EU plans for abolishing the import VAT exemption for small consignments

The European Commission has recently made the creation of a ‘single digital market’ one of its top priorities. In line with this policy goal, the Commission will adopt new e-commerce legislation in the field of EU VAT. One envisaged change is the abolishing of the import VAT exemption for small shipments of goods from outside the EU to customers within the EU. If adopted, this change will affect many e-commerce companies doing business in the EU.

Background

In principle, import VAT is due on each shipment of goods that enters the EU – also when customers order goods online from a non-EU country. Currently however, EU VAT legislation allows small value consignment shipments sent from non-EU countries to customers in the EU to go untaxed. This ‘import VAT exemption’ set by each Member State usually applies to small consignments not exceeding a value of € 22 and shipped directly to the customers. Many e-commerce companies make use of this exemption when they ship parcels from a non-EU location to a destination within the EU; without import VAT, the cost price of the goods is reduced considerably for private customers. Since e-commerce companies cannot apply the exemption to parcels shipped from EU locations, trade flows originating from outside the EU enjoy a fiscal advantage.

Recent studies carried out for the Commission have revealed that the number of consignment shipments benefitting from the import VAT exemption has risen from 30 million parcels in 1999 to 115 million in 2013. Worried about the VAT loss for the Member States – currently budgeted at almost € 1 billion – the Commission has now set out to abolish the small consignment exemption. In this manner, the Commission hopes to take away the competitive disadvantage experienced by e-commerce companies shipping goods from EU locations– which is estimated to be as much as € 5.4 billion.

Implications of the intended abolishing of the import VAT exemption

The envisaged abolishing of the import VAT exemption will primarily have implications for EU and non-EU based e-commerce companies shipping products to (private) customers in the EU from a non-EU warehousing location. Not only will the consumer price of their products increase, e-commerce companies may even be obliged to register for VAT purposes in the Member State of importation, to account for the import VAT under the so-called ‘single electronic vendor registration mechanism’ which the Commission is considering adopting. Further, any change in the VAT treatment of small consignments will require e-commerce companies to revise their ERP configurations and the associated business processes (e.g. invoicing).

Be prepared

At this moment, the Commission is drafting the proposals for its new e-commerce VAT legislation. It is unclear when they will be published, but we expect this to happen in the near future. Even though the abolishing of the import VAT exemption for small consignments is not a certainty at this stage, we believe that there is a good chance that it will be included in the proposals. If you expect your business to be affected by the changes mentioned, we advise you to contact your Baker Tilly VAT Compliance advisor in order to discuss the proper way forward.