More VAT liabilities and obligations for intermediary platforms and other electronic interfaces that assist webshops
The tax landscape in the digital economy sector is transforming profoundly.
In the EU, more VAT liabilities and other obligations are imposed on intermediary platforms and other electronic interfaces that facilitate sellers. In addition, tax authorities in some EU countries are taking a more assertive approach towards platforms as evidenced by recent disputes of Booking.com and Valueclick.
The new VAT rules and the assertive approach applied by some tax authorities are both aimed at obtaining the right to levy VAT in the respective EU jurisdiction and at shifting VAT liabilities to platforms.
Some initiatives are illustrated below.
Deemed B2C services rendered by platforms
The EU VAT rules make a distinction between B2B and B2C services. As a main rule, B2B services rendered to foreign business customers are subject to VAT in the country of the customer. The amount of VAT due on such services is levied from the customer via the reverse charge mechanism. This principle also applies to B2B services rendered by platforms to their business customers.
B2C services are in principle taxable in the country of establishment of the service supplier. However, B2C intermediary services are taxable with VAT in the country where the main transaction, in which the intermediary intervenes, is taxable.
We notice a trend where some EU tax authorities are requalifying services rendered by platforms to platform sellers from B2B intermediary services to B2C intermediary services if the platform does not possess a (valid) VAT number of the platform seller. This implies that the platform becomes liable for VAT on services rendered to platform sellers. An example of this development is the current Booking.com dispute, where Booking.com is being held liable for Italian VAT on commission fees received from Italian property owners that qualify as VAT taxable persons, but failed to provide a (valid) VAT number to Booking.com.
Broadening the concept of a fixed establishment
Various EU countries also try to levy VAT on activities performed by platforms within their territory by expanding the concept of a ‘fixed establishment’. In the recent Valueclick case, the French Supreme Administrative Court ruled that a foreign VAT taxable person maintained a fixed establishment because it purchased sales support services from a group company. Valueclick was therefore liable for VAT on its services rendered to French customers. We have encountered similar approaches in other jurisdictions.
2021 VAT rules for e-commerce
The new EU VAT rules for e-commerce, that entered into force on 1 July 2021, have a large impact on the market. Under these rules, taxable persons ‘facilitating’ B2C supplies of (tangible) goods in the EU through the use of a platform or any other electronic interface are liable for VAT on:
- distance sales of imported goods with an intrinsic value of ≤ EUR 150; and
- sales of goods by non-EU taxable persons.
In order to ‘facilitate’ for the purpose of these rules, the platform must connect a customer with a supplier offering goods for sale through the electronic interface, which results in a supply of the goods.
The rules also include an ‘escape clause’. A taxable person will not be considered to ‘facilitate’ if they:
- do not (in)directly set the terms and conditions of the supply,
- are not (in)directly involved in authorizing the payment charge to the customer; and
are not (in)directly involved in the ordering or delivery of the goods.
The reach of the new rules is not clear in practice. For example, it remains unclear if a taxable person operating an electronic interface may already be held liable for VAT by just performing one of the three activities mentioned above. These unclarities may broaden the group of taxable persons liable for VAT under the new rules to any person operating an electronic interface that assists webshops.
Joint and several VAT liability rules
Austria, France, Germany, Italy and the UK have introduced joint and several liability rules for platforms relating to VAT amounts due by platform sellers on transactions carried out via the platform. These rules apply separately from the new VAT rules for e-commerce. These joint and several liability rules generally have a broader scope than the new VAT rules for e-commerce, for example by also covering B2B/C2C transactions and/or supplies of services.
2015 VAT rules for electronic services
Intermediary platforms taking part in the supply of electronic services, such as supplies of digital/non-tangible goods through app stores, can already be held liable for VAT due on those specific transactions since 2015. Some EU tax authorities try to uphold a broader definition of an ‘electronic service’ to capture more transactions and to attract more VAT revenue.
DAC 7 and other upcoming rules
Platforms are already often confronted with tax transparency and record-keeping obligations. This trend will be further strengthened by the implementation of more tax transparency and record-keeping rules under DAC7 (2023) and the rules for payment service providers (2024). The European Commission is also considering expanding the current platform liabilities to other transactions and taxes (such as customs).
What to do?
If your platform business performs activities in the EU or if you operate an electronic interface that assists webshops, we strongly advise you to determine the potential EU VAT aspects of your business activities. Please contact your trusted adviser at Loyens & Loeff or get in touch with your dedicated specialists in the Indirect Tax practice group.