Amazon - New Rules for European Online Vendors

Amazon, the leading global e-commerce platform, has undergone significant changes in the last period. After many challenges concerning the establishment of valid due diligence processes and internal auditing of the blocked accounts, the company's management decided to introduce a new tax-legal mechanism for taxing the fees charged to online vendors operating on their platform. 

It should be taken into consideration that these changes are internal, on the company's level, and aren’t per se a general rule that should be followed by all e-commerce platforms operating in the mentioned countries. 

The changes in invoicing and tax calculation are undoubtedly significant and will impact the business operations of online vendors. It starts with how B2B invoices are processed, goes through the introduction of new tax treatment of the underlying transactions, and shifts the tax reporting duty. It will also influence the way the registration threshold of SME vendors is established. 

Let’s examine the legal and tax technicalities of the changes introduced by Amazon Services Europe s.a.r.l. 

Applicability of the New Amazon Rules 

New rules implemented by Amazon will be effective for all online vendors in scope starting August 1, 2024. 

Internal Amazon Change 

The e-commerce giant's management has decided to change its billing and invoicing framework for the following nine European countries: the UK, Germany, France, Italy, Spain, the Netherlands, Poland, Belgium, and Sweden.  

So, what has happened and why? 

The main driving force behind this change isn’t disclosed per se, but from the practical point of view; it could be related to establishing a less challenging framework for maintaining a high level of tax compliance and making its tax collection and reporting easier from the perspective of internal business processes, but as well as for interested national tax authorities. 

So, starting August 1, 2024, the rules for invoicing and tax compliance for online vendors whose place of business is within these nine countries will be adjusted accordingly. 

Let’s first look at how it was conducted just a few weeks ago. Before Amazon implemented this internal change, it caused significant change and shifted tax collection liability to online vendors. 

Online vendors from these nine countries have been billed exclusively by Amazon Services Europe, a company registered in Luxembourg. This European firm was responsible for charging, collecting, and invoicing the entire network of online sellers whose place of business is within these nine countries and those acquiring one or more of the underlying services provided by the Amazon Services Europe platform. 

Example: 

The online vendor, a registered taxpayer in Germany, who was subscribed to FBA service through Amazon Services Europe, was billed by LU company, and the tax was collected based on the reverse charge mechanism. Let’s be more specific: the “tax” on the fee for this service was charged, collected, and remitted by an online vendor. The output and input taxes were reported in the same return, canceling each other. 

How it looks now? 

From now on, this online vendor and the entire network of vendors whose place of business is within one of the nine countries from the list will be billed from the “local” Amazon branch. This Amazon branch, e.g., the DE Amazon branch(Amazon EU), will be responsible for invoicing the entire network of locally registered vendors.

Is it just an invoicing change? Will it also produce some other changes? 

Based on this introductive description and how it’s displayed, it could be seen as an administrative internal move of Amazon that will not significantly disrupt the online vendors that operate through the platform and are using some of the service packages provided by Amazon. 

Unfortunately, for online vendors, this internal change isn’t just “cosmetics.” No, it will significantly impact their tax compliance system. Before this change, as underscored previously, the reverse charge mechanism was in place, and the tax hurdles weren’t that big and “complex” to handle. 

From August 1, 2024, this changes. Now, online vendors with their place of business/registration within one of these nine countries will need to “tackle” the input tax differently.  

Example: 

The DE Amazon branch will bill taxable persons registered under German VAT rules, and the fees for the underlying service or services will be imposed at the appropriate DE tax rate for this kind of service. This means a DE-taxable person will need to pay the tax upfront to the Amazon branch(output tax), and it will need to submit a domestic return to claim this tax back. 

New Taxation Model and Implications 

From now on, taxable persons should collect their input tax and file it through domestic returns differently. This will have more than a few implications. Before the change, no VAT was charged for the B2B cross-border sale of underlying services for the fees Amazon LU charged its vendors, meaning no VAT was paid upfront. 

The local Amazon branch will charge local VAT on the underlying fees. The vendor will pay VAT upfront and reclaim it later through domestic return. Let’s consider a vendor that mostly makes distance sales, where no local VAT is charged.

This vendor will pay a significant upfront sum to cover domestic VAT on the fees claimed by the local Amazon branch. He will probably need to wait a “decent” amount of time before he can see his money repaid. 

Is there leverage for some types of businesses? 

With some hesitation, I would say yes. The enumeration of the types of transactions used to calculate a turnover that is used as a metric to determine the necessity of being VAT registered, including transactions processed under the reverse-charge mechanism, is right up there. 

Based on the new framework, the new tax reporting system implemented internally by Amazon will have this “positive” effect on many small startup vendors in these countries. However, if these vendors want to reclaim the upfront tax, they must think twice before operating as VAT-exempt businesses. 

Conclusion 

The introduction of the new billing mechanism mandated by Amazon Europe needs to be addressed cautiously by online vendors that are registered and have their place of business within one of the nine countries that are primarily impacted by this decision. 

If they haven’t done so yet, these vendors should establish new compliance requirements to cope with novelties legally and business-wise. 

Source: Amazon Seller Central Help