Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
By Jabeen Bhatti
Germany wants to make e-commerce giants, like eBay and Amazon, liable for unpaid value-added tax lost through foreign transactions on their platforms—and they want to do it by 2019, two years sooner than the European Union.
The rush is raising legal questions over whether it will place too steep a burden on companies trying to comply in only six months’ time. The German parliament will go into summer recess in July, which would also slow down the progress of the legislation.
“If a law actually comes to pass in September or October that entails such radical changes, it would mean that the companies would only have about two months to prepare themselves,” Hans-Hinrich von Coelln, an attorney and tax adviser focusing on indirect tax with EY in Berlin, told Bloomberg Tax June 4.
“If there’s really to be such a harsh introduction of these rules in such a short period of time, I believe there’s good chances that the sector will buck against the trend,” he said.
Finance ministers from Germany’s 16 federal sates on May 28 urged the federal government to draft and pass legislation that, starting on Jan. 1, 2019, would make e-commerce platforms responsible for registering international sellers on their sites to more readily collect lost VAT abroad. The legislation would fill a gap because authorities lack the capacity to track the lost VAT themselves.
“The honest vendor is the loser, which at the moment is unfortunately far too often the case in online commerce,” said Andreas Dressel, the city-state of Hamburg’s Senator for Finance. “It’s time we put a stop to rampant sales tax fraud in online commerce and create a level playing field for domestic and foreign companies.”
If sellers’ back taxes can’t be collected, the platforms would be made to pay themselves, presenting companies with a potential burden of hundreds of millions of euros in extra costs, according to government estimates of lost VAT in Germany at the hand of online sellers operating outside the EU.
To date there is no formal draft law of the measures on record. The German Federal Ministry of Finance confirmed to Bloomberg Tax in a June 4 email that the federal states’ suggestions will be bundled into a piece of legislation.
The European Council adopted rules Dec. 5, 2017, that make e-commerce platforms liable to track and collect all VAT on sales they facilitate outside the bloc. The new rules also mandate that VAT be collected in the consumer’s member nation, regardless of where the seller is based. Member nations should transpose the new rules in full by Jan. 1, 2021.
The EU’s proposed rules would make online marketplaces liable for all VAT from non-EU sellers, while Germany’s proposal would only make online marketplaces liable for unpaid VAT from foreign sellers.
“Operators of electronic marketplaces have been asked to inform internet retailers when registering on the marketplace” of impending regulatory changes, the finance ministry said in its email.
Similar rules to those now being proposed in Germany took effect in the U.K. in March 2018, which make online marketplaces liable for unpaid VAT and require them to exchange information with tax authorities.
The U.K. rules serve as a precedent for the new German regulations, Roger Gothmann, co-founder and director of Taxdoo, a Hamburg-based firm that offers automated sales-tax services for online retailers, told Bloomberg Tax in a June 4 email.
“It follows several regulatory changes introduced in the U.K.,” he said. “This law will have a high impact on marketplaces who will have to monitor the VAT obligations of a big part of their sellers in order to not incur penalties.”
In a June 5 email, a spokesperson from eBay Inc. stressed that the platform has “no tolerance” for tax evaders on its platform and works “very closely with the relevant authorities” to ensure that merchants operating on German online marketplaces comply with VAT regulations.
However, the spokesperson also underscored that eBay is in favor of a uniform rule across the EU instead of unilateral moves that “lead to legal fragmentation” and “will be a huge burden for globally active companies.”
Moreover, “regulations which cause massive restructuring in processes, but do not provide for longer implementation periods, are particularly burdensome,” the eBay spokesperson said.While Amazon.com Inc. declined to comment on political developments, a spokesperson said in a June 4 email that the firm offers “extensive information, training and tools to assist sellers with their VAT obligations” and acts to block and verify accounts when notified by either authorities or other sellers.
It’s unlikely that platform operators will remain diplomatic to the changes, von Coelln said.
Online platforms will have to create completely new technological processes to track sellers in third countries who are using these platforms—within six-months’ time, he said.
“We also can’t forget that if these companies don’t implement such changes before Jan. 1, 2019, and don’t pay taxes for any given transaction starting in January, the authorities will not only go after that money, but also could consider additional penalties,” von Coelln added. “It’s very dangerous for companies if they don’t set things up properly.”
To contact the reporter on this story: Jabeen Bhatti in Berlin at firstname.lastname@example.org
To contact the editor on this story: Penny Sukhraj at email@example.com
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)