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Sales Tax & Compliance

Sales Tax & Compliance (63)

New VAT Rules Hit Low-cost Goods

The 2021 EU ecommerce VAT package that was effective July 1 is having a major impact on ecommerce businesses with customers in the EU. U.S. sellers should pay particularly close attention to the new  EU marketplace deemed supplier rules, which are similar to the U.S. marketplace facilitator laws for sales tax on ecommerce sales, and impact two types of cross-border transactions:

*Goods valued below €150 imported by EU or non-EU sellers and sold to EU customers                                                                                                                                                                 *Goods of any value sold by a non-EU seller to an EU customer

Under the new regulations, marketplaces are liable to collect, report and remit VAT when they facilitate certain cross-border business-to-consumer transactions on behalf of their third-party sellers. To be considered facilitators, marketplaces must meet specific EU Council criteria, which stipulate:                                                                                                                             *Controlling the terms and conditions of the sale                                                                                                                                                                                                                         *Authorizing the charge to the customer for the payment of goods                                                                                                                                                                                                  *Ordering or delivering goods

Marketplaces are exempt from deemed supplier responsibility if they provide only one of the following services: payment processing; listing or advertising goods; or redirecting buyers to other online marketplaces. 

How the deemed supplier rule works for cross-border sales:

Once the marketplace becomes the deemed supplier, the sale between the seller and the customer is treated as two separate transactions for VAT purposes:                                                           *The seller sells the goods to the marketplace. This becomes a business-to-business (B2B) tax-exempt sale and no EU VAT is due.                                                                                                 *The marketplace sells the goods to the customer. This becomes a business-to-consumer (B2C) sale with the marketplace now responsible for collecting the VAT due based on the customer’s country of residence.

Here’s an example of how this would work:

Let’s say a U.S. merchant sells goods to French and German customers through an online marketplace. Previously, the seller had to be VAT-registered in France and Germany in order to charge 20-percent VAT to its French customers and 19-percent VAT to its German customers. Effective July 1, under the new rule, the seller becomes the underlying supplier and the facilitating marketplace becomes the deemed supplier, purchases the goods from the seller, resells them to EU customers, collects the VAT, and reports the sales through either local VAT registration or single EU Import OSS for those sales.

Marketplaces must also keep detailed records of sellers’ transactions to show VAT has been correctly accounted for and electronically maintain these records for 10 years from the original transaction date. The marketplace won’t be held liable for underpaid VAT if the seller failed to provide the correct information required for the VAT calculation and the facilitating marketplace can reasonably show it wasn’t aware of the error. It’s also important to note that while the marketplace facilitator is responsible for VAT, it may not be responsible for other obligations related to the sale, such as product liabilities.

When the special arrangement provision applies:

The EU ecommerce VAT regulations include a special arrangements provision, which allows sellers or deemed supplier marketplaces to opt out and pass the VAT collection role to postal services. This is exclusive to the EU reforms; the U.K.’s marketplace deemed supplier rule doesn’t include this option. Additionally, the U.K. rules call for use of a regular U.K. VAT return rather than the IOSS import return.

Where U.S. sellers can turn for help:

Cross-border trade rules are already complicated. While the U.K. and EU ecommerce VAT reforms aim to increase confidence in global ecommerce sales, U.S. sellers may find these changes create yet another layer of complexity and a barrier to international sales. It can be difficult to keep up with ever-changing cross-border compliance obligations while focusing on expanding into new markets and keeping customers happy.. Learn more about managing VAT compliance

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Avalara Updates International Features

Avalara has updated cross-border features in its Trade Treaty Support and Trade Restrictions Management applications. The sales tax company this month said that among new features are trade treaty tariff rates as part of its tax content coverage.

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Avalara Debuts Accountant Suite

Avalara has introduced a suite of products designed to help accounting professionals to provide  sales tax services for their clients. Avalara for Accountants brings together the previously released Avalara Managed Returns for Accountants with other modules.

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Avalara Buys Davo Assets

Avalara has purchased the operational assets from Davo Technologies. which provides sales tax software to small businesses. Terms were not disclosed.

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Stripe Buying TaxJar

Stripe has agreed to buy TaxJar, which makes online sales tax software. Terms were not disclosed.

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Avalara Intros Vendor Exemption Management

Avalara has introduced an application that helps businesses create, send and track sales tax exemption documents at the time of purchase. Avalara Vendor Exemption Management, can manage sales and use tax compliance on purchases. 

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Avalara Offers Managed Returns Package

 Firms are being offered the opportunity to outsource sales tax prepared through Avalara Managed Returns for Accountants. Accountants can provide a complete array of sales tax return preparation and filing through Avalara.

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Avalara Moves into Business License Market

Avalara has entered the business license market through the acquisition of Monsey, N.Y.-based Business Licenses. The sales and use tax vendor is paying $97 million in stock and cash.

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Helping Ecommerce Clients Achieve Global Aspirations

The past six months have delivered more challenges to clients than anyone could have anticipated. Business that were primarily brick-and-mortar at the outset of the COVID-19 pandemic have rushed to establish an online selling presence in order to survive. 

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Cross-border Tax Impact Widening

The spread of ecommerce has meant an increasing number of businesses have transactions in other countries.  That means those businesses also need to deal with tax, tariffs and duties imposed by other countries which has made cross-border taxation an issue for many organizations that previously did not need to even know the term.

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