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Tax challenge for cross-border e-commerce

The period of the epidemic has verified the foreign market and forced some entrepreneurs to look for additional solutions that will help to increase their profit again. In view of the regulations on the obligatory closure of certain sales points, i.e. shopping malls, where consumers could actually purchase goods, sellers decided on masse to trade goods using an online platform, while at the same time driving the area of the e-commerce market.

Cross-border e-commerce has gained considerable popularity in recent months due to its ease of use, as well as, a wide choice that allows consumers to make a detailed verification of an item before purchasing it on any of the platforms offering the product. Analyzing the changes in the market so far, it is safe to say, that the market will soon be dominated by e-commerce. In addition, cross-border trade in this form undoubtedly brings many benefits, not only for the seller, who is given the opportunity to expand his channel of customers, but also for the buyer, who reduces his time spent on actual purchases.

However, with a multiple of advantages, it is also necessary to mention the legal and tax issues faced by a company deciding for foreign internet activities.

Cross-border trade and shipping of the goods – what should be taken into account?

Many questions arise in the case of VAT tax return, where difficulties in a consistent interpretation of the rules are indicated. It is therefore worth distinguishing first of all the issues of internet activity in the EU area and also outside the EU.

In the case of sales to e-consumers within the Union, the concept of mail order sales will apply. The main principle here is to register as an active VAT payer in the country to which the goods are sent.

The main different is that, in the case of intra-Community supply of goods, it is possible, when the relevant conditions are met, to apply a 0% rate or an exemption with the right to deduct (depending on the Member State) and at the same time to deduct VAT. Otherwise, the entity will be obliged to pay tax on the basis of the domestic sales of the country concerned.

On the other hand, in principle, in the case of mail order sales, that transaction must be taxed at the place of residence of the e-consumer, who is neither an active taxpayer nor has clearing obligations. Therefore, there is an exception to point out that if the value of the goods shipped to an EU country does not exceed the VAT limit provided for in the VAT Act in a given year, the entrepreneur will be option to pay VAT at the national rate.

It should be mentioned that, as of 1 July 2020, there have been significant changes in the taxation of intra-Community supply of goods, (so-called quick fixes) transactions in EU law. An important addition in the submission of correct VAT-EU summary information, which warrant to use from VAT exemptions with the simultaneous right to deduct tax, as a condition for applying the 0% rate to the intra-Community supply of goods.

The new conditions for the possibility of benefiting from the 0% intra-Community supply of goods rate, are also to be the necessity to have evidence of the goods being transported from PL to another Member State. According to the Regulation, the evidence shall be considered:

  • documented information about the goods sent or transported (e.g. signed CMR delivery notes, bill of lading, air transport invoices or carriers);
  • insurance policies for sent goods or transported or confirmation from the bank of the shipment paid or transport of the goods;
  • a document issued by the competent authorities confirming the importation of the goods into the country of destination;
  • a certified receipt which is issued by a warehouse operator in the country of destination on the goods in storage.

Magazine call-of stock a chance for e-commerce in Poland?

Therefore, that the important issue for cross-border e-commerce is trade between EU countries, it is necessary to consider the changes to be introduced in 2021 regarding the scope of consignment magazine (so called call-off stock).

A beneficial change for foreign entities is to be the purpose of destination, according to which goods cannot be intended not only for the production industry, but can also be used for service and commercial activities. In the case of finished goods sent to Poland, it is possible to transfer the tax liability in the case of intra-Community supply of goods and intra-Community acquisition of goods – at the moment of charging of the goods. In addition, the new regulations provide for additional advantages for the entities of the sent goods – after fulfilling certain conditions, the taxpayer may be exempted from registering for VAT purposes with intra-Community supply of goods or at intra-Community acquisition of goods, on domestic deliveries which are made to the person taking the goods out of stock.

Why are the changes important for the e-commerce industry? More widely about the procedure of changes in the article: Call-of stock magazine – facilitating the run a business in Poland for foreign entities.

Problematic place of taxation

In the case of internet sales, it is important to correctly determine the place of taxation of the goods sent. In accordance with the law, such a place shall be considered the place where the goods are located at the time of dispatch or transport. However, it should be noted that and additional rule applies to mail order sales within the EU – taxation of the place of dispatch of the goods, but with objections to the limit referred to below.

Limits on shipped goods

However, in order for this to apply, the important condition of the limit of the goods to be shipped must be met. The limit refers to the total value of goods sent to a specific EU country to e-consumers, which are reduced by the value of VAT in a given calendar year. It should be noted that, each limit in a EU country may differ from each other due to the possibility of adapting the restriction to its laws in a given country.

According to the adopted regulations, the current limit as a general rule is EUR 100 000, but the VAT Directive provides for the right to reduce it to EUR 35 000. In the event that a foreign entrepreneur who exceeds the limit of PLN 160 000 net in Poland in connection with the mail order, he will have to pay attention to the additional obligations regarding VAT registration and declaration in the country. Below, we presented examples of limits in force in EU Member States.

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It should be pointed out that a entrepreneur making a cross-border sale have a liability to issue a VAT invoice or in certain cases, a receipt.

In view of the above, the keep of the limit is important from the entrepreneur’s point of view, because the consequence of exceeding it will be a tax liability for mail order sales at the place of dispatch of the goods. On the side of tax law, this is crucial because there may be a possibility of higher rates in other countries, which are certainly not beneficial for the entrepreneur.

Mail order – not possible in a few cases

It is worth mentioning that specific groups of goods have been excluded for mail order sales. Mail order sales does not apply incl.:

  • new means of transport,
  • the sale of goods installed or assembled, with or without a trial run,
  • excise goods,
  • second-hand goods, artworks, collector’s items or antiques acquired for which the VAT-margin rules apply.