Despite going live on 1 July 2021, the European Union’s new value-added tax (VAT) rules, which established the One-Stop Shop (OSS) online portal, still create confusion for online sellers. The latest e-commerce regulations not only impact more business-to-consumer (B2C) companies and transactions, but now demand a more detailed evaluation of your business models. For some these very rules, which are designed to simplify VAT regimes across the EU, have instead created implementation challenges. However, it is important to appreciate that there are opportunities to be unlocked, too.
To cut through some of the complexity around making OSS work, I recently hosted our “Demystifying the EU’s e-commerce 2021 VAT reforms: Practical steps to compliance” webinar. Joining me on the panel was Laurence Kiddle, independent tax and regulatory consultant, and Thomas Hoppe, Head of Indirect Tax and Customs at Schwarz Gruppe, a multinational family-owned retail group.
The webinar opened by outlining the OSS scheme’s goal of simplifying the 2021 EU VAT rules. One of the key features is its implementation of a destination-based tax principle, which means VAT rates for qualifying transactions are decided by the location of the customer. The conversation then looked at the impact of OSS — the challenges and opportunities — and finally steered towards the evolving nature of tax projects and the skills required for success in the ever-advancing digital tax world.
Watch our free on-demand webinar, Demystifying the EU’s e-commerce 2021 VAT reforms: Practical steps to compliance to get helpful tips to avoid business disruption and remain compliant.
There were lots of great ideas and points shared between the panel, and here are some of the key areas of discussion:
Two major 2021 EU VAT regime impacts on indirect tax teams
- Through OSS, tax authorities are placing a demand for greater transparency and visibility on all sellers, which is part of the price for compliance simplifications. In the past, the granular tax treatment on transactions was less important than it is now. This is particularly true for online marketplace platforms, which the new regulations can hold responsible for the tax revenue identification, collection, and payment to the EU authorities.
- There is now increased and wider responsibility. On the tax rate application level, the rules are not complex, however the challenge is more one of where in the e-commerce enabled supply chain the responsibility now sits. There are implications that go beyond tax into areas such as supplier onboarding and operational aspects of knowing in detail what goods are being sold and their physical locations. The tax function must become a ‘storyteller’ to the rest of the business by explaining why these things matter, as they can lead to commercial and reputational issues when errors are uncovered.
Tax journey challenges created by the OSS scheme
- Tax must be calculated at a more granular level, and many more transactions now fall within EU jurisdiction, following the removal of the €22 exemption which allowed low value goods to be imported into the EU by non-EU companies without VAT. Technology is the only way to survive this, and even then, it will take at least six months to operationalise the processes and systems needed for successful high-volume compliance exercises.
- Accurate VAT record keeping and systems have become more important than ever. It is a time of transformation for the authorities, which also leads to different speeds of OSS implementation between different EU tax authorities, and therefore some complexity and grey areas.
- OSS does not remove the fact that different EU countries will continue to have, for the foreseeable future at least, different VAT reporting requirements.
- Organisations need systems that can adapt with OSS and the customer location-based VAT determination requirements of individual EU countries. Tax determination or tax engines are some of the obvious technology solutions for surviving these regulatory transitions because they insulate organisations and their indirect tax teams against the shocks and complexity of frequent changes.
Three key opportunities created by the new EU VAT rules and OSS
- There is an opportunity to make certain businesses understand the reach of the new EU VAT rules and how — with the right tax engine and tax determination technology — not only can tax compliance be ensured, but greater freedom and flexibility can be gained for the long term.
- The new requirement for detail in companies’ tax data can be used for business advantage, for example, to negotiate with suppliers that operate across multiple business units. By understanding where those transactions are taking place and bringing that information together, cost savings can be made.
- The new EU VAT rules offer e-commerce businesses a chance to improve supplier onboarding. OSS demands a better understanding of the supply chain, particularly for marketplaces. Companies can use the new marketplace rules as a springboard to review and to better understand supply chain relationships and contracts.
How the recent e-commerce regulations can help you learn more about your business
The webinar contains some great insights from Thomas’ and Laurence’s personal experiences of implementing indirect tax projects and explores how the essential skills required have moved far beyond compliance and reporting. Strong communication skills and the ability to sell the importance of tax across a business for competitive advantage are now central to the indirect tax role.
What was clear in the webinar is that there are no silver bullets for implementing OSS and the myriad of new VAT regulations that became effective this summer: technology and a much wider skillset will influence its success in organisations. But ultimately, it should be viewed as an opportunity. A solid implementation will prepare indirect tax professionals and their organisation for the road ahead, as they continue their digital tax transformation journey.
Keep reading for more resources on digital tax reporting and how to keep pace with VAT changes:
- Resource: What are the new EU VAT rules and how do they impact e-commerce businesses?
- FAQs: Top 20 FAQs about the EU VAT One-Stop Shop
- Special report: How the new One-Stop Shop EU VAT rules affect e-commerce
- Webinar: Are you prepared for compliance with the latest EU VAT regulations?
- White paper: How to keep up with new complexities in tax
- Blog: Indirect tax teams must evolve and keep pace with digital tax reporting requirements worldwide