6 Months iOSS – Where do we stand?
The e-commerce iOSS scheme was implemented on 1 July 2021. Less Grey was one of the few companies that offered an ‘iOSS Intermediary Service’ from the start to all non-EU established webshops with B2C sales to EU customers. And it has been a bumpy road to get to where we are today. Let’s see where we are now, 6 months down the road.
Slow start for tax authorities
The new e-commerce rules and the OSS and iOSS scheme were announced in 2019. You would think that EU Member States had enough time to prepare for the implementation of these schemes. However, due to some EU Member States indicating that they needed more time, the initial implementation date of January 1st 2021 was postponed until July 1st. The EU Commission clearly stated that no further postponement would be granted.
But still, some countries complained that they would not be able to make it on time. The Netherlands was one of these countries, and they solved this by implementing an ‘emergency plan’. This emergency plan had a lot of manual workarounds, and eventually caused the Dutch tax authorities to create a separate department to deal with all e-commerce issues.
The first steps were made for the OSS scheme. The iOSS customers had to wait a bit longer, and eventually we were able to submit our first iOSS registration request in May 2021, less then 2 months before the start of the new rules.
Due to our preparations and the communication with customers, tax authorities and logistics service providers, we were able to submit requests and obtain iOSS numbers for all our clients before the first week of July.
With the registrations in place, webshops could start using the iOSS scheme. As may be expected with the roll-out of new regulations, there were some hick-ups when webshops used their iOSS number for the first time. Logistics Service Providers, customs brokers, and clients themselves were using the wrong number, reporting in the wrong box on the import declaration, or forgot using it at all. This means that several parcels were imported with import VAT being paid and VAT charged on the sale. Obviously, this should not have happened, and we assisted several clients with trying to claim back the import VAT. But in some cases, the webshops took their loss.
Also, in reporting their sales, the clients were on a steep learning curve. The tax authorities’ iOSS reporting platform was only ready from August, but they expected the VAT declarations to be submitted complete, correct and on time, and to receive the payments immediately. Although that made sense for the authorities, clients were not always ready to be fully compliant. Common mistakes were the wrong VAT rates or wrong exchange rates being used. This resulted in the VAT declarations not always being in line with the expected amounts as calculated by the webshop or the online basket they used.
Also, when paying the VAT to the tax authorities companies forgot to pay in Euros, or they forgot to mention that all payment costs should be borne by the payer. The tax authorities wanted to receive everything to the cent, and because the tax authorities are mostly used to payments from a local (euro) bank account, and differences caused by exchange rates, bank costs or timing issues were automatically not accepted.
But what about the Intermediaries?
The VAT Intermediary was a new phenomenon in the VAT world. Like a VAT Representative, but with (much) more liabilities. Where electronic interfaces or platforms are somewhat protected, the VAT Intermediary is fully liable for all VAT deadlines and VAT payments of the webshops it represents. And three strikes means you’re out!
The role of the VAT Intermediary is very underestimated. We have been told that it was in fact somewhat unexpected that (small) webshops would seek VAT intermediaries and obtain their own iOSS registrations. The EU Commission more or less have hinted that they expected these webshops to sell their products via platforms, and that VAT Intermediaries would be used more as ‘ono-on-one’ solutions for webshops with their own (group) entity in the EU.
We would suggest to the EU Commission to expand the protection for platforms to VAT Intermediaries, so that non-EU webshops are free to choose for their own iOSS registration or to sell via a platform.
Specific problems and solutions
Most practical issues have been solved by now. Not by adjusting the rules, but simply by the time that has passed. For example, the treatment of goods that were sold before July 1st, for example as part of a description, and delivered after July 1st could technically not be reported in iOSS, and thus not be imported with a VAT exemption. And corrections of previous months were reported differently in the EU Member States, resulting in mismatches. And foreign tax authorities were communicating directly with webshops, without involving the VAT Intermediary. And tax authorities communicating the iOSS number of clients directly and unscrambled with the webshops, where on the other hand they warn for the risk of fraud and the VAT intermediaries doing everything within their power to avoid the iOSS numbers being known to others but themselves and the customs broker.
There are many more examples. The biggest problem, however, is the threshold of EUR 150. If a webshop stays below this threshold, the iOSS scheme works well. But if even a single consignment has a value of more than EUR 150, red lights and alarm bells go off. Because in that case, the webshop will have to choose: registration in the EU, or bother the consumer with VAT (and customs duties) on the importation of the goods.
In practice, some companies are desperately looking for solutions for this situation. But all these solutions result in more logistics and compliance costs for the sellers.
The new e-commerce rules were put in place to ensure a level playing field between webshops inside and outside the EU. For consignments under EUR 150, the iOSS scheme achieves this. But for consignments over this threshold, not being able to use the iOSS scheme ‘overshoots’ this intention by far and brings the non-EU webshops in a less equal position than EU webshops.
Learnings for 2022
There are two major learnings from the first 6 months of iOSS:
- The liability for VAT Intermediaries is disproportionate. Besides the platforms, they are the only persons that can ensure that non-EU webshops are charging, reporting, and paying VAT (and thus create income for the EU). But the ‘three strikes and you’re out’ rule is disproportionate for the VAT Intermediaries that have multiple, sometimes hundreds, of clients for which they are responsible.
- The definition of ‘distance sales’ and the EUR 150 threshold for the iOSS scheme create an unlevel playing field for non-EU webshops. Either the definition is adjusted (which is unlikely), or the threshold is lifted. That way, the administrative burden for companies will be lower.
Let’s see what 2022 will bring us!