Digital Giants May ‘Buck’ German Demand to Pay Lost VAT

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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.

No Formal Draft Yet

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.

New Rules

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.”

’Huge Burden’

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.

Bumpy Road Ahead

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 correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj at psukhraj@bloombergtax.com

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