Businesses show increasing interest in selling their goods and commodities [hardware, furniture, textile, etc.] to European consumers through the Internet. These online sales are generally performed directly from their own website and/or via online trading platforms like Amazon, EBay, etc.
European countries raise their voice and pursue « fraudsters »
Despite the will shown again by the European Commission to simplify the rules between 2018 and 2021, current VAT regulations applicable to distance selling of goods remain a burden. Indeed, numerous companies are not aware of all the relative VAT obligations and charge « in good faith » local VAT to all their European clients. Others know them but are reluctant to apply these rules [due to a lack of time, by fear of an additional administrative burden, because of the cost, etc.].
The result is a financial loss for the Public Treasury of the country of the consumer. However, the largest European countries [France, Germany, Italy, etc.] have perfectly understood that a part of VAT that was legally due was not paid. As a matter of fact, they have lastly decided to considerably raise their voice and systematically pursue all resellers [especially those using online sales platforms such as Amazon or EBay].
Consequently, the unit of the French tax authorities specifically in charge of tracking down « tax fraud » on the Internet does not hesitate any longer to request assistance from their foreign counterpart so as to obtain information on the sales made over the last years by a company for French individuals.
In short, the noose is tightening.
Underestimating VAT rules relative to e-commerce may be a serious threat to a company’s financial health
A company operating in e-commerce can no longer ignore or underestimate the risks related to an incorrect application of VAT rules. Such a behavior may result in a critical financial condition.
Let us take the example of a Belgian company that has been selling computer equipment [mobile phones, tablets, etc.] to European consumers through Amazon since 2010. It charges Belgian VAT to all its clients regardless VAT rules applicable to e-commerce.
Let us assume now that the French tax authorities realizes in 2017 that [further to an information request sent to the Belgian VAT control office] sales performed to French customers have excessed the threshold of 100,000 € since 2012 [the threshold has been lowered to 35,000 € in France from 01/01/2016]. The French tax authorities will then initiate proceedings against the company and could demand the latter to regularize its fiscal situation for an extended period of up to ten years! [Most of European countries have the power to open an extraordinary tax year in case of a tax fraud or when they have recourse to international administrative assistance].
Contrary to what some persons may still believe, there is no mechanism enabling Belgium to « transfer » VAT to French Treasury and to solve the problem this way. French VAT was due and had to be paid by the company itself. Said company is therefore in breach of VAT legislation, which can have catastrophic effect on financial health of the company.
The company will be obliged to register for VAT purposes in France and immediately pay French VAT for the last five years [2012-2016] to the French tax authorities along with, in addition, late payment interest [0,4 % per month] in order to compensate for the loss suffered by the French Treasury due to deferred receipt of the debt and administrative fines [10%] for absence of submission of returns within legal deadline. This regularization will extremely affect the company’s cash-flow.
Admittedly, the company will have the possibility to recover Belgian VAT erroneously paid to the Belgian tax office but only for the last three years. Therefore, it will be taxed twice [Belgian and French VAT] for the years 2012 and 2013, as those years are prescribed in Belgium but remain taxable in France.
Moreover, if the company would have to be confronted with the same problem in other countries, it could result in an economic catastrophe [e.g. in Italy, the fine varies between 30% and 125 %, in Spain, the increase interests can amount to 25%, etc.].
Increased vigilance should be exercised by e-commerce actors
Companies developing online sales must be fully aware of the fact that their very existence may be threatened by only one infringement [even committed in good faith] of VAT rules of e-commerce.
The change of a single parameter [e.g. Amazon moves its stock to another country, exceeding a threshold in a foreign country, etc.], if not correctly managed, can create a VAT issue in one or in several countries.
The check-list e-commerce, an essential tool at your disposal
We have created a check-list to determine easily if a company applies correctly VAT rules relative to e-commerce or if it does not and is consequently in a risky situation. If you wish to verify your situation and/or obtain this check-list free of charge, please contact us by clicking here.