France steps up VAT fraud measures ahead of EU 2021 reforms
France has announced a raft of 2020 VAT measures to combat B2C e-commerce and B2B carousel fraud. VAT expert Richard Asquith examines the main proposals and how they may affect the UK government’s future thinking.
The three proposals announced go further than recent initiatives in the UK and Germany, and jump the gun on EU 2021 reforms. The measures include: making online marketplaces such as Amazon, eBay and Etsy collect VAT on behalf of non-EU sellers; introducing live invoice reporting to the tax authorities; and a fulfilment house VAT due diligence scheme.
Live e-invoice reporting is very much in vogue in Europe and is likely to be an ultimate aim for HMRC’s Making Tax Digital for VAT programme. HMRC will be tracking France’s progress, which is following the success this year of Italy’s real-time invoice submissions scheme, SdI.
France has a VAT gap (the difference between forecast vs actual revenues) of €21bn, according to the EU. That compares to the UK’s €22 (£19) bn – although HMRC puts it closer to £13bn.
Making marketplaces liable for VAT collections
France is proposing to turn online marketplaces into tax collectors for non-EU merchants selling on their platforms. Where the marketplaces are facilitating sales of Chinese, US or other non-EU established merchants, they would have to withhold the VAT amount due to the seller and pay it directly to the French authorities.
This type of ‘split payment’ mechanism is being trialled across Europe as a method to stop VAT fraud. Poland, Austria and Romania have programs in place. HMRC is reviewing it for payment providers in the UK.
It would only apply where the marketplace is handling cash payments on behalf of the online seller, which would exclude many of the small platforms. But it would bring in Amazon, the largest European marketplace.
From 2021, EU member states have agreed to make marketplaces that facilitate non-EU third-party sellers take on legal and VAT title of sales to consumers. This will include the marketplaces buying the goods from the foreign seller and making the final sale to the consumer. This would impose VAT collections obligations on the marketplace.
In addition, the EU has agreed to introduce the single EU VAT return for all sellers, ‘One-Stop-Shop’ filing.
Plans for live e-invoice reporting
Secondly, France announced the launch of a consultation with industry on introducing a real-time invoice reporting regime. This follows the success of the Italian SdI initiative, which imposed B2B and B2C invoice submissions to the tax authorities at the start of this year. Under the Italian scheme, invoices will only go to a customer once the Italian tax agency has received and approved the invoice in real-time.
The French consultation will likely be short, and the tax authorities will be anxious to launch in 2020. It will be able to use the already enacted B2G e-invoice submissions portal, Chorus Portal Pro.
France’s plans, and Italy before it, are being closely scrutinised by HMRC. With the ongoing rollout of MTD, HMRC will be looking at the API technology as a route for the future to access UK taxpayers’ invoices.
Fulfilment house due diligence scheme
Lastly, France is seeking to replicate the UK’s fulfilment house due diligence scheme.
This requires warehouses handling non-EU importers goods to maintain basic records and checks on the VAT and duties compliance for their customers.
The UK scheme, launched in June 2018, obliges fulfilment houses to register with HMRC and to document basic controls, including checking for valid VAT numbers of their non-EU customers.
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Richard Asquith is the VP of Global Indirect Tax at Avalara, a global transaction tax technology company. He leads Avalara’s outsourced international VAT compliance service. Richard originally qualified at KPMG in the UK, and then spent over ten years with EY in Hungary, Russia and France.