More and more entrepreneurs are using the possibilities of the Internet for increasing the turnover with the help of their own e-shops. If it is profitable and the goods are delivered into the other Member States of the EU, it is necessary to keep all of specifics in mind. The risk in submitting the wrong tax returns, as well as reporting it domestically and abroad, can result in significant negative criminal law and tax consequences.
In principle, the principle of taxation is valid according to the country of origin (VAT is recorded there, where the delivery of the goods begins), so the German sender of the goods adds German VAT to his deliveries. Should the goods be delivered to the special circle of customers into the other Member States of the EU, the basic rule of taxation is not be applied according to the country of origin. Then, the principle of taxation that will be applied is according to the country of destination and the German sender shows the relevant deliveries of goods with VAT of the relevant country of destination in the EU and tax is paid in the other Member State of the EU.
The arrangements of shipping goods is designed to avoid unequal competition within the EU. Should the principle of the country of origin be unlimited in validity, consumers would try to order the goods in the EU states with the lowest tax rates. Equal competition conditions and revenue from VAT within the EU would be in danger.
Requests of adjustments for sending goods
In order to determine whether the basic rule for sending goods is applicable, domestic freight forwarders must know, for each individual transaction made via their sales platform, what the customer is and in which country the delivery is intended. They should, therefore, ensure that their systems of commodity management and / or sales platforms allow this information to be entered.
The customer is an entrepreneur
Should the purchaser be an entrepreneur established in another Member State who receives the delivery for his business, intra-Community transactions are generally exempt. The documentation requirement can be fulfilled by indicating the customer’s VAT registration number in the online order. Subsequently, the German freight forwarder will issue a tax document without VAT and will indicate the taxable amount in its summary report.
It is possible to use the basic rule for the delivery of goods for a special circle of EU-entrepreneurs only, if the received deliveries do not cross the so-called limit of turnover in one year. It was not exempt from the application of remittance of turnover, and at the same time, the deliveries of the Germany deliverer of goods into the relevant EU-state did not cross the so-called limit for delivered goods in one year. The following belong to this group of customers:
- entrepreneurs realising the taxable fulfilment exempted from tax without the claim for the input tax deduction,
- non-VAT payer,
- entrepreneurs using a common regime of tax lump sum for farmers,
- legal persons, who are not entrepreneurs or do not acquire a subject for their business.
For the German forwarder of goods, the knowledge of the customer’s VAT registration number is not sufficient. It is necessary to verify, if it the entrepreneur is from the above-mentioned group and if he did not cross the limit of turnover in his country.
The customer is a private person
For deliveries to private persons in other Member States of the EU, it depends on the decision on what VAT should the German mail shop show and return. It depends on the volume of the deliveries in the period of one year into the country of destination. If the delivery of goods first shows German VAT, the first delivery, which exceeds the limit for sending goods in the EU country, leads to VAT reporting in the EU. All subsequent transactions are then taxed at the rate of VAT applicable in the country of destination. If the freight forwarder fails to do so, there is a risk that VAT will be reimbursed several times. On the one hand, VAT must be paid in an EU Member State because the limit for sending goods has been exceeded, and on the other VAT must be paid in Germany because German VAT was incorrectly invoiced in issued the tax documents. In the following year, the first transaction in the country of destination in the EU is taxable.
Sales limit and shipping limit
The turnover limit and the shipping limit are not uniform across Europe and vary considerably. While the turnover limit in most EU countries ranges between EUR 7,000 and EUR 14,000, it is EUR 41,000 in Ireland and around EUR 95,500 in the UK. The shipping limit ranges between EUR 25,000 and EUR 43,000 in most EU countries, while in France, Luxembourg, and the Netherlands is EUR 100,000 and around EUR 82,000 in the UK. The forwarder of goods must, therefore, carefully monitor whether the limit for sending goods has been exceeded in order to ensure the issuance of a tax document with the correctly declared VAT. While the shipping limits for individual EU Member States are set in that country’s currency, supplies from Germany are always in euros. In addition, the freight forwarder must keep track of future developments.
The possibility of an option
The taxable person may voluntarily decide that the place of supply is the place where the goods are located after the end of their dispatch or transport, even if the shipment limit has not been exceeded – this can be done for each EU country individually and independently of each other. In such a case, it is obliged to do so by the end of the calendar year immediately following the calendar year in which it was so decided.
Stephen McIntosh – s.mcintosh@mskpwt.de
