As a result of the EU VAT e-commerce package, the German VAT code has been significantly updated, with the European regulations incorporated into German VAT law since July 1st, 2021. This has particularly affected cross-border transactions in the B2C arena, and these tend to be mass transactions. This has meant reanalysing and re-evaluating the legal and technical aspects of the transactions themselves and the processes behind them.
The following article deals with the consequences of the EU VAT e-commerce package for operators of online marketplaces. The first quarter since the introduction of the new regulations has now elapsed. It is therefore time to evaluate your new legal classification and the technical measures you have implemented to fulfil your new VAT obligations.
Reports of foreign traders and service providers failing to meet their domestic tax obligations have long attracted the focus of tax authorities and legislation. From 01.01.2019, paragraph 25e of the German VAT code held operators of online marketplaces liable for unpaid VAT from their traders. Operators could exculpate themselves from liability by keeping extensive records and adhering to reporting obligations as per paragraph 22f of the German civil code. This meant that the necessary technical infrastructure had to be set-up to retrieve and store this information. In addition, monitoring and reporting processes had to be adopted to prevent being held liable for an online retailer’s tax debts.
Deemed supply chains
Section 3 (3a) of the German VAT code came into effect on 01.07.2021. This prescribes a deemed chain transaction between online trader, marketplace operator and end customer under certain circumstances. In consequence, the marketplace operator is treated as if he had actually received the goods in question and had then delivered them to the end customer. This puts the marketplace operator firmly into the supply chain, although he has actually only provided the technical infrastructure to enable the seller and buyer to trade with one another. This provision applies under the following circumstances:
- The goods’ delivery is instigated over an electronic interface
- Movement of goods begins and ends within European community territory
- The trader (seller) does not reside in European community territory
- The recipient of the goods is not a taxable person as per the definition in German VAT law
According to section 3, paragraph 3a, line 3 of the German VAT code, an electronic interface is an electronic marketplace, an electronic platform, an electronic portal or similar technical media.
Movement of goods begins and ends within EU community territory if an item is located in EU member states at the beginning and at the end of its transportation or dispatch. This may be transportation or dispatch of the item within the same member state or from one member state to another member state.
A trader is considered to not reside in community territory if the trader does not run their business within the European Union. i.e., the key decisions in managing the business are not made within the European Union.
As a rule, a non-taxable person in the eyes of the law is an individual who does not engage in any taxable activity as defined by German VAT law.
This provision therefore particularly concerns cases in which traders based in a third country supply goods stored or procured within the EU to private individuals in Europe, either domestically or in a separate member state.
No VAT without IT
A deemed chain transaction means that the merchant has to submit an invoice to the marketplace operator. In turn, the marketplace operator has to invoice the end customer for the delivery of the item. However, no commission may appear on an invoice. This means that the marketplace operator needs to know VAT-relevant information to correctly invoice for the delivery of the merchandise. This particularly includes the following:
- Delivery address
- Retail price
- Time of delivery
- Applicable tax rate for the customer’s country
The marketplace operator has to pay VAT on the seller’s delivery in the customer’s country. This involves registering for VAT in the country in question and issuing invoices with the correct content for that country. Alongside the information detailed above, you may also be required to include further compulsory VAT-relevant details. In order to meet all these criteria, IT-supported processes are indispensable.
The marketplace needs to be programmed to distinguish between a case in which the marketplace operator is only notionally involved in the supply chain and cases -possibly older – in which the marketplace operator is merely held liable for the trader’s VAT. This has a direct effect on defining the type of service, where it is deemed to have been carried out and the billing process, with different information being procured and processed for each case. Due to the sheer number of transactions which tend to be conducted over an online marketplace, it is crucial that these IT processes are fully automated.
What do I need to do now?
Now that the legislation on deemed chain transactions for online marketplaces has been in force for a quarter, it is time to check whether your systems have correctly depicted the transactions for VAT purposes and whether you have fulfilled your VAT obligations. Peters, Schönberger & Partner is a tax consultancy with many years of exceptional expertise in national and international VAT law, especially at the intersection between IT and tax law. This is because using and appreciating the genuine legal value in technical data is indispensable in meeting the requirements of today’s cross-border e-commerce transactions.
SEEBURGER’s business integration services for global e-invoicing ensure end-to-end data logistics. After all, only a smooth flow of data between sellers, marketplace operators and customers ensures that all parties involved have the information they need to fulfil their VAT obligations. The intelligent networking of IT systems is therefore the foundation for ensuring you are complying with all legal requirements. It also frees up capacity, leaving you free to concentrate on other areas, such as driving digitalisation within your company.
Digitalisation in all areas
The regulations on cross-border e-commerce that came into force on 01.01.2019 and 01.07.2021 are primarily aimed at the B2C goods trade over electronic marketplaces. However, digitalisation is also advancing in traditional industries. More and more B2B platforms are being observed in Germany. Back in 2018, around 67 percent of German industrial companies and industry-related service providers were already reporting using electronic platforms. I therefore expect section 3, paragraph 11a of the German VAT code from 01.01.2015 to grow in significance. This regulation concerns circumstances in which services are conducted over an electronic interface. Similar to section 3, paragraph 3a which prescribes a deemed supply chain, paragraph 11a of the same section prescribes a pseudo consignment sale. And this also places the marketplace operator firmly within the transaction. However, the way this is implemented in Germany does not comply with article 9a of the Council Implementing Regulation 282/2011. I therefore believe that it is only a matter of time before Germany’s national courts start dealing with this legislation. For operators of B2B platforms, this means that they should look now whether their processes are fit for purpose. We will deal with the technical and legal challenges inherent in this in a further blog post.
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Written by: Ferdinand KandlhoferFerdinand Kandlhofer is a tax advisor at the interdisciplinary tax consultancy Peters, Schönberger & Partner. Ferdinand Kandlhofer advises large and medium-sized companies on national and international VAT law. He is particularly involved in tax consultancy at the intersection between law and IT.