Questions around marketplace deemed supplier obligation as part of VAT in the Digital EU review
Following the ending of the public consultation of the EU VAT in the Digital reforms, a number of issues remain around the proposed full liability model being considered for the platform economy (online marketplaces for goods, services and gig & sharing economies). These include the effects for:
- small enterprise operating below their VAT registration thresholds;
- identifying on cross-border transactions if the customer is a VAT payer;
- deemed supplier threshold calculations;
- special scheme for travel agents TOMS; and
- small enterprises working for platforms.
1 Deemed Supplier and new small exempt enterprise rules
From 1 January 2025, fairer rules on VAT registration threshold equivalence when trading across borders will be enforced. Currently, domestic small businesses enjoy a local VAT registration threshold not available to businesses from other member states. The reforms would give a potential €100,000 total EU registration threshold to all from 2025 and a €85,000 maximum small exempt enterprise local threshold.
However, since the platform economy and deemed supplier reforms are likely to be implemented before 2025, this could cause complications.
Businesses under the threshold would not be able to provide deemed supplier marketplaces with a VAT number, but the digital platform would charge VAT. However, sometimes, member states do issue VAT numbers to exempt business for administrative reasons for the exempt small enterprise wishes to avail itself of the special scheme in another Member State (in which case the number will have an ‘EX’ suffix). This would require second identification stage by the digital platform.
The Commission is now considering dropping this requirements where the enterprise is from a member state that does not use the EX scheme, or may be otherwise distinguished from a non-taxable person.
2 Identifying customer by the deemed supplier platform for cross-border
It is anticipated there will be challenges for deemed supplier platforms to identify if the end customer is VAT registered when they are not resident in the same country as the provider of the service. As with the imported distance selling IOSS rules, it could be presumed the recipient of the service is a non-taxable person where they do not provide a VAT number. But, as per above, if the customer is an exempt small enterprise, this would produce the wrong outcome.
3 Calculating the deemed supplier threshold
The Commission is considering introducing the deemed supplier threshold as is done in Canada and elsewhere. This could be the general threshold to be applied in the 2025 rules. But that this should include no VAT is charged on its facilitation service, and it is not required to become the deemed supplier when the underlying supply is provided by a person who does not charge VAT. When assessing its turnover, the platform must include the value of the underlying supplies it facilitates.
4 TOMS and deemed supplier model
The EU TOMS reforms are now under discussion. And deemed supplier platform may risk being viewed as acting as a travel agent services provider under TOMS, and therefore not charge VAT. Instead, use TOMS.
The Commission is now reviewing two different types of supplies
- supplies made to the platform and whether they can be regarded as a supply by a taxable person in the provision of travel facilities, and
- the differentiation between platforms dealing in (say) accommodation, and online travel agents, and how platforms can be excluded from the special scheme whilst not excluding legitimate travel agents.
5 Exemption on short-term rental of accommodation
A number of member states exempt short-term house sharing and similar accommodation because of the high cost of administering large numbers of providers for small amounts of VAT. The Commission does not encourage this as it undermines the tax base and provides unfair tax advantages versus compliant traditional providers.
This could though mean providers who opt to use digital platforms, who would take on the deemed supplier VAT obligations, could avoid registration.
EU VAT in the Digital Age reforms
|EU VAT in the Digital Age|
|3 reforms to improve efficiency of VAT for all and reduce fraud|
|1. Single VAT registration in the EU; extension of OSS to all B2C and certain B2B||Following the 1 July 2021 introduction of the One Stop-Shop (OSS), can this be extended to cover further cross-border B2C and all / any B2B transactions (e.g. movement of own stock across borders) to reduce the foreign, non-resident VAT registrations and returns burden|
|More details on Single VAT Registration in the EU|
|2. Digital Reporting Requirements; e-invoicing||What options are there to harmonise the digitisation of transaction reporting amongst the member states. The EU is looking at: Continuous Transaction Control (CTC) e-invoicing, live reporting; or Periodic Transaction Controls (PTC) invoice listings. Also if at a country, EU or hybrid-level.|
|Read more about EU Digital Reporting Requirements (DRR)|
|3. VAT treatment of the platform economy||How can EU member states adapt their tax systems to reflect the new role taken on by Electronic Interfaces - platforms and marketplaces which have enabled millions of private individuals to provide services and goods for the first time. How should the VAT Directive be modified to capture the new dynamics created in the gig and sharing economies, including imposing full deemed supplier VAT obligations on platforms as with 2021 e-commerce package for goods.|
|EU VAT Treatment of Platform Economy update|