VAT e-commerce - electronic interfaces as deemed suppliers

A summary of the most important law changes in the field of e-commerce can be found in the previous article. The special schemes, a.o. OSS and IOSS, have been also described here. This text summarizes the provisions of the e-commerce law regarding electronic interfaces.

In order to help better understand the new law, the European Commission Directorate – General Taxation and Customs Union issued the Explanatory Notes on VAT e-commerce rules. According to these notes, the taxable person facilitating the supply of goods through the use of an electronic interface such as a marketplace, platform, portal or similar means is the deemed supplier in case of:

distance sales of goods imported from third territories or third countries in consignments of an intrinsic value not exceeding EUR 150, frequently referred to as low value goods – Article 14a(1), or
supplies of goods within the Community by a taxable person not established there to a non-taxable person; both domestic supplies and intra-Community distance sales of goods are covered – Article 14a(2).

In other words, the taxable person facilitating the supply through the use of an electronic interface becomes a deemed supplier for supplies of the following made via its electronic interface:

Goods in consignments of an intrinsic value not exceeding EUR 150 supplied to a customer in the EU and imported in the EU, irrespective of whether the underlying supplier/seller is established in the EU or outside the EU;
Goods which were already released into free circulation in the EU and goods which are located in the EU and these goods are supplied to customers in the EU, irrespective of their value, when the underlying supplier/seller is not established in the EU.

As a consequence, the taxable person facilitating the supply through the use of an electronic interface will not become a deemed supplier, for transactions involving the following:

Goods in consignments where the intrinsic value is exceeding EUR 150 imported in the EU, irrespective of where the underlying supplier/seller is established;
Goods which were already released into free circulation in the EU and goods which are located in the EU and supplied to customers in the EU, irrespective of their value, where the underlying supplier/seller is established in the EU.

In other words, there are also electronic interfaces that facilitate the supplies of goods and services but who are not deemed suppliers. This will occur when:

The electronic interface facilitates a supply of services to a non-taxable person,
The electronic interface facilitates a supply of goods within the Community (including domestic supplies) and the underlying supplier is established in the EU,
The electronic interface facilitates a distance sale of imported goods in consignments exceeding EUR 150 taking place in the EU, irrespective of where the underlying supplier/seller is established.

Below is table 1 summarising the different invoicing obligations.

Table 1: Invoicing

Supplies		Obligation to invoice according to the VAT Directive?	Can Member States impose invoicing obligation?	Which Member State’s invoicing rules?
Deemed B2B supply	A distance sale of imported goods (Article 14a(1))	Not applicable* * Commercial invoice for customs clearance	Not applicable	Not applicable
Deemed B2B supply	A supply of goods within the EU (Article 14a(2))	YES	Not applicable	Member State where the supply takes place
Deemed B2C supply	A distance sale of imported goods (Article 14a(1)) taking place in the EU	NO* * Commercial invoice for customs clearance	YES	a) Use of the special scheme – Member State of identification b) No use of the special scheme – Member State where the distance sale of imported goods takes place
Deemed B2C supply	A supply of goods within the EU (Article 14a(2)): 1) domestic supply by EI 2) Intra-EU distance sales of goods by EI	1) NO 2) a) Use of the special scheme – NO b) No use of the special scheme – YES	1) YES 2) a) NO b) YES	a) Use of the special scheme – Member State of identification b) No use of the special scheme – Member State where the distance sale of imported goods takes place

The deemed supplier provision is a ‘fiction’ created for VAT purposes. The deemed supplier is usually not in possession of the goods and the transfer of ownership of the goods occurs between the underlying supplier and the customer. Hence, the deemed supplier will often not have at his disposal the information required to establish the place of supply and to fulfil his VAT obligations, such as the place where goods are located at the moment of the transaction (‘ship from’ location) or the nature of the goods supplied. The electronic interface will have to receive such information from the underlying supplier. Furthermore, the deemed supplier will need to determine his VAT obligations at the moment of checkout by the customer. Consequently, the deemed supplier will often depend on the accuracy of the information provided by the suppliers before or at the latest upon check-out to be able to ensure the correct VAT treatment (payment and reporting obligations) of the supply. In order not to impose a disproportionate burden on marketplaces, more legal certainty is provided and their liability for the payment of VAT is limited in pre-defined cases.

