Distance sellers: HMRC policy change and the interpretation on Place of Supply

Friday, September 15, 2017

by Nick Ryan

With the growth in online selling together with the ease in selling to a wider European customer, distance selling is proving to be a lucrative outlet for the retail sector resulting in a wealth of new businesses entering the market selling a wide range of products.
HMRC have recently announced a policy change for the Place of Supply of delivered goods to consumers within the EU to provide for a clearer interpretation or definition on what constitutes delivered goods under the Distance Sales regime. This change has been made following discussion with the VAT Committee of the European Union and therefore the decision does carry some significant weight. The change provides a clear signal to businesses operating within the distance selling sector that they should review their current arrangements, VAT treatment and compliance approach to ensure they are fully compliant. It is understood that other EU tax authorities are supportive of HMRC’s policy change.
Under current EU legislation, as applied by the UK and other EU Member States, the place of supply for delivered goods to a consumer is the place where the consumer resides. Where the consumer resides in another EU Member State then the place of supply shifts to that EU MS and the supplier is required to register for VAT in that EU MS. The Distance Selling regime provides for a concession whereby the supplier can prevent registration for VAT in other EU MS and account for VAT on the supply in which they are established for VAT purposes as a distance seller until that time the threshold for VAT registration for Distance sales in the other EU MS is exceeded; a business can elect to register in the other EU MS and this might be viable where a lower VAT rate applies.
It should be noted that under the Place of supply of goods rules, for distance sales and other supplies of goods which are transported or dispatched, the place of supply is the place from where the goods are delivered from NOT, as often understood, the place where the distance seller is established.
What caused this policy change? Under the Distance selling rules, the Place of Supply stipulates that the supply of the goods MUST include the delivery of the goods i.e. the cost of transport is included as part of the price. Some businesses looked to take advantage of these rules to ensure the place of supply for their sales remained the UK by not providing for the delivery of the goods as part of the supply but, by offering the customer a choice in arranging for the delivery of the goods by a third party or, collecting the goods in person.
The revised interpretation has been determined to prevent such practices and states that the supplier of the goods will be considered to have delivered the goods where they are deemed to have “intervened” in the delivery of the goods. Intervention means where the transport is arranged when the goods are purchased either by a connected or third party transporter and, the supplier’s takes payment for the delivery of the goods when the goods are purchased. It can also mean where the supplier actively promotes the services of a transport operator to the customer.
In essence, it means if a customer enters a supplier’s web site/on line store and makes a purchase which includes arranging for the delivery of the goods, whether by the supplier or a third party and, even where there is a choice of delivery options, the supply is deemed to be one of delivered goods and falls within the scope of the Distance Sales regime.
The VAT Practice has been involved in the Distance Sales sector since its inception. We have advised distance sellers, both EU operators and businesses from outside the EU looking to access the market, in how best to manage their VAT compliance and reporting requirement. We can assist distance sellers in managing their distance selling business and assisting them in setting up a multi jurisdiction operations, including registering the business for VAT in each jurisdiction, setting up the compliance reporting requirements to meet with local requirements and, manage the day to day compliance reporting requirements.
We also provide support and assistance to fulfilment centres in working with their customers to ensure the correct VAT reporting and compliance obligations are met and, clarifying which party is required to meet them.
Should you have questions on the above or, have a particular case you wish to discuss then please contact Nicholas Ryan either by telephone, +353 2388 38181, or email, info@thevatpractice.ie

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