On 1 July 2021 the new VAT e-commerce rules came into force under which VAT due on B2C-cross-border supplies of goods can be reported in a single Member State. Despite the fact that the implementation of the new rules went quite smoothly overall, some technical difficulties - including double taxation in case of imports and use of the IOSS VAT return - have risen. In this article we elaborate on the issue of double taxation under the IOSS and -even more important- a recently proposed solution to solve the issue. If your business is using the IOSS to comply with VAT-ecommerce obligations on distance sales of imported goods this solution may apply to you.
IOSS and double taxation
As a result of the VAT e-commerce rules the import VAT exemption for low value consignments (i.e. up to EUR 22) has been abolished. Import VAT is due on all consignments since that date. The IOSS allows to collect, declare and pay VAT due on consignments valued up to EUR 150 in one single VAT return in case the customer is a consumer. The IOSS enables the payment of VAT on the supply to the consumer at the moment the payment is accepted instead of the payment of import VAT at the moment of customs clearance. Consignment with a value exceeding EUR 150 remain liable for VAT at customs clearance. Sellers or platforms that are considered to be deemed suppliers for VAT must register for the IOSS in a single Member State. They will be issued a unique IOSS identification number that should be provided to customs upon import. This will indicate to customs that VAT has been properly declared on the supply to the consumer which allows for an exemption for import VAT. However the European Commission has identified some cases in which VAT was charged twice (both on the supply and on the import) as a result of:
- the non-communication of the supplier’s IOSS number due to the fact that the postal operator of the country of dispatch is unable to transmit the IOSS number, and
- some of Member States are not being in the position to validate the IOSS number in a full customs declaration.
Since the IOSS identification number is not provided on the import declaration, VAT is levied twice: first on the supply at the moment the payment has been accepted and second import VAT at the moment of customs clearance.
Solution
In one of its working documents The European Commission has proposed to solve the problem of double taxation by way of a correction of VAT in the IOSS VAT return. This means that sellers and platforms will be allowed to reclaim the VAT on the supply charged to their customer in their subsequent IOSS VAT returns. In its guidelines the VAT Committee agrees with this proposed solution provided that the buyer is liable for the payment of import VAT and the preconditions for the correction of the IOSS VAT return are met. Consequently the seller or platform will correct and reimburse the VAT collected at the moment the payment is accepted at the request of the buyer if the buyer proves that import VAT is charged at customs clearance.
Consequences for practice
In our view the proposed solution by the European Commission and its endorsement by the VAT Committee offers a helping hand in dealing with double taxation. Even though the solution is quite practical, we hope that the Member States and postal operators will quickly resolve the cause of the problem by adapting their IT-systems. Sellers and platforms will have to deal with disgruntled customers who have to pay import VAT, while they already paid VAT on the supply . This also implies the risk of cancellation of orders by customers when the postal company requires the payment of VAT when delivering the parcel to the consumers doorstep. In addition to this commercial interest of sellers and platforms, the solution appears to be quite burdensome. Sellers and platforms will need to refund VAT to their customers (e.g. by sending credit notes), collect proof of payment of import VAT by the customer and make corresponding adjustments in their IOSS VAT return. These corrections should be made in a subsequent IOSS VAT return but not later than 3 years after the filing deadline of the original IOSS VAT return.
More information?
The VAT rules for e-commerce are very complex. If your business is using the IOSS to comply with VAT-ecommerce obligations on distance sales of imported goods it is important to check whether the abovementioned problem double VAT occurs and how your Member State of registration deals with this matter. Since the VAT Committee guidelines are not legally binding and Member States may deviate from the guidelines, it is always recommended that a business contacts its local tax advisor. We do however note that these guidelines were adopted unanimously which suggests that the solution can be applied in all Member States.