The VAT rules for international trade will change as of 2020 and 2021 on important topics. In this article we address the VAT consequences of return shipments.
E-commerce and return shipments
Within e-commerce goods are normally sold without the consumer actually having seen the good. It therefore occurs regularly that the product does not meet the expectations of the customer, the good is returned and the bill is credited. For VAT these return shipments have consequences too. We address these consequences under the new VAT rules for e-commerce that apply as of 1 January 2021. We only address the situation where the customer is a private person/consumer.
Return shipments in case of e-commerce with goods remaining within the EU
In part 4 of our series about the VAT changes in international trade we discussed the new VAT rules for e-commerce with goods that are located and will remain within the EU.
In case goods are returned this has consequences for the VAT due. In case a purchase is annulled the supplier has the right to a VAT refund. The VAT rules of the EU Member State where VAT is due apply. In the Netherlands such a return shipment can be processed in the next VAT return. In case the supplier files OSS-returns, return shipments will be processed in the upcoming OSS-return. We assume that annulled purchases are also covered by the term ‘corrections’. Note that in case the correction in the OSS return results on balance in a right of refund in an EU Member State in our view this VAT amount cannot be settled with the VAT that needs to be paid in other EU Member States in that tax period. The EU Member State will refund the VAT to the supplier directly.
Return shipments in case of goods coming from outside the EU
In part 5 of our series on the VAT changes within international trade we discussed e-commerce with goods coming from outside the EU.
For the taxable supplies the same rules apply as for goods that remain within the EU. In case the supplier uses I-OSS he can process annulled sales in the upcoming I-OSS return. Because the goods have already been imported there is no right to a refund of the VAT paid upon importation. The VAT deduction of import VAT can still take place. It is possible that the goods are sent back to the country of origin. In that case there is an export in the EU and an importation in the country of origin. Possibly the country of origin has an exemption for returning goods. If the goods remain within the EU and are sold to another private customer the rules for e-commerce with goods that are located and will remain in the EU apply.
Return shipments in case of sales through platforms
In part 6 of our series on VAT changes within international trade we discussed the VAT position of platforms. Under certain conditions these platforms will be responsible for paying the VAT on the transaction with the consumer. The supplier is presumed to supply the goods to the platform and the platform is presumed to supply the goods to the consumer.
Return shipments can take place through the platform too, when the platform pays the received remuneration directly to the consumer and provides the consumer with the information on how to deal with his return shipment. In that case the VAT consequences are not different than already discussed. The supply from the supplier to the platform is annulled too. Because this supply is exempted the VAT consequences are limited. At most the supplier must correct its VAT returns, but this depends on the local VAT legislation of the country where the supply from the supplier to the platform is subject to VAT.
Platforms that do not process payments on behalf of the supplier can also come within the scope of the new rules for platforms. Paying VAT already results in difficulties for those platforms, since the consumer will pay directly to the supplier the price including VAT, while the platform must pay the VAT to the tax authorities. In case of return shipments this problem arises to but in reverse order. The platform can get a refund of the VAT paid, but the supplier will need to refund the consumer the purchase price including VAT.
Practical consequences
The future VAT rules for e-commerce are complex. This applies to the VAT rules for return shipments too. It is important to address the situation of return shipments in order to be prepared for the upcoming changes. In case you trade on a platform or you are a platform it is important to make clear agreements on VAT refunds in case of return shipments. Of course we are happy to help you with this. Please contact one of our VAT advisors. For more information about the other changes within international trade, we would like to refer you to part 1, 2, 3, 4, 5 or 6 of this series of articles.