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The United Kingdom and other European Union member states have been introducing measures to ensure that overseas sellers selling goods in the UK via online marketplaces are paying the right amount of VAT on those goods.
In December 2018, the European Commission announced that beginning in 2021, large online marketplaces will become responsible for ensuring that VAT is collected on sales of goods by non-EU companies to EU consumers taking place on their platforms.
Joint and Several Liability – Knew or should have known test
The UK introduced legislation in 2016 that made online marketplaces jointly liable with a non-UK seller for UK VAT. This was extended in March 2018 for UK sellers too.
Beginning March 15, 2018, new UK legislation allows HM Revenue & Customs (HMRC) to hold the operator of an online marketplace jointly and severally liable for the unpaid VAT of non-UK sellers operating on its marketplace where:
• a non-UK seller operating on its marketplace has not registered for UK VAT; and
• the operator of the online marketplace knew or should have known that the seller should be registered for UK VAT.
These rules also extend existing rules, so that the online operator can also be held jointly and severally liable if HMRC tells the online marketplace operator that a UK or overseas seller operating its marketplace is not meeting its VAT obligations.
HMRC has invited online marketplaces to sign up to an agreement that is intended to build a collaborative relationship between online marketplaces and HMRC, and to promote VAT compliance by users of the marketplaces. However, it requires the marketplace to find a legally compliant way to disclose huge amounts of data to the tax authorities.
The EU Commission has also suggested that payment intermediaries, who are involved in over 90% of online sales, could be a useful source of data in identifying sellers who should be registered for VAT.
Meanwhile in other EU member states, the German tax authorities have proposed new VAT rules requiring online marketplace operators to provide a paper certificate in Germany to comply with German VAT law. The EU Commission has deemed this process to be inefficient and will require more strenuous compliance measures. The EU Commission has proposed extending its one-stop-shop system for goods so that sellers can register in one EU member state for all their sales in the EU.