EU Customs reform: A VAT perspective

On 17th May 2023, the EU Commission released a comprehensive package of proposed EU customs reforms which will represent the biggest changes to the EU customs union since its inception; modernising & digitally overhauling the current customs system.

Due to the unprecedented increase in global trade since 2020, particularly in the e-commerce sector, the current customs system cannot effectively monitor imports into the single market; and the large number of EU customs regulations & complexities creates the opportunity for customs fraud.

The EU commission aims to tackle the above inefficiencies by implementing a data-driven, risk-based approach to customs, reducing administrative burdens for both EU customs authorities & businesses alike; while increasing effectiveness of the EU customs ability to detect non-compliant or fraudulent imports.

Removal of the current duties threshold and the introduction of a new simplified duties regime for e-commerce is expected to further reduce duty avoidance in this area, and generating additional revenue for EU member states of over 1 billion EUR per annum.

How does this impact VAT?

From a VAT perspective, the proposals will augment the existing VAT reporting simplifications for e-commerce sales into the EU, which coupled with the ‘single VAT registration’ changes proposed within ViDA, will further simplify EU VAT reporting for e-commerce sellers.

Removal of the I-OSS reporting threshold
Currently the threshold for reporting imported goods via the I-OSS is €150 with the effect that a business might need to obtain local EU VAT registrations, for the reporting of its higher value third country consumer sales. Therefore, businesses making third country consumer sales will under this proposal be able to report VAT on all relevant sales via the I-OSS, regardless of the consignment value.

The only exception to this is goods subject to excise duty, which will continue to be excluded from the I-OSS.

This further reduces the instances in which a business would need to be VAT registered in respect of its third country consumer sales.

Online marketplace responsible for VAT reporting of third country consumer sales
The current ‘deemed supplier’ provisions for VAT, place the VAT collection & reporting obligation of sales made through online marketplaces on the marketplace, in certain circumstances.

These provisions were already proposed to be expanded as part of the ViDA proposals. Online marketplace will be treated as the ‘deemed supplier’ for third country consumer sales in all cases, and mandating the use of I-OSS for the reporting of VAT on such sales deemed to be made by the marketplace.

This, coupled with the removal of the 150 EUR I-OSS reporting threshold, will mean that the online marketplace will be responsible for the I-OSS VAT reporting of all third country consumer sales made through its platforms – with the marketplace seller avoiding any EU VAT reporting or registration obligations.

Expansion of the ‘Special arrangements’ for VAT payment by carriers & postal operators
The ‘special arrangements’ which currently allows carriers & postal operators to collect & pay VAT on behalf of EU consumers in certain circumstances, will also see its current consignment threshold of 150 EUR removed.