E-Commerce and the Special Scheme for Distance Selling

According to a study conducted by the CRR (Centre for Retail Research), e-commerce generated net sales of €232.6 billion in Europe and Poland in 2016 and €265.7 billion in 2017. In 2018, this market should exceed €300 billion. Although it proves a fantastic opportunity for online sellers, e-commerce can also be the source of significant tax risks, particularly VAT. Mickael Tatayas, Head of Alliott Group’s VAT/Indirect Services Group, explains the state of play in Europe and provides scenario examples.

E-commerce and existing VAT treatment of sales to private individuals

According to VAT legislation, online sales for customers are subject to VAT. In principle, the VAT applicable is that of the state where the seller has its establishment. However, a specific regime can apply to cross border sales.

i. ‘Local’ sales: customer and seller are in the same member state
When seller and customer are in the same member state, i.e. when the sale is local, the VAT applicable to sales is that of the member state where seller and customer are located.

A Belgian company selling goods to a Belgian customer will apply the Belgian VAT (6%, 12% or 21%).

ii. ‘Cross border’ sales: customer and seller are in different member states

In principle, when seller and customer are in two different member states, the VAT applicable to the sales is that of the seller’s member state.

A Belgian company selling goods to a French customer will apply Belgian VAT (6%, 12%, or 21%).

This regulation favours member states with lower VAT rates, such as Luxembourg where the VAT rate is 17%. A Belgian customer would therefore be advised to purchase goods from a Luxembourg seller rather than from a Belgian seller. 

To curb competition between member states, the European legislation has put in place a regime called the
‘special scheme for distance selling’. According to this regime, above a determined threshold of sales in another and the same member state, the VAT applicable is that of the state where the customer is located.

In France, the threshold allowed per calendar year for distance sales is set at €35,000. A Belgian company selling goods to French customers will have to apply the French VAT rate when its total sales in France exceed €35,000.

Exceeding the threshold and enforcing the special scheme for distance selling is not without consequences for sellers. The latter must obtain a VAT number in the member state where the threshold has been exceeded, apply the VAT rate of that member state to their invoices and submit VAT returns in that member state. If these requirements are not fulfilled, sellers run the risk of being forced to pay:

• VAT on sales for the current year and, as the case may be, for several years back
• Fines on the due VAT for the absence of a VAT number and for failure to submit VAT returns.

Special scheme for distance selling on the 2021 horizon

In December 2017, new regulations enforceable from 2021 were presented to help online sellers:

• The creation of a digital portal in every member state to allow the seller to fulfil in its member state of establishment all VAT obligations in other member states
• The introduction of a €10,000 threshold under which cross border sales are considered equivalent to local sales.

Conclusion

In view of the risks, online sellers should pay very careful attention to the obligations resulting from the application of the special scheme for distance selling. The adjustment of these rules should therefore make the current formalities which hinder the activity of the sector’s professionals much easier.

For more information

Contact Mickael Tatayas, VAT Director at Tax Consult in Belgium.