In 1966, the Kinks had a hit with the song “Sunny Afternoon” in which they moaned: “The tax man’s taken all my dough, and left me in my stately home… and I can’t sail my yacht, he’s taken everything I got, all I’ve got’s this sunny afternoon.”
Could the taxman take everything you’ve got? He could if you are trading over the internet using an online marketplace, such as Amazon, Ebay or Shopify. Online marketplaces have been turned into the long arm of the taxman in many countries.
And the taxman is interested in many different taxes. Currently the emphasis is mainly on collecting indirect taxes – VAT or sales tax – from online marketplaces on behalf of their users. Soon online marketplaces will be collecting income tax too from online marketplaces and their users. Below is an overview.
EU VAT
Special provisions were introduced on July 1, 2021, whereby online marketplaces/platforms facilitating supplies of goods are deemed for VAT purposes to have received and supplied the goods themselves (“deemed supplier”). EU standard VAT rates typically range from 15% to 25%.
An electronic interface (EI) should be understood as a broad concept. An EI could include a website, portal, gateway, marketplace, platform, application program interface (API), etc.
An online marketplace may be considered a deemed supplier if it facilitates:
Distance sales of goods imported into an EU country with a value not exceeding €150; and/or supplies of goods to customers in the EU, irrespective of their value, when the underlying supplier/seller is not established in the EU.
To declare and pay the VAT due in other Member States, online marketplaces/platforms will register in special electronic EU portals – OSS (one stop shop) or IOSS (import one stop shop). Online marketplaces/platforms will need to keep records for all the transactions they facilitate.
UK VAT
The standard UK VAT rate is 20%. Consignments of goods with a value of £135 or less that are outside the UK will be liable to VAT.
Where those goods are sold through an online marketplace, the online marketplace will be liable for the VAT.
Online marketplaces will also be liable for the VAT on goods of any value that are located in the UK at the point of sale and sold by an overseas business through an online marketplace.
US Sales Taxes
Following the Wayfair case in the US Supreme Court in June 2018, most US states now impose sales tax on out-of-state suppliers with an “economic nexus” in that state – sales above a certain value or quantity.
Most of these states extend the sales tax collection obligation to online marketplaces. Specific inquiry is necessary as the US has 50 states with their own rules, and over 20,000 cities and towns with their own rates of sales tax.
Sales tax rates typically range from 5% to 12%, with exceptions.
For example, in New York state, a remote marketplace provider that facilitated more than $500,000 in gross sales and 100 transactions in the state in the preceding four quarterly periods is required to obtain a certificate of authority, collect sales tax, file returns and remit tax on all sales into the state. All in-state marketplaces are required to collect tax on all sales in the state.
Israel and elsewhere
Many other countries with VAT or GST are starting to impose these taxes on foreign suppliers, such as Australia. The Israeli budget contains a proposal to collect 17% VAT from online stores.
Income Tax – OECD
The OECD is jumping the gun. It is proposing rules to implement automatic supply/exchange of data for income tax purposes from digital platforms to tax authorities before the rules are agreed for imposing such income tax.
In 2020, the OECD published rules relating only to sellers offering accommodation, transportation or personal services (“gig economy”). In 2021, the OECD expanded its proposals to cover the sale of goods and the rental of means of transportation facilitated by digital platforms.
Each platform would report to its own home country tax authority, which will then exchange information with the seller’s home country tax authority.
This is termed “prefilling of tax returns” – the platform or online marketplace starts filling in your income tax return for you!
Comments
Online marketplaces and platforms will probably be eager to start and finish their tax collection duties. Anyone using them must plan ahead their tax cash flow and tax mitigation. Don’t be left with just a sunny afternoon.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
leon@h2cat.com
The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd