Distance selling of goods (currently referred to as “mail order sales”)

The amendment of the VAT Act no longer uses the term “mail order sales”, replacing it with “distance selling of goods in the European Union” or “distance selling of goods imported from third countries”.

In the amendment, the law now defines the terms distance selling of goods in the European Union and distance selling of goods imported from third countries, and stipulates the rules for designating the place of delivery for distance selling of goods (§14) given the currently valid version of the VAT Act does not comply in full with the principles of taxation at the place of consumption within the EU.

Given the elimination of §6 of the VAT Act effective 1 July 2021 and based on which foreign entities completing mail order sales were registered in Slovakia, it was proposed that the VAT ID numbers assigned to such foreign entities under §6 in effect until 30 June 2021 be considered VAT ID numbers assigned under §5 of the Act after this date. Given the above, these foreign entities will continue to be registered taxpayers even after the elimination of §6 of the Act.

The amendment also defined the specific place of delivery for distance selling of goods in the European Union and the specific place of delivery for specific services delivered to anyone other than a taxable person (§16a) if the total value delivered in a calendar year (the current and the previous) does not exceed EUR 10,000. In this case, the specific place of delivery is the place where the dispatch or shipment of the goods commences or the place where the supplier of services maintains their registered office or permanent establishment.

Streamlining delivery of goods via distance selling of goods in the European Union

In connection with the European Union’s efforts to eliminate barriers to cross-border commerce, the current rules for mail order sale of goods were completely re-examined. If an entrepreneur located in one Member State delivered goods to another Member State in the form of mail order sales, they were required to register for tax in all Member States, which represented a tremendous administrative burden and hindered the development of cross-border commerce.

The amendment of the act led to the elimination of existing threshold values for mail order sales, which have now been reclassified as distance selling of goods. A single, uniform threshold value of EUR 10,000 was therefore defined for all Member States.

Special regulations – §68

The obligation to pay VAT from the delivery of a good or service by a taxable person is in the Member State where the place of delivery of the good or service is located (for imported goods, then in the Member State where the site of importation of the good is located). So that a taxable person is not required to register for VAT in every Member State in which they establish a tax obligation from the delivery of a good or service to a non-taxable person, they may choose to apply specific regulations concerning a single point of contact, which significantly reduces the administrative burdens for taxable persons.

Special regulations

1. §68a Mini One Stop Shop (MOSS) – services provided by taxable persons not located in the EU to non-taxable persons located in the EU. A special regulation under subjection 1 (§68a) is an expansion upon the special regulations concerning the Mini One Stop Shop (MOSS) system, which currently exists, and currently only applies to telecommunications services, radio broadcasting services, and television broadcasting and electronic services delivered by taxable persons not located in the EU to non-taxable persons located in the EU.
2. §68b One Stop Shop (OSS) – distance selling of goods in the EU and providing services to taxable persons located in the EU but not in the Member State of consumption, non-taxable persons and specific domestic sales of goods. Under subsection 2, the expanded OSS system will likewise apply to services that a taxable person located in the EU provides to non-taxable persons located in the EU (§68b).

This subsection 2 includes the distance selling of goods in the EU. If a supplier decides to apply the voluntary special regulations, they will file a special tax return in the Member State of identification in which they declare the deliveries of all goods within the EU to non-taxable persons and pay VAT related to the sales of such goods to this Member State;

3. §68c Import One Stop Shop (IOSS) – this statute permits the declaration and payment of VAT through a special scheme when goods are imported for final customers and the value of imported consignments does not exceed EUR 150, so long as the imported goods are not subject to excise duty. Part of this system is the responsibility of online platforms to collect tax in the distance selling of goods.

In case of question, please feel free to contact our tax department: Kristina.bakovkova@bdrbb.sk

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Modification of the tax base for complete or partial non-payment of considerations for delivery of a good or service – §25a

Under the new legislation, a payer may modify their tax base for the delivery of a good or service (for which they were obliged to pay tax) if their customer does not pay for the delivery of such good or service in part or in full after the establishment of such tax liability and its receivable becomes unenforceable. The payer may then reduce their tax base by a maximum of an amount equal to the unpaid considerations for the delivery of the given good or service. The difference between the original and the modified tax base and the tax shall be reported by the payer in the tax period in which the receivable becomes unenforceable.

A receivable is considered unenforceable under §25a (2) based on an exhaustive list of legal circumstances, which effectively means that not all receivables will be eligible; specifically this includes, for instance, receivables in collections within distraint proceedings, receivables declared within bankruptcy proceedings, receivables involving debtors in restructuring, debtors who have been dissolved without a legal successor and the like.

Modification of deducted tax in the case of an unenforceable receivable – §53b

Modification of the deducted tax in the case of an unenforceable receivable is related to the newly created §25a.

Under the assumption that a receivable becomes unenforceable and the payer exercises its right to reduce its tax base under §25a, the customer who failed to pay for the delivery of a good or service and exercised its right to a tax deduction is obliged to modify their tax deduction. The customer shall then modify their tax in the tax period in which they receive evidence of tax base modification from their supplier.

New template for the VAT return and new return for the control statement

A new template for the VAT return enters into force on 1 January 2021.

Given the amendment of VAT legislation to include the ability to modify the tax base related to unenforceable receivables, the currently valid control statement should be modified so as to permit the reporting in the control statement of modification of the tax base under §25a and modification of the deducted tax under §53b. The new template of the control statement should first be used for the tax period beginning on 1 January 2021 at the earliest.

In case of question, please feel free to contact our tax department: Kristina.bakovkova@bdrbb.sk

Príspevok Amendment of the VAT Act valid from 1 January 2021 je zobrazený ako prvý na Moore BDR s. r. o..

Who is affected by this change?

Foreign entities that do not have a permanent establishment in Slovakia for VAT purposes (i.e. registration pursuant to §5) and who meet the tax refund conditions in their full scope.

Does such a foreign entity need to file a tax return?

Yes, under the amended §78 (2) of the VAT Act, a foreign entity must file a tax return in the case of tax exempt acquisition.

What effect does such exempt status have on the foreign entity’s tax return?

Prior to 2020, a foreign entity reported their tax obligation when acquiring goods from another member state in rows 7 and 8 of the tax return (at the basic tax rate) and their entitlement to a VAT deduction on row 21.  Effective 1 January 2020, such exempt acquisition shall be reported on row 15 of the tax return as an exempt delivery.

The overall impact on the foreign entity’s tax obligation is and remains neutral.

Example:

A foreign entity from another member state registered under §5 of the VAT Act transfers goods to Slovakia after 1 January 2020 that it will then domestically deliver exclusively to Slovak taxable entities. No other deliveries to Slovakia are performed.

Given that these deliveries shall be subject to a reverse charge under §69 (2) of the VAT Act, the foreign entity fulfils the conditions for a tax refund in the full scope under §55a of the VAT Act and the acquisition of the transferred goods by the foreign entity shall be tax exempt. The foreign entity shall report the transfer of the goods on row 15 of the tax return.

Príspevok Change in reporting the acquisition of goods from another member state for foreign entities je zobrazený ako prvý na Moore BDR s. r. o..