Distance selling of goods imported from third countries

Service-Tax

July 1, 2021 is the date of entry into force of many EU regulations through the level of national adjustment regulations in each Member State. One of these changes is the definition of the essence of distance sales of goods imported from third countries, the specificity of its operation, VAT settlements, exceptions excluded from its application, as well as deletions from the register of entities authorized to use it in terms of VAT settlements. In practice, how should a taxpayer operating in the territory of third countries and carrying out distance sales to recipients in the EU approach this topic? The characteristics of the specifics of this transaction have been analyzed in this publication.

What is distance selling of imported goods

Pursuant to Art. 2 point 22b of the VAT Act, distance sales of imported goods (hereinafter referred to as SOTI) shall mean the delivery of goods sent or transported by or on behalf of the supplier, including when the supplier indirectly participates in the transport or shipment of goods from the territory of a third country to the buyer (with a specific legal status) within the territory of a Member State.

Practically speaking, for the existence of SOTI to be considered at all, goods must be physically transported or shipped from a third country or territory of a third country to the territory of one of the EU countries. In addition, goods transported or dispatched from the territory of a third country must reach a recipient located in one of the EU countries.

It should be noted that if the goods are transported to a customs warehouse located in the territory of one of the EU countries, and then the goods are delivered from this warehouse to recipients from the EU, SOTI will not occur in such circumstances. The reason is that goods transported from a third country or territory of a third country to a customs warehouse in the EU are already on the territory of the EU Community.

Additionally, it should be emphasized that Art. 155 of Directive 2006/112 / EC of the COUNCIL of 28 November 2006 on the common system of value added tax (hereinafter referred to as the EU Directive 2006) states that, without prejudice to other Community tax regulations and after consulting the VAT Committee, Member States may take specific measures to release all or some of the transactions referred to in this section (bonded warehouses), provided that the purpose of these measures:

  • is not final use or final consumption as well

  • the amount of VAT due when the procedures or situations referred to in this section (customs warehouses) cease to apply shall be the amount of tax that would be payable if each of these transactions were taxed in their territory.

The above means that goods leaving customs warehouses cannot be used in final consumption, and therefore those destined for final use by a recipient in the EU cannot come from a bonded warehouse.

Example 1.

The taxpayer conducts business activities based in one of the EU countries and outside the EU. He uses a bonded warehouse located in one of the EU countries. Before being sold, goods first go from the territory of a third country to a bonded warehouse in an EU country.

They are then transported from this bonded warehouse to their final recipient in the EU. Can the transaction be identified as SOTI?

If the goods are transported from the territory of a third country to a customs warehouse that is located in the territory of one of the EU countries, the transaction cannot be classified as SOTI.

The second condition for the existence of SOTI is that the goods are transported by or on behalf of the supplier, including when the supplier is involved indirectly in the transport or shipment of the goods.

Thus, SOTI is characterized by the fact that the goods are supplied directly or indirectly by the supplier or are transported on his behalf.

On this occasion, it is worth mentioning Art. 5a of the EU Council Implementing Regulation 2019/2026 of November 21, 2019 amending the Implementing Regulation (EU) No 282/2011, hereinafter referred to as EU Regulation 2019/2026, which indicates that SOTI will not occur if:

  1. the transport or shipment of the goods will be carried out directly by the buyer or

  2. the transport or shipment of the goods will be carried out by the buyer with the participation of a third party and

  3. the supplier is not involved at all (directly or indirectly) in the organization of the given transport or in the dispatch of these goods.

Therefore, when analyzing the occurrence or non-occurrence of SOTI, it will be of key importance each time to assess any participation or non-participation of the supplier of goods in their transport or shipment.

Art. 5a of the EU Regulation 2019/2026 indicating the circumstances of recognizing that the goods were shipped or transported by or on behalf of the supplier. They are presented in the table below.

Circumstances of recognition of the performance by or on behalf of the supplier of shipment or transport of goods (SOTI condition)

1.

Where the supplier subcontracts the dispatch or transport of the goods to a third party who delivers the goods to the buyer.

2.

Where goods are shipped or transported by a third party, but the supplier is fully or partially responsible for delivering the goods to the buyer.

3.

Where the supplier issues an invoice and charges the buyer for transport or shipping, and then transfers them to a third party who arranges the shipment or transport of the goods.

4.

Where the supplier induces the buyer in any way to use a third party supply of goods, it shall bring the buyer and the third party into contact or otherwise provide that person with the information necessary to deliver the goods to the buyer.

Example 2.

