The EC Commission’s VAT Committee has recently issued new guidelines to counter perceived avoidance of registering for Distance Selling by businesses.
In cases where the supplier is responsible for the delivery of goods B2C; typically mail-order and increasingly goods purchased online (so called “delivered goods”) the supplier is required to VAT register in the EC Member State of its customer(s) once a certain threshold is met. For full details of Distance Selling see here.
In order to avoid having to register, some business have sought to avoid their supply falling within the definition of delivered goods by splitting the sale of goods and the delivery.
The UK raised concerns about the planning and structures put in place to obviate the need to register in other EC Member States. The VAT Committee has recognised these concerns and has today issued new guidelines on Distance Sales
In addition to the current rules (set out in Articles 32, 33 and 34 of the Principal VAT Directive) a Distance Sale will have occurred when goods have been “dispatched or transported by or on behalf of the supplier” in any cases where the supplier “intervenes directly or indirectly in the transport or dispatch of the goods.” The Committee has stated that it considers that the supplier shall be regarded as having intervened indirectly in the transport or dispatch of the goods if any of the following conditions apply:
(i) The transport or dispatch of the goods is sub-contracted by the supplier to a third party who delivers the goods to the customer.
(ii) The dispatch or transport of the goods is provided by a third party but the supplier bears totally or partially the responsibility for the delivery of the goods to the customer.
(iii) The supplier invoices and collects the transport fees from the customer and further remits them to a third party that arranges the dispatch or transport of the goods.
The Committee further clarified that, in other cases of “intervention,” in particular where the supplier actively promotes the delivery services of a third party to the customer, puts the customer and the third party in contact and provides to the third party the information needed for the delivery of the goods, the seller should likewise be regarded as having “intervened indirectly” in the transport or dispatch of the goods.
Note: These guidelines issued by the VAT Committee are merely views of an advisory committee, they do not constitute an official interpretation of EC law and therefore do not bind the Commission or the Member States. However, the Committee’s views are highly influential and it is likely that Member States will review their procedures and implement these guidelines.
Distance Selling VAT registration can apply retrospectively and assessments and penalties for late registration and underdeclaration of VAT are likely. Also, with different VAT rates applicable in different Member States even if VAT has (incorrectly) been charged at the rate applicable in the Member State where the supplier belongs (rather than the customer) this will likely be at the incorrect rate and recovery of this incorrectly paid VAT will also create issues.
Please contact us if the above changes will affect your business as action must be taken immediately.
Major High St retailer uses this scheme.
The objection seems fair enough but the UK’s views on transport companies being used to avoid VAT are breathtakingly hypocritical given the State sponsored VAT avoidance the UK suggested tour operators use using transport companies…to counter an EU judgment the UK did not believe in. This ran for about 25 years until proved illegal. Probably still operating in an industry that simply does not believe in VAT at all.
Valid points Wayne. It will be interesting to see which Member States act on this guidance. One may also cite the brouhaha over the EC ruling on fuel supplied to individuals and how HMRC circumnavigated the outcome.