FRENCH DIRECTORATE GENERAL OF Date : 06 october 2021

CUSTOMS AND EXCISE

—
International Relations Department

Customs Service in Bangkok Note written by : Marie DELATTRE

French Embassy

Information note
Objet : Modernizing VAT for cross-border e-commerce in the European Union

Pièce-jointe

Modernizing VAT for cross-border e-commerce in the European Union.

Due to the practical difficulties created by the measures taken to contain the coronavirus
pandemic, the application of the new VAT e-commerce rules is postponed by six months.
Thus, the rules will apply as of 1 July 2021 instead of 1 January 2021, giving Member
States and businesses additional time to prepare.

These new VAT e-commerce rules consist in a three parts reform of the EU e-commerce
VAT package :
1. Launching the One-Stop-Shop EU VAT return
2. Ending low-value import VAT exemption and new IOSS return.
3. Making marketplaces deemed supplier VAT.

Launching the One-Stop-Shop EU VAT return

From July 2021, B2C sellers dispatching their goods from a single country will no longer
be required to register for foreign VAT and complete multiple VAT filings in countries
where they are selling. Instead, they may opt to simply complete and file a new OSS
filing alongside their regular domestic VAT return that will list all their pan-EU sales. The
seller then remits the VAT due to their home VAT authority, which then forwards the
taxes to the appropriate countries. Non-EU sellers may also apply to use the OSS regime,
and just need to nominate a fiscal intermediary located in any single EU State to register
and file in.

The current EU VAT regime ‘place of supply’ rules require sellers to charge the VAT rate
of their customer’s country of residence – known as the destination principle. Currently,
to reduce the burden on small sellers, the EU operates a special VAT registration
simplification for e-commerce, known as distance selling thresholds. If a foreign
company’s sellings are below a certain thresholds, it does not need to VAT
register. From 1 July 2021, this registration threshold simplification will be
withdrawn. Cross-border sellers will have to charge the VAT rate of the customer’s
country of residence from their first sale and remit it to the foreign tax authorities.

Ending low-value import VAT exemption and new IOSS return

Currently EU and non-EU sellers selling goods online to EU consumers can import the
goods into the EU, directly to the consumer, import VAT-free if the consignment of
good(s) is valued at €22 or below. From 12 July 2021, all imports will be subject
to VAT. Sellers and facilitating marketplaces can collect import VAT on import
consignments valued up to €150. Alternatively they may use the new Special
Arrangements and have postal operators collect the import VAT or use the existing VAT
import scheme, that will remain applicable.

The low-value consignment VAT exemption, termed the ‘low value consignment stock
relief’, was intended to relieve customs from the burden of checking packages for small
amounts of potential tax revenues, at a time distance sales were scarse. However, it is
leaving EU-based sellers at a major price disadvantage since they must charge VAT when
the goods were dispatched from within the EU. The exemption has also encouraged
large-scale fraud by sellers deliberately under declaring the values of goods to escape
the import VAT bill.

The EU has therefore agreed to scrap the import VAT exempt threshold. Instead, it will
require EU and non-EU sellers to charge VAT at the point of sale for consignments of
€150 or below. Sellers will charge VAT at the rate of their customer’s EU country of
residence at the point-of-sale on the website. Sellers can use the delivery address of the
customer to determine the country VAT rate.

To report the VAT charged at the point of sale, a new declaration, ‘Import One-Stop-Shop’
(IOSS), is being introduced. This will report distance selling across EU borders of
imported consignments not exceeding €150. Sellers, or deemed supplier marketplaces,
will have to register for IOSS in just one EU State. They will be issued a unique IOSS
identification number which should be listed on all packages sent to the EU. This will
indicate to customs that VAT is being properly declared and help ensure speedy customs
clearance.

The import OSS is not compulsory for consignments not exceeding €150. Alternatively,
the seller or deemed supplier marketplace may elect to have the import VAT collected
from the final customer by the customs declarant, either through the new “Special
Arrangements” or through the existing VAT import scheme. This is generally the postal
operator, courier firm or customs agent. They can settle the VAT collected with the tax
authorities via a monthly payment.

Making marketplaces deemed supplier VAT

From July 2021, marketplaces may become the deemed supplier when they facilitate
certain cross-border B2C transactions of their third-party sellers. They will therefore be
liable to collect, report and remit the VAT due from the consumer. In France, due to the
transposition of the VAT directive in the French fiscal law, the market places will be
systematically liable for VAT, as soon as they have facilitated the distance sales to a
customer located in France. In addition this rule applies irrespective of the value of the
goods (no 150€ threshold)

In the EU, a marketplace is considered to facilitate a sale when it participates in any of

the following:

- Controls the terms and conditions of the sale;

- Authorises the charge to the customer in respect of the payment for the supply; and/or
- Orders or delivers the goods.
However, the marketplace is not3 considered to facilitate the sale if it only
provides one of the following services in relation to the sale:
- Payment processing;
- Listing or advertising the goods;
- Redirecting customers to other marketplaces where the goods are offered without any
further involvement in the sale.

In addition to taking on potential deemed supplier VAT responsibilities, marketplaces will

also have new record keeping responsibilities. They will be required to keep sellers’
transactions in sufficient detail to enable tax authorities in the country of the customer
to check that VAT has been correctly accounted for. They must be held electronically for
at least 10 years after the year of the transaction.

What do these changes entail?

New taxation:
• Continuation of the 150€ threshold before application of customs duties.
• Removal of the 22€ threshold for the application of VAT.
• Continuation of the 45€ threshold before application of VAT and the 45 € threshold
before application of customs duties in C2C.

Better surveillance:

All carriers and the post office will have to file electronic customs declarations for all
their international shipments, which were previously cleared through paper-based or
postal documentation. To compensate, a new super-reduced dataset has been set up, in
order to avoid red tape at the border : the “H7” customs declaration.
In France, the customs will have to manage a 30 times more important flow of
declarations. Thus France has made the choice to developp a new customs clearance
system. A new control policy is also necessary to face the unprecedented number of
declarations that may be subjected to control.
All customs tools will be used to make modernized targeting more efficient, including
decision support for the screen monitor (automated peripheral investigation system) and
X-ray devices with artificial intelligence for pattern recognition.

French Customs will have to :

• Develop targeting expertise in express and postal freight and ensure human
capacity for customs control in order to reinforce prohibitions and compliance controls of
products targeted on the chain control and automatically by the new h7 declaration.
• Focus on investigations that may result in customs duty claim. It includes in
particular value-based investigations to prove an article is worth more than 150€