How Online Marketplaces Complicate VAT Payments for Sellers
Local retailers have it easy when it comes to VAT. If you own a business in Belgium, store your goods in Belgium and sell to customers in Belgium, then you need to pay VAT to Belgium. End of story.
Online marketplaces like Amazon and eBay, however, complicate the story a thousandfold. These marketplaces are vast, dense networks of individual sellers, each of whom has their own obligation to pay VAT to the right tax authority.
The Complexities of eCommerce VAT
An online marketplace is likely to have VAT obligations to the tax authorities in several member states. For example, Amazon has a local site in the UK, Germany, France, and Spain, meaning that Amazon vendors can sell items to customers in these countries. Amazon also has warehouses, called fulfilment centres, in assorted locations around the EU.
Complicated distance selling laws and a range of different sales situations mean that the seller could be liable to pay VAT according to the rates in the customer’s country, or in their own country, or in the country where the warehouse is located.
For example, a small jewellery business in Belgium sells engagement rings online to customers in Italy through Amazon.it. Under the EU’s distance selling laws, they have to pay VAT to Belgium according to Belgian VAT rates until their revenue from sales in Italy surpasses €35,000. Once they pass that threshold, they’ll have to pay VAT to Italy, using applicable Italian VAT rates.
However, if they keep their stock in the Amazon fulfilment centre in Germany, so they can take advantage of Amazon’s logistics services, they would to VAT register in Germany and pay VAT to Germany instead – even if they only have one euro of sales. Dealing with different situations, tax authorities, rates and thresholds places a serious burden on small eCommerce sellers.
Compounding the problem is the fact that many sellers live far away, like in China or the Philippines, and genuinely know nothing about their VAT obligations in the EU. Others deliberately take advantage of the murky and confusing VAT system to commit VAT fraud.
Returning Responsibility to Online Marketplaces
Up until now, these large eCommerce marketplaces have pleaded innocent to all accusations of VAT fraud. They insist that the sellers are responsible for paying VAT, not the marketplaces, and wash their hands of any involvement. Between the unclear VAT rules and the laxness of the marketplaces in enforcing them, eCommerce VAT fraud costs the EU an estimated €5 billion annually.
But the scale of the problem is forcing EU member states to start holding online marketplaces responsible for VAT payments. In the UK, a new initiative makes online marketplaces accountable for any overseas sellers who fail to pay their VAT, reclaiming £200 million of VAT by January 2019. Germany introduced similar laws at the beginning of 2019, giving the tax authorities the right to audit online marketplaces for VAT that goes unpaid by any of their sellers.
The EU’s new VAT measures come into force in January 2021, which will make online marketplaces directly responsible for unpaid VAT on goods worth over €150, if they are sold to customers in the EU or stored in fulfilment centres in the EU.
Online Marketplaces Need VAT Automation
The new VAT initiatives across the EU are forcing online marketplaces to change their approach to sellers’ VAT requirements. Unless they make it faster and easier for their vendors to complete their VAT payments, small and even larger sellers will continue to ignore their VAT obligations, and online marketplaces will be left carrying the can.
The best solution for marketplaces is to turn to VAT automation. By introducing VAT payment automation, they’ll help their vendors to pay VAT quickly and easily, taking away their excuses for failing to do so. Together with penalties for ignoring VAT payments, VAT automation in online marketplaces will help increase VAT compliance, thereby reducing VAT fraud, raising VAT revenue for EU member states, and saving online marketplaces from penalties from the tax authorities.