European Union - Proposed EU Customs reform includes VAT changes

On 17 May 2023, the European Commission put forward proposals for a comprehensive reform of the EU Customs Code. The proposals include the establishment of a new EU Customs Authority to oversee an EU Customs Data Hub (which would allow importers into the EU to record relevant data on their products and supply chains in a single online environment), as well as the introduction of a “more modern approach to e-commerce.”

Interestingly, the Customs proposals include some important VAT-related measures that would build on the July 2021 e-commerce VAT package changes and are consistent with the VAT in the Digital Age (VIDA) proposals (for prior coverage of the e-commerce VAT package and VIDA, see the article in the July 2021 issue of Indirect Tax News and the article in the January 2022 issue). These two packages aim to modernise and reshape the EU VAT system for the digital era, reduce the VAT compliance burden for business and strengthen the fight against VAT fraud and, in turn, decrease the VAT gap. If approved by the EU member states, the Customs reform would become effective as from 2028.

VAT elements of the Customs proposals

The proposed VAT changes under the Customs proposals include extending:

• The application of the “deemed supplier” rule for electronic platforms to distance sales of qualifying imported goods exceeding EUR 150;
• The IOSS scheme (i.e., the Import One Stop Shop scheme) to distance sales of qualifying imported goods exceeding EUR 150; and
• The special arrangements for postal operators, express carriers, etc. to apply to consignments of qualifying goods exceeding EUR 150.

The current exemption for small consignments would be eliminated. Additionally, a “deemed importer” regime would be introduced for platforms, which would make platforms responsible for compliance with all Customs formalities and payments with respect to goods sold online into the EU. The platform would charge customs duties and VAT at the time of sale and pay the duties over to the relevant EU member state, thus shifting liability from the consumer to the platform. Simplified tariff treatment would be available for the import of low value goods, under which the deemed importer could select a tariff "bucket" to apply to the customs value of the imports.

Comments

The proposed measures are extensive and complex and generally should be welcomed as they will help achieve the principle goals of VIDA. The proposals do have to be unanimously approved by all 27 EU member states to become effective (which will be challenging), so they likely will be subject to robust debate during 2023 and possibly revised. Nevertheless, potentially affected businesses should begin to familiarise themselves with the proposals so they can assess the likely impact on their businesses.

Madeleine Merkx
Philip Nolan
BDO in Netherlands and Ireland