IVA Ecommerce: New Rules Effective July 1, 2021

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In an increasingly digitalized world thanks to the internet, orders on a digital platform like an e-commerce can come from anywhere in the European Community and the world, thus generating the need to establish a series of rules regarding the taxes that must be paid for VAT purposes.

The problem does not arise in the context of B2B relationships, a term that identifies business-to-business transactions, that is, between two companies that have VAT. In this case, the taxation regime for the importation and sale of products applies. The situation is quite different regarding the other type of sale, which is commonly identified by the acronym B2C.

The acronym identifies Business to Consumer, thus the sale to the private individual, today one of the most widespread forms thanks to the security of payments and the wide availability of sites for selling products. In this particular case, what are the rules that establish the amounts of VAT taxation?

This is a question that needs to be understood if you have an e-commerce or are about to open one, as you may find yourself with hundreds of orders coming from different countries where there is a VAT taxation regime different from Italy. Today, the regulatory reference to consider is the directive EU 2017/2455, extended to July 1, 2021. In this guide, we will analyze what the new features introduced for the VAT regime in e-commerce are, what the MOSS system is, and the changes to Article 14 bis of the consolidated text 2006/112/EC.

An e-commerce that adheres to the MOSS will be able to obtain an exemption from the principle of territoriality provided for in the European regulation in Article 33, carrying out all VAT procedures with reference to the residence of the e-commerce.

The news of the EU Directive 2017/2455

The application of VAT taxation in distance selling by an e-commerce to private individuals is regulated by EU Directive 2017/2455 of December 5, 2017, which was supposed to come into effect on January 1, 2021. Due to the particular economic situation and the health emergency, its application has been postponed to July 1, 2021.

To understand what the new features are, it will be important to clarify some aspects regarding the subjects that are directly involved.

E-commerce: this is the company that provides a service, and will be referred to as the supplier or service provider. The nature of a digital platform can vary, for example, related to telecommunications, broadcasting, the provision of digital tools, or the sale of diverse products and services.
Private: the other interested party is the client, that is, the person who places an order using the tool of distance selling such as an e-commerce and who does not hold a VAT number.

The first innovation introduced by regulation 2017/2455 concerns the concept of territoriality established by directive 2006/112/EC, which can be defined as a sort of general single text applied at the Community level to regulate VAT taxation.

The single text came into effect on January 1, 2007, and in the case of distance sales to private individuals, it provided the basic principle of applying a tax based on the country of the service provider. This means that VAT was applied with reference to the location where an e-commerce was registered, and therefore, given its virtual reality, the registration of the VAT number or the residence of the company was considered.

This type of system appeared quite simple in managing payments in retail sales to individuals, but it had the consequence of creating a certain imbalance from a market perspective, thus favoring those sites located in countries with a more favorable VAT regime and therefore more advantageous product taxation.

The new European regulation still maintains the idea of territoriality, but with reference to the country of the private individual making the purchase and not the one where the e-commerce is located. In particular, Article 33 of regulation 2017/2455 emphasizes the parameters to be evaluated, specifying that the taxation of VAT must refer to the place where the item was delivered and not the one from which the shipment originated.

So, for example, if one has an e-commerce registered in Italy and a purchase is made in Spain, the value-added tax, or VAT applied, will be that of the latter nation.

However, the aspect related to territoriality brings a series of problems for e-commerce. In fact, in the case of orders coming from different countries, one would have to pay VAT in all the individual countries where the orders will be delivered: a reality that implies certain logistical difficulties and also significant costs.

In this perspective, from July 1, 2021, other novelties will also be introduced:

the single sales threshold: a new parameter of €10,000 will be introduced, based on which an exception to the rule of territoriality will apply. This means that if the operations of an e-commerce fall within this value, VAT will be taxed with reference to the country where the e-commerce's VAT number is registered. However, if this threshold is exceeded, the principle of territoriality will apply with reference to the customer.
The extension of the MOSS: there will be the possibility to extend the VAT regime of the MOSS to all activities related to electronic services, telecommunications, broadcasting, as well as all services related to the sale of goods and services if referred to private individuals.
The changes to Directive 2006/112/EC: a series of amendments have been set aside with reference to Article 14 bis of Directive 2006/112/EC.

