Distance selling (DS) involves goods being delivered from a supplier in one EU Member State to a non-VAT registered customer based in a different Member State.
This encompasses a large number of the sales made by online retailers. Because of the massive growth of cross-border e-commerce in the last few years, it is an area to which tax authorities pay particular attention. Identifying and obtaining revenue from distance sellers is a core objective of the European Commission’s VAT Action Plan.
Managing VAT obligations
When commencing DS, a supplier needs to account for local VAT on its supplies but only until the value of them exceeds the DS threshold. Once this happens, it has a need to stop accounting for local VAT and instead register and start accounting for VAT in the country to which the goods are delivered. The value of DS thresholds differs across the EU, with each EU Member State able to set its own value. This means that it is easy for businesses to miss the value of its supplies, exceeding the thresholds, and hence also its need to be VAT registered.
We recently helped a large multi-national client making DS who had done exactly what is described above – missed its exceeding of the thresholds. Following analysis of their sales data we could determine that liabilities to be VAT registered in 4 other EU Member States were created at various points during 2015. This news came as a shock to the client and created some worry for them but using our expertise we were able to correct its position with the minimum of inconvenience. Our assistance consisted of firstly reviewing the sales data to determine the effective
date of our client’s need to register in those other countries. Once this work was complete, we used our in-house registration team to commence the registration process of submitting applications to the relevant tax authorities.
Once this was underway, we compiled the information that was required to make a successful claim to HMRC for repayment of VAT that had been wrongly declared to them. Obtaining this refund of VAT in as efficient manner as possible was critical for our client to be able to fund the payment of VAT due in the other EU Member States. Our experience of how to successfully and efficiently do this means that we are able to minimise the time between making a request and receiving the refund, which lead to a much improved cash flow position for the client.
Having corrected its position, our client is now being supported by our multilingual compliance team to submit VAT returns in the 4 countries where registrations were required. We have also worked with them to set up a regular review process to ensure that any other requirements to register are identified at the right time. This has given our client confidence in its VAT position and freed up resource for it to concentrate on its core business of making and increasing sales.