Madeleine Heidenreich Kevin van Maasdam

1. E-Commerce Madeleine Heidenreich Kevin van Maasdam

2. Intro • Online tradingis a rocketingmarket • Development of B2C E-Commerce in Germany grewfrom 2015 to 2016 from EUR 39,8 bn. toprojected EUR 44-53 bn. In theNetherlandsitgrewfrom EUR 16 bn. toprojected EUR 18-19 bn. • VAT is a challengefor online tradersanddistancesellers • Accordingto a statementfromthe EC, traderspayapprox. EUR 8,000 tobe in accordancewiththe VAT rulesofevery EU Country wheretheyoperate • Isthere a possibiltytounburdentradersfromthestrictexisting VAT rules? • Howis VAT handled at themomentfor Online traders / distancesellers?

3. E-Commerce Turnovers Rendered sales (to private persons) via the Internet: Online turnovers vs. offline turnovers • Online turnovers • Exchange of goods via the Internet and goods do not have a physical nature, such as: music, videos, pictures, software, consultancy, online gaming or lottery. • Characteristic: sales partners act mostly anonymously • Offline turnovers • Advertising, initiation and closing of contracts via the internet, but traditional exchange of goods, such as: books, CDs, cars, property. • Characteristic: modern distance selling with tax principles of supplies and procurement services

4. VAT principles • Online turnovers vs. Offline turnovers • Offline: principleofplaceofdestination • Localsupplies: local VAT withstatutory rate • Third country: taxfreeexport • Intra-Community: 1) Taxstatus check ofthereceipient • Entrepreneur in possessionof VAT ID: taxfree intra-community supply • Private person (no VAT ID): Exceedingofthreshold in thereceipient‘scountry • Registration requirementofthesupplier in thecountryofdestination • LocalVAT returns in thecountryofdestination • c) Iftheconsumerpicksupthegoodsbyhimself in distancesellingcases, noregistrationrequirementresults • d) Traditional determinationofplaceofsupplyfor: • Travelsbookedandpaid via theinternet; eventticketsortraintickets • These aredemandsforservicestoberendered

5. VAT principles • Online: • Legal basis: E-Commerce directivedatedJuly 1, 2003 (standardisedwithinthe EU) • SinceJanuary 1, 2015 servicesrenderedelectronicallyfromentrepreneursbased in the EU to non-entrepreneursaretaxedbasically in thecountryofdestination • Mini OneStop Shop (MOSS) • Retailerreportsandpaysapplicable VAT oftherespective EU country at a contactpoint in thecountryofdomicile via an electronic portalfor, • Provision of Websites, Webhosting • Remote maintenanceofprogrammes, remote maintenanceofsystems, online Data Warehousing, online provisionofstoragespace • Software accessanddownload, video-data, audio-data, • Provision oftextsandinformation, Ebooks, Online papers, trafficnews, weatherforecasts • Online auctions, online marketplaces • Online gamingandgambling • Online broadcastsandevents • TV on demand • Virtual classrooms

6. Distanceselling • Businesses selling goods to consumers (without VAT ID) in other countries most likely will face an obligation to charge and collect local consumption taxes.  The EU has created a special regime, known as Distance Selling, to simplify the administration and burden as far as possible to encourage free trade in the zone.  • The basic rules are as follows: • Retailers may initially sell to private individuals in other EU states under their local VAT number at their home VAT rate.  For example, a French retailer sells handbags at the French VAT rate of 20% to German customers instead of German VAT rate of 19% • Once they pass the respective country’s distance selling annual threshold, they must register as a non-resident VAT trader in the country.  Continuing the example, if the French retailer sold more than €100,000 worth of goods in Germany. • They then continue to sell, but charge the local VAT.  In the example, this would mean the French company charging 19% VAT, which is payable to the German tax authorities through a German VAT return.