The taxpayer conducts business activities based in Finland (Aland Islands) - in the customs territory of the EU (territory not covered by the EU VAT Directive). The taxpayer sells sports accessories through its own online store, and the recipients of these goods are EU customers.

He doubted the type of sale conducted, i.e. whether it should be classified as an intra-Community distance supply of goods or as a distance sale of goods imported from third countries.

Sales within the customs territory of the EU, but at the same time not covered by the EU VAT Directive, will constitute distance sales of goods imported from third countries, i.e. SOTI.

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Buyer status for distance selling of imported goods

SOTI requires that the buyer has a specific legal status, i.e. the delivery must be made to the recipient who is:

  1. a taxpayer of value added tax or a legal person who is not a taxable person for value added tax, who are not required to settle intra-Community acquisition of goods, or

  2. a taxpayer of value added tax or a legal person who is not a taxpayer of value added tax, who are not obliged to settle intra-Community acquisition of goods corresponding to the intra-Community acquisition of goods (WNT), or

  3. non-taxable entity (consumer).

It should be added that pursuant to Art. 3 sec. 1 of the EU Directive 2006, the following transactions are not subject to VAT, and therefore constitute intra-Community acquisition of goods at the purchaser, from which they are not required to settle VAT:

  1. intra-Community acquisitions of goods, the supply of which would be exempt on the territory of the Member State of acquisition pursuant to Art. 148 (including fuel supply) and 151 (supply of goods or services to international organizations), made by a taxpayer or a non-taxable legal person;

  2. intra-Community acquisitions of goods other than those referred to in point 1 and other than the acquisition of new means of transport and products subject to excise duty, made by the taxpayer for purposes related to his farm, forest or fishing farm subject to the common flat-rate system for farmers, by the taxpayer who only supplies goods or provides services for which he is not entitled to deduct VAT, or by a non-taxable legal person.

Example 3.

The taxpayer runs a business based in France. It imports goods worth up to EUR 150 from third countries on its own behalf. Then, after customs clearance, it sells them to customers in several EU countries. The taxpayer would like to register for the special VAT IOSS import procedure.

If the taxpayer imports low-value goods on his own account, declares (or his customs agent) the goods for clearance, and then sells the goods, then in such circumstances he is not entitled to register for the special VAT IOSS import procedure. .

In these circumstances, the taxpayer will recognize the import of goods according to the simplified or standard procedure. The onward sale to the domestic recipients of the taxpayer's premises will constitute a domestic supply. However, in the case of sale to other EU countries, he will have to consider whether the sale will constitute an ESPO or ICS transaction.

Electronic interface operator as delivery facilitator

A taxpayer facilitating the delivery of goods is a taxpayer who is identified as having received and delivered them himself.

A taxpayer facilitating the delivery of goods (via an electronic interface - a trading platform or, for example, his own online store) as part of the execution of a SOTI transaction is a taxpayer who himself received and delivered the goods to a non-taxable person (recipient in the EU):

  1. in consignments with an actual value not exceeding EUR 150 or

  2. on the territory of the European Union

  3. as a taxpayer not established in the territory of the EU Community.

Thus, the taxpayer will act as a taxpayer facilitating the delivery of goods through an electronic interface, such as a trading platform, commercial portal, online store, auction store or other systems, assuming the legal fiction that he has received and delivered the goods himself:

  1. in distance sales of goods imported from third territories or third countries (SOTI) in consignments with an actual value not exceeding EUR 150, or

  2. in a transaction of supply of goods within the territory of the European Union by a non-resident taxpayer to a non-taxable person.

Example 4.

The taxpayer is engaged in a business of selling small pieces of low-value rubber (up to EUR 150) via his own online store. The company is headquartered in Russia. The recipients of the goods are customers from the EU. How will the new regulations affect his sales?

The taxpayer may approach the settlement of the transaction, which in this case is SOTI, in two ways.

The first method, i.e. without registration for the special VAT IOSS import procedure, requires registration for VAT purposes in all EU countries of consumption. Customs offices will require the declaration and settlement of the VAT due on the import already at the import stage.

It is worth noting that the recipient in the EU will receive the goods only after the VAT has been settled. Sometimes carriers and couriers add an additional fee to the end recipient in the EU. This may, in extreme cases, lead to the refusal of the package by the customer in the EU. The first method of VAT settlement in the case of sales to several EU countries implies many legal, technical and organizational formalities and requires the seller to efficiently navigate the tax regulations of individual EU consumption countries. However, the seller has a choice.