How is the threshold of €10,000 calculated?

The single text 2006/112/EC established the concept of a maximum threshold, meaning a value within which the taxation of the country of the supplier or service provider applied. This meant that if the e-commerce activities fell within this limit, the rule of territoriality applied with reference to the location where the digital platform was registered. In the case of Italy, the established amount was €35,000.

The regulation 2017/2455 retains the concept of a maximum threshold but modifies the parameter by lowering it to a value of €10,000. Therefore, starting from July 1st, these two aspects must be considered to assess taxation:

Compliance with the threshold: if your activities fall within the €10,000 threshold, the VAT of the supplier's country will apply.
Exceeding the threshold: if the threshold is exceeded, taxation will refer to the recipient's country as established by Article 33, paragraph A, of regulation 2006/112/EC.

But how is the €10,000 threshold calculated? In Chapter 3 bis of the new directive 2017/2455, the cases of exemption from Article 33 are established, specifying the guidelines for calculating the threshold. The following parameters must be considered:

Value of transactions: the amount of €10,000 is considered net of VAT.
Timing: the calculation will be made based on the current calendar year, from January 1st to December 31st.
Type of services: this refers to distance selling to individuals who have a permanent residence in a Member State different from that of the supplier. The calculation for the threshold also considers any shipment of products to a Member State different from that of the e-commerce.

What is MOSS and what are the advantages?

Among the new features that will be introduced from July 1, 2021, is the extension of the MOSS regime to those e-commerce activities that are outside the technological scope. MOSS is an acronym that identifies the Mini One Stop Shop, both a portal connected to the Revenue Agency's website and a beneficial VAT regime.

In fact, an e-commerce that adheres to MOSS will be able to obtain a derogation from the principle of territoriality provided by the European regulation in Article 33, carrying out all VAT procedures with reference to the residence of the e-commerce. This type of facilitated VAT regime applies only to distance selling activities to private individuals, thus to the B2C system. Therefore, from July 1, 2021, MOSS can be requested if the following conditions are met:

e-commerce located in a Member State;
telecommunications activities, electronic services, other sales services including non-digital ones;
distance selling between e-commerce and private individuals.

MOSS is an optional regime, which means that it will be necessary to make the appropriate request on the Revenue Agency's website at the eponymous MOSS portal. Once the request is made, the MOSS VAT regime will apply in all member states.

Among the main advantages of adhering to this system is a simpler VAT management, as it will only apply the reference regime to the state of residence, which is very advantageous if there are numerous private customers from different countries. Declarations will be made directly through the specific portal of the Revenue Agency with deadlines by the 20th of the month following the reference quarter, thus offering a more precise VAT management.

The news of Article 14 bis of Directive 2006/112/EC

Finally, the entry into force of regulation 2017/2455 will bring changes also regarding Article 14 bis, which regulates the use of an electronic interface for the distance selling of goods imported from third countries, with shipments that are below the amount of €150.

According to the new regulation, it is considered that the digital platform, as a taxable person, has carried out two operations:

receipt of goods: this refers to the action of purchasing and receiving from a third-party supplier;
transfer: this is the subsequent action of selling or transferring the good to a private individual.

Thanks to this distinction, a different taxation will apply. In fact, regarding distance selling from a supplier located in a third country to an e-commerce, VAT taxation will not apply. Instead, for the activity of selling by the digital platform to private individuals, VAT taxation will apply with reference to the country of the client.

Conclusions: the changes since July 1, 2021

Thanks to the new exemption regarding regulation 2017/2455, it has been possible to introduce a series of innovations that make distance selling activities between an e-commerce and a private individual simpler. In particular, the minimum threshold for territoriality also benefits small digital platforms, while those that carry out diversified activities with a large number of customers will achieve a simplification of value-added tax. Finally, thanks to the extension of the MOSS regime, the application of VAT taxation becomes more transparent and easier to manage independently.

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