EU VAT Expert Group revisits Import One Stop-Shop reforms
The European Commission’s VAT Expert Group (VEG) has been reviewing improvements to the July 2021-introduced Import One Stop-Shop (IOSS) regime. This was part of the e-commerce VAT package reforms. IOSS enables the pan-EU reporting of VAT collected on import consignments not exceeding €150.
Note: the EU is proposing the €150 threshold for use of IOSS be withdrawn from 1 March 2028 as part of EU Customs Reforms.. A plan to mandate IOSS in the EU VAT in the Digital Age reforms was dropped and may be revised in the same Customs reforms.
VEG explores three IOSS faults
VEG identified a number of problems, and began exploring potential solutions.
- Fraudulent sharing of IOSS numbers, so e-commerce businesses can avoid paying VAT at customs or subsequently in an IOSS return.
- Platforms who may be acting as deemed supplier, cannot easily verify correct customs procedures have been performed by all the parties in the supply chain. Again, leading to potential lost VAT or customs duties.
- Physical checks on the exponentially growing number of parcels using IOSS are no impractical.
VEG is now engaging with IT experts on solutions to the above, including digital signatures for tracking and/or assignment of a unique parcel number, based around the IOSS number.
Dec 2021: reforms needed to remedy faults; mandating IOSS option; withdrawal of €150 IOSS threshold
Problems above were identified and explored back in December 2021. Whilst a largely successful launch, the new pan-EU reporting is under scrutiny for a number of fault lines. The EU and its VAT consultation groups are looking at fixes to remedy these. Following discussions with EU states in November 2021, the European Commission is planning to issue suggested remedies to the IOSS difficulties listed below in early 2022. Additionally, the following longer-term topics will be considered:
- mandating of IOSS and ending the Special Arrangements for couriers and postal services; and
- withdrawal of the €150 consignment threshold.
IOSS technical difficulties
- Double Taxation: EU IOSS double taxation solution is due in February 2022. This when VAT is incorrectly charged twice on an B2C imported low-value consignments now exceeding €150. Firstly, the sellers or deemed supplier marketplaces charges VAT at the point-of-sale. However, a second charge is then incorrectly charged at customs when there is no adequate acknowledgment of the first charge. A practical solution being evaluated is to report refunds via subsequent IOSS returns as a deduction against VAT due. This would be attractive:
- a simple reconciliation between the IOSS return and IOSS report would be possible
- The seller or marketplace receives the refund, and can manage the refund to the customer
- Fraudulent misuse of IOSS numbers. As anticipated in the design of the IOSS reporting regime, there is signs of sellers fraudulently listing a wrong IOSS number on imported packages without having correctly charged import VAT in the checkout. The EC will present ideas to remedy this issue in early 2022.
- Refunds on returns: It is still not transparent in some countries how the seller or marketplace may make a reclaim for the VAT charge where imported goods under the IOSS scheme are returned.
- Customs rules on B2B small value consignments. Under the EU’s Union Customs Code the rules under the right customs office to release into free circulation low value consignments sold on a B2B basis (Article 221(4) UCC-IA) require further clarification.
Mandate IOSS and remove of Special Arrangements. Withdrawal of €150 threshold?
In 2022, the EC will also carry out a full evaluation of the e-commerce package launch.
This will be incorporated into the VAT in the Digital Age proposals. Top of the list of possible changes will be the removal of the Special Arrangements exemption from using IOSS reporting. This enables sellers or deemed seller marketplaces to leave VAT collections on low-value consignments to couriers or postal services. This exemption was granted to ensure smaller sellers would not be overburdened by IOSS compliance. But is has potentially left open some opportunities for errors or fraud on imports.