The second method of settling the above-mentioned delivery of goods, constituting the overall SOTI transaction, consists in registering by the seller for the specific VAT IOSS import procedure in one of the EU countries (consumption), but thanks to this, the sale will be possible in all EU countries. Mandatory in these circumstances the seller must appoint an intermediary established in one of the EU countries. An intermediary in an EU country, according to his seat, will register on behalf of the seller for the use of the special VAT IOSS import procedure. Then, it will add the taxpayer to the entities serviced under this procedure in the IOSS VAT system (in the country of the intermediary's seat).

The intermediary, declaring the sale and the VAT due, shows the value of the sale made to recipients from the EU using the system for handling the specific VAT import procedure IOSS. He uses a special VAT identification number assigned during registration to the IOSS VAT system (in the EU country, according to the broker's seat), which should be provided to persons involved in the customs trade with the goods:

  1. taxpayer (seller),

  2. persons responsible for making a customs declaration,

  3. customs authorities,

  4. carriers.

Settlement of VAT in the discussed example is based on the VAT rates for the delivered goods in force in the EU countries of consumption.

Every month, the broker will be on behalf of the taxpayer and via the IOSS comprehensive VAT import service system, he will electronically submit the VAT declaration, he will regulate the VAT due - by the end of the month following the billing month (delivery of goods).

Example 5.

The taxpayer runs a business based in Switzerland. It sells kitchen, bathroom and room cleaning chemicals worth up to € 150 to EU buyers through a trading platform that supplies them with these goods. Should the sale be classified as SOTI?

In these circumstances, the marketplace operator qualifies as a facilitator of the delivery of goods. Therefore, it is assumed that the seller delivers the goods to the operator of the electronic interface, and then the operator delivers the goods to the final buyer in the EU. Thus, the operator will act as a supplier of goods, i.e. an entity obliged to settle (collect from the buyer) VAT in relation to the above sale transaction. To fulfill the obligation to declare and settle VAT, the operator of the electronic interface can register for the simplified VAT IOSS import procedure.

On the other hand, a seller from Switzerland who uses a trading platform to sell chemicals is not required to register for the simplified VAT IOSS import procedure in this case. Moreover, it will not have obligations related to VAT settlement in the EU if the operator registers for the simplified VAT IOSS import procedure and arranges the shipment or transport of goods to the buyer.

However, in a situation where the operator of the electronic interface has not registered for the simplified procedure of importing VAT settlement, i.e. VAT IOSS, the VAT will be collected according to the standard rules of VAT settlement on the import of goods (i.e. during the customs clearance of goods due to the import of goods). An operator or an end-user EU buyer may then be appointed to pay for it.

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Place of delivery as part of SOTI implementation

Pursuant to Art. 33 of EU Council Directive 2017/2455 of 5 December 2017, the place of delivery in the case of distance sales of goods imported from third territories or third countries to the Member State of completion of shipment or transport of goods to the buyer, is that Member State, provided that VAT for these goods is to be declared under a special procedure.

Contrary to the above, the place of delivery in the case of distance sales of goods imported from third territories or third countries to the Member State where dispatch or transport of the goods to the buyer ends, is that Member State, provided that the VAT on these goods is to be declared under the special VAT IOSS import scheme.

Example 6.

The taxpayer conducts business activities based in Denmark and Switzerland. He uses a bonded warehouse located in Germany. Before being sold, the goods first go from the territory of a third country to a bonded warehouse in that EU country. Then they are transported from there to the final recipient in the EU. Should the transaction be identified and accounted for as SOTI?

In the case of transport or shipment of goods from the territory of third countries to a customs warehouse located in the territory of one of the EU countries - the transaction cannot be classified as SOTI.

In this case, after the goods are removed from the customs warehouse and released for free circulation in the EU, the taxpayer will pay VAT (according to the rate in the EU country of import and customs duties). Then, at the time of sale (delivery of goods) to the EU Member State of consumption, the seller is obliged to add VAT at the appropriate VAT rate of a given country. It is worth noting that the taxpayer may consider in this case the possibility of registering for the EU simplified VAT settlement procedure - i.e. VAT OSS.

Goods excluded from the SOTI sales procedure

Finally, it should also be emphasized that the implementation of distance sales of imported goods (hereinafter referred to as SOTI) does not apply to the sale of all types of goods. The SOTI transaction will not cover the goods sold by the taxpayer:

  1. constituting new means of transport;

  2. which are installed or assembled, with or without a trial run, by the person delivering them or by an entity acting on his behalf - the place where the goods are installed or assembled is not considered to be installation or assembly of simple operations enabling the functioning of the assembled or installed goods in accordance with its intended use.