The so-called “digital package” abolishes the import VAT relief in the EU on consignments of goods valued at €22 or less.

It fundamentally changes, among other things, the VAT treatment of distance sales from third countries (including Great Britain) to consumers and certain other persons in the EU and NI as of 1 July 2021.

The new rules are complex and require detailed consideration in order to assess implementation requirements and impact on the consumer experience. Within this framework, EU Member States (including HMRC for Northern Ireland imports) have each set up an EU-wide “one-stop shop for imports” (IOSS), which allows companies and online marketplaces (“OMP’s”) to declare numerous sales to private individuals centrally for the entire EU.

IOSS was therefore created to facilitate and simplify the declaration and payment of VAT for distance sales of imported goods with a value not exceeding €150 (or £135 in Northern Ireland).

If IOSS is used, the VAT due (at the rate applicable in the consumer’s EU territory) is included in the purchase price paid by the customer and the importation of the goods into the EU is exempt from VAT. A seller not resident in the EU will have to appoint a VAT representative.

It is important to note that this new IOSS system does not need to be used for goods not exceeding €150 or £135. Traders can choose to import into the EU, including Northern Ireland, according to the local customs and VAT rules. That being said, adopting this approach would generally lead to additional VAT compliance obligations, including complications in regard to import VAT recovery, and a less than satisfactory customer experience.

Where a decision is taken to use IOSS, the consequences of same is dependent on whether a direct sale is made to the consumer or if the sale is facilitated by an OMP, as detailed below.

Direct sale using IOSS for goods not exceeding €150/£135

• IOSS registration required;
• Declaration of distance sale via IOSS in one EU Member State;
• Import tax is exempt, and distance sale taxable at destination; and
• Simplified customs declarations.

Sale facilitated by an OMP

• The OMP is deemed to be the supplier receiving the incoming supply from the seller and making a taxable supply to the consumer;
• IOSS registration required;
• IOSS number must be provided to the seller for importation; and
• Distance sales are declared via IOSS by OMP.

Further to the above, there are several other important points which require consideration.

• Information flow within the supply chain needs to be upheld;
• IOSS VAT identification numbers needs to be used carefully;
• Declaration obligations needs to be distinguished depending on the eligible scheme;
• Input VAT recovery cannot be declared through the IOSS scheme; and
• Further liabilities may arise according to local VAT law.

These lists of considerations are by no means exhaustive, with the most efficient option from both a customs and VAT perspective depending on each individual case. Traders who are impacted should therefore carefully consider the details of this new scheme before implementing any change to underlying systems and interfaces.

Finally, for completeness, it is important to note that the above only impacts on Non-EU to EU supplies to end consumers. There are further changes for EU to EU distance sales to end consumers from 1 July 2021, whereby the current distance selling thresholds (€35k or €100k in the EU, or £70k in the UK) are replaced with a single pan European threshold of €10k (or £8,818).

In essence though, the same principles of the IOSS apply in that the seller, instead of having to register in each individual EU Member State where the distance selling threshold is breached, is able to file one One Stop Shop (OSS) return to capture all intra EU sales to consumers. Again, the OSS is not mandatory for those affected and those impacted should carefully consider the detail and options available before implementing any changes.

Michael McNeill is Indirect Tax Senior Manager at PwC Belfast