Digital Marketplaces
Establishing e-commerce digital marketplaces such as Amazon, Alibaba, eBay, and others has allowed businesses in the EU and beyond to offer their products to customers and residents in different countries.
The level of cross-border transactions has multiplied in the last 15 years. The abovementioned digital marketplaces have mainly attracted small and medium-sized businesses and allowed them to operate cross-border, which is much less the bureaucratic hustle and bustle often inherently connected to opening a brick-and-mortar shop in the countries where your customers reside.
E-commerce marketplaces have created a new business model, and national and international regulators are pressured to develop effective legislative frameworks to keep pace with this new business ecosystem.
Legal and technological challenges
As has often happened in the last 15 years when ICT is in the picture, the fast pace of technological growth and flexible cross-border operating manner must be accompanied by new legislation. As we are witnessing, it can take years or even more for a country or international regulator to develop an adequate legal framework to regulate a new business landscape without putting too much pressure on SMEs and other trading entities liable for tax.
Amazon can suspend the supplier’s account for various reasons, some of which could be attributed to not respecting the terms and conditions related to products offered for sale, bad review rating of the seller, bad customer service, poor quality of shipped products, etc.
However, in this article, we examine why Amazon could suspend the seller’s account based on the non-compliance with VAT rules.
After the implementation of the e-commerce package on July 1, 2021, and the introduction of the deemed supplier provision for taxable persons operating digital platforms for facilitation services, the spectrum of liability requirements for the platform itself has grown exponentially.
The taxable person operating the platform must be very cautious about the VAT compliance system to protect itself from potential hefty fines that can be experienced if the platform does not operate according to the regulations.
The Deemed Supplier provision heavily burdens the Platforms to develop flexible, tailor-made IT solutions for VAT compliance purposes. The solution’s flexibility builds its foundations in the necessity to continuously follow the VAT changes that can happen, e.g., changes in tax rates within the country, declaration and settlement periods, procedures to submit the return, etc.
As the most prominent and influential global e-commerce company, Amazon is committed to maintaining its good reputation by complying with the VAT rules imposed by the countries where it operates and provides its numerous services.
Non-compliance and blocked account
The marketplace uses various legitimate reasons to suspend the supplier’s account to limit its exposure to potential penalties caused by its suppliers’ non-compliant operations.
From a VAT compliance perspective, the most common reasons why the online merchant can get its account blocked are the following ones:
- Missing VAT registration in the country where it stores the goods;
- Not updated Amazon’s Seller Account Profile(mainly concerning VAT ID, as well as other company data);
- There is a mismatch of data between the tax authority database(that data is transferred later on the central database VIES of the European Commission) and information indicated in the Seller Account on Amazon(mainly meant by its tax address and legal name of the company);
- Pending tax debt towards the competent tax authority is the basis on which Amazon can suspend the seller account and operations in the country where the debt is due;
- For B2B transactions merchant has an obligation to upload accurate VAT invoices into his account expeditiously after the goods are dispatched to the buyer. If the merchant doesn’t act accordingly, it will get a warning. The account could be blocked if the merchant continues to operate non-compliantly and the invoice defect rate surpasses 5%.
In the last years, Germany and the United Kingdom tax authorities have used many resources to thoroughly analyze the VAT-registered persons in their respective countries operating through Amazon. Based on the grounds that the marketplace has a liability to have in its database a valid VAT number of each merchant who must be registered for operations conducted in a taxable country, Amazon has blocked many sellers’ accounts who are active in these countries.
One of the main reasons is that the automatic comparison processed between the data indicated by the supplier and the one uploaded to the central database of a competent authority has resulted in a mismatch.
The European Union legislation and regulation from other parts of the world, which has been specially designed to regulate the VAT liabilities of digital marketplaces and online sellers operating through one, are mainly, in its essence, “still relatively new.”
Some merchants using the marketplace aren’t even aware of their exposure to relevant provisions. Some, on the other hand, try to hack the system. The merchants operating through Amazon and similar platforms should be mindful of their exposure level regarding their VAT liability and exposure to potential penalties from one side from the tax authorities and the other from the Marketplace itself.
The suspended account can be exceedingly hurtful for SMEs and sometimes lead the firm to bankruptcy due to the lost revenue. The best advice is to seek professional advice and assistance from a trustworthy service provider when there is doubt about what should be done to be compliant with the VAT rules in place, especially when there is no time for proper research, which can be handled by a professional within the merchant’s team.
Aleksandar Delic
1stopVAT Indirect Tax Researcher (Global Content)