The new e-commerce VAT regime. Time to review your business flows and technology

The existence of a new European VAT regulation of the e-commerce, to be applied since the next 1^st July, is a recurrent topic not only in specialized publications but in everyday medias. This can be easily explained by the fact that, in a higher or lower degree, the new rules will have implications for most companies.

Indeed, as an outcome of the democratization of technology and the consolidation of on-line distribution platforms and other e-commerce alternatives, it is not unusual that small and medium size companies of every sector of activity are now operating at a global international level and, so, having to face the complexities resulting from such an operative.

Although some mentions may be made to concrete aspects therein, the objective of these lines is not to summarize the contains of the primary regulation of the new regime at an European level, namely:  Council Directive 2017/2455 and Council Directive 2019/1995 (amended as regards the deadline for their implementation by member states by Council Decision 2020/1109). Instead, our objective is to focus on those minimum questions that, in our opinion, must be formulated and answered by every company before July 2021, when the new e-commerce VAT regime is expected to be applied:

1. Should the company be concerned by the new e-commerce VAT regulations?

The new regime affects, under certain conditions, companies supplying goods or services B2C to consumers in different member states (distance sales or service providers not established in the country of consumption), as well as electronic platforms or interfaces doing B2C sales either of their own products or services or facilitating their sales to external suppliers.

It is to be noted that the fact that these transactions are not the only business activity of the company will not prevent it being affected by the new e-commerce regulations. So, it is possible that a company faces a mix scenario where, besides applying any of the new special e-commerce VAT regimes, it must also comply with the general VAT obligations in one or several member states.

As a rule, it can so be concluded that:

• A company which is not involved in any of the abovementioned activities would be out of the scope of the new e-commerce regulations. 

• Should this not be the case, it is still not sure that the company is affected by the new regulations since this will depend on other circumstances. So additional aspects must be considered before being able to conclude about the implications for the company of the e-commerce regulations, such as:

• Does the company have its own portal for e-commerce?

• Which is the volume of B2C sales in each of the member states involved (now the former existing thresholds obliging to charge local VAT have been unified and reduced to 10,000 Euros)?

• Is the company directly or indirectly involved in the transport of the sold goods?

• Are the goods which are commercialized supplied by external suppliers which are not established within the EU? If under 150 Euros, are they imported in a member state other than the country of destination?

• Does the company consistently ask its clients for B2B transactions their VAT number and its validity is checked at the VIES database?

In any case, it is obvious that there would be scenarios where the new e-commerce regulations will have to be analysed in depth, such as:

• Companies already performing distance sales and having had to register in different member states.

• Companies operating their own web shop (irrespective of the fact that the B2C supplies refer to goods of EU or non-EU origin) are likely to be affected.

2. Which are the consequences for the company of the new VAT regime for e-commerce?

Should the company conclude that it comes within the scope of the new e-commerce regulations, the next step is to clearly determine which are the VAT consequences for its operative.

At this stage, this is to be done by the financial department along with the internal tax department, if existing, and the external tax advisors of the company. Involving a third-party VAT consultant network with the required expertise should not be dismissed, given the speciality of the topic and the global implications which may result of the changes.

This task requires an in-depth analysis, from a VAT point of view, so to be able to determine:

• As it is: Which is the VAT treatment under the existing rules for each of the company business flows and which are the key factual elements which determine such a treatment.

• As will be: Which will be VAT treatment under the new e-commerce rules for each of the company business flows, having in mind the key factual elements which determine such a treatment.

Besides considering which are the implications of the new rules, these companies will have to decide about the possibility and opportunity to apply for any of the one stop shop filing regimes therein contemplated.

3. Is your accounting software and VAT compliance procedures prepared to deal with the changes?

The next step, once the VAT implications for the company are identified, should be to conclude about its capacity to update and retrieve the data that is required for complying with the VAT obligations resulting from the new e-commerce VAT regulations.

As happens with the former stage, this task requires an in-depth analysis, this time from the point of view of data sufficiency and reporting technology, so to be able to determine:

• As it is: The way in which the relevant data resulting the company business flows is structured and the way it is reported as required for the management of the company VAT obligations.

• As will be: The sufficiency of said data and adequacy of its structure for the management of the company VAT obligations under the new e-commerce regulations for the existing or intended business flows.

Besides the agents mentioned above, this task will require the full implication if the IT department of the company. Also, the possibility of involving a third party IT consultant besides the suggested support of a VAT consultant network should not be dismissed.

At this stage, the company would have to decide on questions such as the need of introducing changes in its internal IT processes, database structure and reporting technology or the convenience of adopting an external VAT reporting solution either native or bolt-on.

It cannot be dismissed that, for some cases, the total or partial, interim or definitive, outsourcing of the VAT reporting obligations, constitutes the more efficient solution.

Lastly, but no less important, we would like to conclude by stressing that the approach that has been proposed is not only reserved for big organizations but, on the contrary, every company that suspects it´s being affected by the new VAT e-commerce regulations should try to address the above mentioned questions and react accordingly.