Munster’s first independent VAT consultancy practice providing specialist VAT and Indirect tax advisory, assurance and interim management support services to owner managed businesses, small & medium enterprises, accountants and legal practices.

Online sellers and the lost €5 billion in VAT – EU tax authorities commence clampdown on VAT compliance failings

Tuesday, March 27, 2018

by Nick Ryan

Within the EU businesses generate €550 billion a year in sales on a business to business and business to consumer basis of this some €96 billion involve sales to customers located in other EU Member States. The current estimate by the European Commission is that poor compliance in this sector is costing the tax authorities some €5 billion in lost VAT and it is estimated that this will increase to €7 billion by 2020.
Given this significant cost to the tax yield, it is no surprise that the tax authorities are turning their focus on sellers operating in this sector who are not complying with their VAT obligations. The approach by the tax authorities includes a concerted effort to improve member states ability to check cross-border supplies through online stores and may involve joint task forces set up to complete these audits.
A primary issue for B2B sellers that leads to poor compliance is a misunderstanding on the place of supply rules for supplies of goods particularly where the supplier is located in one EU Member State yet holds stock in multiple fulfilment centres throughout the EU. With zero turnover thresholds in place for VAT registration for non-established traders, some businesses are failing to meet their VAT compliance obligations by not registering for VAT in the correct member states.
For B2C sellers, a similar issue occurs were their goods are not located in the same member state where the seller is established and this, in tandem with a poor understanding of the Distance selling rules can result in failures to register for VAT in the correct member states.
The crackdown on compliance in the UK has already begun with measures introduced that provide for extended powers given to HMRC in dealing with this issue; a key focus in the UK is dealing with overseas online seller operating in the UK. One measure provided is the facility to make online marketplaces, such as Amazon and EBay, jointly and severally liable to any under-declared VAT where the online seller refuses to comply.
The Revenue Commissioners in Ireland have also commenced targeting the sector using the request for information process as their first step in establishing legitimacy of the business and, gathering information on the location of the goods, marketplaces involved to assess whether the business is fully meeting VAT compliance requirements in the EU.
To this extent, sellers need to consider their current operating status and, whether the current set up fully complies with VAT reporting requirements in the EU.
We currently act for a number of online sellers and fulfilment centres operating throughout the EU and have assisted them in both determining where their VAT compliance obligations rest, arranging the appropriate VAT registrations, setting up any access required to online tax portals and, managing their VAT compliance reporting requirements in each member state. Our assistance has, at times, covered managing these requirements where the VAT registration has to be back-dated and, in negotiating with the respective tax authority in minimising any potential late registration/payment penalties.
If you are acting for any clients in this sector, are an online seller or, marketplace, who is concerned over their VAT compliance position then please contact us (info@thevatpractice.ie, reference “Online sales”) to see how we can help you.

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