7. ExceedingofThreshold • Threshold in Germany andtheNetherlands: EUR 100,000 • As soonasthisthresholdisexceeded, VAT must bepaidfortheexceedingturnovers • In thefollowingyearthereisnothresholdand VAT must bepaidfor all turnovers • Thresholds(p.a.) in EU countries on April 2016:

8. Example

9. VAT registration in Germany / Netherlands • Competent tax office • Germany: depends on the home country of the tax payer, e.g. Kleve for the Netherlands, Munich for Italy and Austria • Netherlands: Heerlen • Filing of a questionnaire for VAT registration with focus on • Activities of the company • Kind of goods or services that are taxable in Germany / Netherlands • Information whether there is a PE / warehouse • Information whether the trader is a distance seller (threshold of EUR 100,000!) • Allocation of a German tax number and VAT ID • Germany: tax number and (different) VAT ID • Netherlands: tax number is part of the VAT ID • Filing of VAT returns: • Germany: monthly preliminary VAT returns, annual VAT returns for former years • Netherlands: quarterly VAT returns, annual VAT returns for former years

10. Experienceswiththeregistration • Moore Stephens Treuhand Kurpfalz in Germany already registered forentrepreneursbeing a resident in… • The Netherlands • Italy • The registrationprocessisquitethe same at therespectivetaxoffices. • Differencesbetweentheregistrationprocessesare: • Competenttaxoffices • Initial contacting: • Sometaxofficesprefer a first informal letterregardingtheactivitiesofthebusiness in Germany and send a VAT registrationquestionnairesubsequently • Other taxofficesprovidethe VAT registrationquestionnaire on theirhomepagestofill in directly • Duration oftheregistrationprocess (depending on theworkloadofthetaxoffices) – between 2 and 4 weeks

11. Experienceswiththeregistration • At Moore Stephens Rotterdam (DRV Accountants & Adviseurs) we have no experience with registrations regarding distance selling in the Netherlands, probably because the Netherlands is a small country and has a large threshold (EUR 100,000). • But we do have an entrepreneurial spirit in the Netherlands, resulting in clients we (at DRV) have registered for this reason in Belgium, Germany, Italy, Poland, Sweden and United Kingdom. More countries will probably follow in the near future. • Registration process • The main questions and needed documents are the same. Some are more formal than others (e.g. original signature or even notarized / translated documents). Can take 2 up to 8 weeks. • VAT returns • E.g. Germany monthly, Netherlands quarterly. • VAT rates • E.g. Germany 19% and Netherlands 21%. • Limitation period for previous years • E.g. Belgium 3 years and Netherlands 5 years. • Fines, interest • Most countries mention the possibility of fines, but will not fine if the corrections are voluntarily. Using a local representative (e.g. from our Moore Stephens network) can help. • Interest is a bit odd, most countries mention interest, but only some really charge interest.

12. Double taxation? • The riskof double taxationexistsif: • The distancesellerdoes not register in thecountryofdestinationassoonasthethresholdisexceeded • The flawedpreliminary VAT return in thecountryofresidence will probably not beamendedforthecountryofdestination‘sbenefitsincethecountryofresidencewouldreduceitsowntaxyield • The risk will berealisedassoonasfinancialauthorities in thecountryofdestinationallegetheturnoversyears after theexceedingofthethreshold • In a worstcase, further VAT must bepaid in thecountryofdestinationand a VAT refund in thecountryofresidenceis not possible • Whatifthethreshold was exceeded, but VAT ofthecountryofresidenceis still invoicedandpaidthere? • Accordingto a EU-court decisiondated September 19, 200 (Schmeink & Cofreth/Strobel) memberstatesareobligedtocorrect VAT that was invoicedwrongly. • Nevertheless, timelyrestrictions must beconsidered

13. EU VAT Proposalsfor E-Commerce • Proposal to modernise VAT for cross-border e-commerce • 1 December 2016 • New VAT rules for sales of goods and services online • The Mini One Stop Shop (MOSS) system, which is already used for e-services, is introduced for all cross-border sales and will be renamed to the One Stop Shop (OSS) system. • One quarterly return for VAT due across the whole of the EU. • When? Will probably come into place in 2021. • Simplifying VAT rules for micro-businesses and startups • To support startups and micro-businesses, the introduction of a set of thresholds (EUR 10,000 and EUR 100,000) under which cross-border sales for online companies are treated as domestic sales. • When? This reform is foreseen for 2018.

14. EU VAT Proposalsfor E-Commerce • Proposal to modernise VAT for cross-border e-commerce • 1 December 2016 • Action against VAT fraud from outside the EU • Removal of the VAT exemption for imports of small consignments (below EUR 22) from outside the EU. The new OSS will be open to trustworthy sellers from outside the EU. • When? Will probably come into place in 2021. • Equal rules for taxing e-books, e-newspapers and their printed equivalents • Current rules allow Member States to tax printed publications such as books and newspapers at reduced rates. For e-publications however are taxed at the standard rate. • Once agreed by all Member States, the new set-up will allow – but not oblige – Member States to align the rates on e-publications to those on printed publications.

15. Questions?