by Dr. Roger Gothmann, Co-Founder and Managing Director of the compliance platform, Taxdoo
The Corona pandemic has given online retail an extra boost. Social distancing, home offices and closed stores are driving customers worldwide into the colorful world of online shopping. Various studies show that a large proportion now regularly shop online and would like to continue to enjoy the benefits of “click to buy” in the future. Online shopping saves time, avoids large crowds, and with just a few clicks, the wide world and all its products can be ordered to your home. This is not only great from the consumer’s point of view, but above all a blessing for the retailers. Many have been able to expand their business in recent months and tap into new customer groups thanks to international sales. Marketplaces like Amazon and Zalando in particular are fueling this growth. Online trade is booming – even across borders.
Are you ready for OSS? What is changing now
The retail sector will soon be facing new challenges. As early as July 1 of this year, the biggest EU sales tax reform in recent years will come into force. The central component is the One-Stop-Shop, or OSS for short. This will be anchored in the respective legal systems of the EU member states and should lead to considerable relief for online retailers. But even this reform is not without its hurdles. In the fast-moving world of e-commerce, it is considered partially outdated even before it is launched and thus does not merely provide relief. As of July 1, the previous delivery thresholds for individual EU countries (in Germany: EUR 100,000) will no longer apply to shipments to private customers abroad. In the future, there will only be a single, EU-wide delivery threshold of EUR 10,000 net. This means that all deliveries over EUR 10,000 net will have to be taxed in the respective country of destination. Thus, significantly more and especially smaller online retailers will be taxable in every EU country to which they send even one package. This process is to be simplified by the One-Stop-Shop (OSS). In the future, merchants will be able to use the platform to pay their sales tax centrally for all EU countries and will no longer have to register for tax in each EU country as soon as the exemption limit is exceeded. When reporting via the OSS, the obligation to issue invoices will no longer apply. But before the OSS can be used, there are a few important points to consider:
Checklist OSS procedure
- Timely registration: Only those who are already registered to use the predecessor Mini-One-Stop-Shop system will automatically participate in the new One-Stop-Shop system. All other entrepreneurs must actively apply for their participation at the Federal Central Tax Office (BZSt), electronically via the online portal “MeinBOP”, stating their VAT identification number. This has been possible since April 1, 2021.
The OSS reports will then be submitted on a quarterly basis and must be submitted within one month of the end of the previous quarter. This also means that anyone who has not yet registered for the OSS as of July 1, 2021, will have to wait until the next quarter. Use of the OSS is always voluntary.
- To use the OSS, it must be ensured that merchants can determine tax rates automatically and EU-wide – ideally this is done via the customs tariff number.
- For example, those who participate in the Amazon Pan-EU program – or a similar program – must identify their long-distance sales and then report them via the OSS; all other transactions (B2B transactions, input taxes and local sales) must continue to be reported via the local registrations in other EU countries.
This means: In the case of an EU warehouse usage, B2B transactions or local sales in one’s own country, the sole use of the OSS is not sufficient. A parallel structure of reporting via the One-Stop-Shop and local registrations may then be necessary. When using a parallel structure, all remote sales must be reported through the OSS. Important: Make sure that transactions are not reported twice (OSS and local registration) or not at all! This can happen quickly due to the complexity.
Conclusion: The OSS is not a patent remedy!
At first glance, the reform and the OSS may look like a solution to many problems. However, as is so often the case, the devil is in the details. If you take a closer look at the EU VAT reform, it becomes clear that the OSS is not a cure-all for the many challenges currently facing online retailers. It does make life easier for companies that ship their goods from a central warehouse to private customers. However, it complicates VAT processing for all those whose deliveries are not made from a central warehouse at home, for example, or to B2B customers. In times of sophisticated just-in-time logistics, overnight express offers or same-day delivery, the OSS thus proves that it already cannot keep up with the rapid development of modern e-commerce. The technology is a considerable step ahead of the legislation and online retailers should examine how they can automate their processes or whether they can rely on strong partners with special knowledge of foreign regulations.