Spain
• Poland
• Czech Republic
• (Sweden is not yet automatically part of the Pan EU programme)

Unfortunately, local deliveries in other EU countries cannot be reported via the OSS.

Therefore, you still need a local registration and a corresponding VAT ID in these EU countries.

Finally, we will discuss another problem that many beginners face on Amazon before we give you the most important information in the final conclusion.

Amazon VCS and small businesses and other companies that do not pay VAT

At this point, we would also like to address two constellations that regularly cause problems in the context of the VCS.

• Initial situation 1: You are a small business owner and therefore do not have to pay VAT until you exceed the turnover limit of EUR 22,000 (gross) per calendar year.
• Solution: It is possible to store the small business attribute in the VCS. However, this only makes sense if you have deactivated cross-border shipping, as the small business regulation only applies domestically.
• Initial situation 2: You make sales that are not taxable, e.g. because you run a charitable foundation.
• Solution: analogue to the small business regulation

At this point, it can be stated that national exemption regulations cannot really be processed securely on Amazon or via the VAT calculation service.

Conclusion

Amazon’s VCS VAT calculation service can make your life easier in some cases. However, it is essential that you know how to use it. Otherwise, you risk being blocked on Amazon or, in the worst case, owing VAT twice.

If you need a benchmark with which you can uncover and iron out errors in the VCS, please get in touch with us – even in person.

Taxdoo: We iron out the mistakes of the VCS – and more

At some point you will come to the point where you realise that, in addition to growth, legally compliant VAT and financial accounting processes are also part of building a sustainable business. Then Taxdoo will be at your side.

We have been helping companies such as SNOCKS, air up, LittleLunch and Beiersdorf with VAT compliance and financial accounting for many years – via a unique API-based platform backed by a constantly growing team of leading technology and tax experts.