Platform VAT deemed supplier policy peaked?

Operational challenges & market risks mean we may see retreat from full liability, deemed supplier VAT obligations for marketplaces

The introduction of deemed supplier VAT obligations for online marketplaces has created a range of challenges for both the platforms themselves and the wider ecosystem of sellers, buyers, and tax authorities. This has most recently been seen in the EU VAT in the Digital Age July failure to agree on deemed supplier requirements for ride and accommodation sharing platform economy.

These obligations, which typically make the marketplace responsible for collecting and remitting VAT on behalf of sellers, are designed to improve tax compliance and simplify the VAT system.  Tax authorities see this as the just remedy for the success of online marketplaces for goods and services creating millions of new entrepreneurs with billions in lost VAT revenues.

Examples where deemed supplier has been introduced:

• EU’s VAT E-commerce Package: Introduced in July 2021 for B2C goods, it includes the One-Stop Shop (OSS) and Import One-Stop Shop (IOSS) schemes, which aim to simplify VAT compliance but still present significant implementation challenges for marketplaces.
• Australia: The introduction of GST on low-value goods imported by consumers required marketplaces to collect and remit GST, leading to similar challenges as those seen with the EU’s VAT regulations.
• United Kingdom: January 2021 Post-Brexit VAT changes have added complexity for marketplaces, with new rules for goods sold into the UK from abroad and different treatment for goods under and over certain value thresholds.
• Japan April 2025 introducing deemed supplier on platforms for Consumption Tax collections on digital services sold by third-party non-resident providers.
• Peru from October 2024 will impose VAT obligations on marketplaces facilitating non-resident sales of digital services to local consumers.
• Switzerland January 2025 will impose EU-like deemed supplier rules for imported sales of goods to consumers.

Remember, VATCalc’s in real-time global Calculator and Auditor  services produce instant and accurate tax calculations around country variations for deemed supplier in your ERP, billing, e-commerce or marketplace systems.

The downside to deemed supplier regimes are the complexities and difficulties of implementation. And this can include market distortions as in the ViDA case where it is argued that only large marketplaces have the resources to comply as well as dragging non-taxpayers into the VAT net. As a result, many are now calling for reliance on other measures, including:

• Use of other data sources to build-up a picture of what sellers and providers are transacting, including the EU DAC7 new platform annual reporting obligations on their third-party seller activities;
• More education and simpler compliance requirements for sellers. Many African regimes, new to VAT on digital services, have all now introduced simplified VAT registration and reporting obligations to make compliance simple;
• Deepening exchange of data agreements between jurisdictions;
• Better identification of micro-businesses outside the VAT registration threshold so not as to be inadvertently brought into VAT, including the 2025 EU special scheme for vat registration;
• Cross-border selling activity highlighted by April 2024 CESOP EU payments reporting. Under the new rules, payment service providers (PSPs) offering payment services in the EU will have to monitor the beneficiaries (payees) of cross-border payments. Since 1 April 2024, they must transmit information on those who receive more than 25 cross-border payments per quarter to the administrations of EU Member States; or
• Increased AI adoptions by tax authorities to identify irregular trading patterns domestically and cross border.

Challenges and risks of VAT deemed supplier marketplace

Here are some of the key challenges faced in the EU and other countries:

1. Compliance and Administrative Burden

• Complex Reporting Requirements: Online marketplaces must track and report VAT for a multitude of transactions, involving sellers from various jurisdictions. This requires robust systems to accurately capture, calculate, and report VAT.
• System Integration: Marketplaces need to integrate VAT compliance solutions into their existing platforms, which can be technologically challenging and resource-intensive.

2. Legal and Regulatory Differences

• Diverse Regulations: Each country may have different VAT rates, thresholds, and rules. Marketplaces operating in multiple jurisdictions need to navigate these variations and ensure compliance everywhere they operate.
• Frequent Changes: VAT rules can change frequently, requiring marketplaces to continuously update their processes and systems to remain compliant.

3. Seller Education and Cooperation

• Awareness and Understanding: Many small and medium-sized sellers may not fully understand VAT rules and the implications of deemed supplier obligations. Marketplaces often need to invest in educational resources to help sellers comply.
• Data Collection: Obtaining necessary information from sellers, such as VAT registration numbers and details of their products, can be challenging, particularly when dealing with a large number of sellers from diverse backgrounds.

4. Financial Implications

• Cash Flow Impact: Marketplaces must collect VAT from customers and remit it to tax authorities, which can affect their cash flow. They may also need to manage refunds and adjustments, adding to the financial complexity.
• Administrative Costs: Implementing and maintaining compliance with deemed supplier obligations involves significant administrative costs, including system upgrades, legal advice, and additional staffing.

5. Enforcement and Penalties

• Risk of Non-Compliance: Failure to comply with VAT obligations can result in substantial penalties and interest charges. Marketplaces need to establish rigorous compliance frameworks to avoid such risks.
• Cross-Border Enforcement: Ensuring compliance across multiple jurisdictions can be difficult, particularly when dealing with cross-border sales and differing enforcement practices.

6. Impact on Competition

• Competitive Disparity: Smaller marketplaces or those less prepared for these obligations might struggle to compete with larger, well-resourced platforms that can more easily absorb the costs and complexities of compliance.
• Market Entry Barriers: New marketplaces might face higher barriers to entry due to the significant upfront investment required to comply with VAT obligations.

7. Consumer Experience

• Price Transparency: Displaying VAT-inclusive prices consistently and transparently can be challenging, especially when different VAT rates apply to different products or customer locations.
• Refunds and Returns: Managing VAT on refunds and returns adds another layer of complexity to the customer service operations of marketplaces.

8. Global Coordination

• Harmonization Issues: Lack of global harmonization in VAT rules can create additional burdens for marketplaces operating internationally. Coordinating compliance efforts across jurisdictions with differing rules and rates is a significant challenge.
• International Transactions: Handling VAT on international transactions, including imports and exports, requires marketplaces to be adept at managing customs declarations and other cross-border tax requirements.

In summary, while the deemed supplier VAT obligations aim to streamline VAT collection and improve compliance, they pose numerous challenges for marketplaces, including increased administrative burden, legal complexity, financial impact, and the need for extensive seller education and support.