2020 sales tax changes, global edition

While there will always be traditionalists devoted to the in-store shopping experience, consumers worldwide are discovering — and coming to appreciate — online retailers based in other countries. With cross-border sales expected to hit $1 trillion this year, now is a good time to consider what selling globally would look like for your business.

Understanding how selling across borders impacts tax compliance is a critical component of that. Read on for a taste of what’s happening in the wide world of ecommerce and tax.

It happened: The U.K. officially left the European Union on January 31, 2020, and is scheduled to leave the EU VAT regime December 31, 2020. In the months to come, the U.K. and EU will try to negotiate a free trade agreement. If they fail and don’t extend the deadline, the U.K. will leave with no deal. Businesses in the U.K. are bracing for the impact of the unknown future.

American businesses using the U.K. as a gateway to the EU should do the same.  

Meanwhile, the European Commission is working to overhaul the EU VAT Directive to reduce fraud and simplify compliance for internet vendors.

Four quick fixes intended to clarify VAT obligations for B2B intra-community transactions (when a business located in one EU member state sells to a business located in a different EU member state) took effect January 1, 2020. These should help tax authorities track cross-border sales as well as streamline compliance for businesses operating cross-border supply chains. However, they’ll also impose new administrative burdens on businesses.

In another effort to reduce fraud, members of the EU are doing away with low-value parcel relief. That means non-EU sellers won’t be able to sidestep VAT obligations when they send packages. This change took effect in Norway in January 2020. Come January 2021, the EU’s “existing VAT exemption of goods of up to 22 € will disappear.”

The above changes will impact many U.S. companies doing business in the EU. 

More change is coming in 2021 and beyond. The European Commission is working to simplify VAT obligations for cross-border B2C internet sellers of goods or services and ensure the necessary VAT is paid. Upcoming changes include:

• A single pan-EU VAT return for online sellers of goods
• Expanded VAT collection and remittance obligations for marketplace facilitators (e.g., Amazon, eBay, and Etsy)

France is providing a taste of the change to come. It implemented new requirements for marketplaces effective January 1, 2020: Marketplace facilitators must now verify the VAT status of foreign marketplace sellers (i.e., verify their VAT numbers). This puts a great deal of pressure on marketplaces.

None of the proposed changes will come easily. But they will come, and businesses need to be ready.

More countries, including Chile and Ukraine, are preparing to impose VAT collections obligations on foreign sellers of apps, ebooks, streaming services, and other digital goods and services. They join the EU, Russia, and the host of other countries that already tax such sales.

These and other changes can affect American businesses that sell across borders. Find out more in Avalara’s 2020 sales tax changes report.