Example 1:

A consumer orders goods via an electronic interface from an underlying supplier indicating an address of delivery in Member State A. The VAT charged by the electronic interface is the one applicable to the goods in Member State A. After the order, the customer and the underlying supplier agree for the delivery to be made in Member State B which has a VAT rate higher than Member State A for the good supplied. The electronic interface is not informed thereof. In this situation, the electronic interface is not responsible for the VAT difference and the potential late payment penalties and interests in Member State B. The liability of the underlying supplier can be invoked only if Member State B has introduced national measures providing for joint and several liability of the underlying supplier.

Example 2:

The electronic interface is informed by the underlying supplier about the value and nature of the good according to which the VAT due is EUR 100. The electronic interface declares VAT of EUR 70 by mistake. The limited liability provision does not apply in this situation and the electronic interface is still liable for the EUR 30 (the difference between EUR 100 and EUR 70) and potential late payment penalties and interest.

Example 3:

During an audit, the tax authorities establish that the VAT liability should have been EUR 120 and not EUR 100 as established by the electronic interface according to the information received from the underlying supplier. Since the limited liability provision applies to amounts not reported because of incorrect information received from the underlying supplier/other third party, the electronic interface will not be liable for the VAT of EUR 20 (the difference between EUR 120 and EUR 100). In that case, the liability of the underlying supplier can be invoked in case the Member State has introduced national measures providing for joint and several liability of the underlying supplier.

Example 4:

Goods are listed on the website of the electronic interface by an underlying supplier with place of business or fixed establishment in the EU. The electronic interface is informed by the underlying supplier that the listed goods are located in Member State A. The electronic interface does therefore not declare VAT in respect of sales of these goods. However, in the course of a tax audit it turns out that the goods (all or partly) were shipped to the consumer in EU directly from a non-EU location in one consignment and the value of the goods in that consignment did not exceed EUR 150. The electronic interface will not be held liable for the respective VAT amount as a deemed supplier for distance sales of imported goods. There should however be no VAT loss on this transaction as the VAT will have been collected at importation of the goods in the EU (IOSS exemption is not possible).

The below table 2 presents the elements which should be included in the records of the taxable persons depending on which scheme is used.

Table 2: Record-keeping obligations of the deemed supplier using one of the special schemes

When the taxable person uses the NonUnion Scheme (OSS) or the Union Scheme (OSS)

Article 63c(1) of the VAT Implementing Regulation

When the taxable person uses the import Scheme (IOSS)

Article 63c(2) of the VAT Implementing Regulation

Information to be included in the records of the taxable person

(a) the Member State of consumption to which the goods or services are supplied;

(b) the type of services or the description and quantity of goods supplied;

(d) the taxable amount indicating the currency used;

(e) any subsequent increase or reduction of the taxable amount;

(f) the VAT rate applied;

(g) the amount of VAT payable indicating the currency used;

(h) the date and amount of payments received;

(i) any payments on account received before the supply of the goods or services;

(j) where an invoice is issued, the information contained on the invoice;

(k) in respect of services, the information used to determine the place where the customer is established or has his permanent address or usually resides and, in respect of goods, the information used to determine the place where the dispatch or the transport of the goods to the customer begins and ends;

(l) any proof of possible returns of goods, including the taxable amount and the VAT rate applied.

(a) the Member State of consumption to which the goods are supplied;

(b) the description and quantity of goods supplied;

(d) the taxable amount indicating the currency used;

(e) any subsequent increase or reduction of the taxable amount;

(f) the VAT rate applied;

(g) the amount of VAT payable indicating the currency used;

(h) the date and amount of payments received;

(i) where an invoice is issued, the information contained on the invoice;

(j) the information used to determine the place where the dispatch or the transport of the goods to the customer begins and ends;

(k) proof of possible returns of goods, including the taxable amount and VAT rate applied;

(l) the order number or unique transaction number;

(m) the unique consignment number where that taxable person is directly involved in the delivery.

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