The 2020 VAT cut: What you have to consider when selling on Amazon

That is what the 2020 economic stimulus package is about

As a result of the corona crisis, the Grand Coalition has presented an economic stimulus package, which includes, among other things, a temporary reduction in sales tax from 01.07.2020 to 31.12.2020.

But what is this about exactly? In cooperation with Sebastian Schießling, tax advisor at Steuerteam GmbH, we have worked out for you the exact questions and problems associated with the sales tax cut on Amazon.

What is it about?

The Grand Coalition agreed on an economic stimulus package on 03.06.2020. The aim of this “economic and future package” is to secure jobs and revive the economy weakened by the corona crisis. The 130 billion euro program includes, among other things, a reduction in sales tax and relief for families, businesses and communities.[1]

When will the VAT cut apply and how will the tax rates change?

The sales tax is to be reduced from the current 19 percent to 16 percent and from 7 percent to 5 percent. This reduction is to apply for a limited period from 01.07.2020 to 31.12.2020.

The measures presented are to be implemented in the Second Act Implementing Tax Aid Measures to Cope with the Corona Crisis (Second Corona Tax Assistance Act). So far (as of 23.06.2020), the Grand Coalition has drafted a bill for this purpose, which will be passed by the Bundestag on 29.06.2020 and will be discussed in a special session of the Federal Council on the same day.[2] Only when the Bundestag has passed the law and the Federal Council has approved can the law be promulgated by the Federal President and become effective.

Even though the advisory documents of the various committees of the Federal Council indicate that the Second Corona Tax Assistance Act will be approved, the reduction in sales tax is not yet dry and could still be overturned both by the Bundestag and by the Federal Council.

UPDATE ON THE VAT CUT: In the meantime (as of 29.06.2020), both the Bundestag and the Federal Council have approved the draft law. Once signed by the Federal President and published in the Federal Law Gazette, this will take effect, which should take effect as early as 01.07.2020. [3]

What practical issues arise during the temporary reduction in VAT in 2020?

The questions that arise in practice as a result of the reduction in sales tax are far-reaching. In essence, it will probably mostly be a question of accrual — i.e. at what point in time must be taken into account for tax calculation when performance is performed and which VAT rate is then applicable. In the meantime, the Federal Ministry of Finance (BMF) has a accompanying letterpublished in a draft, which explains various issues in this context.

In this blog post, we would like to address specifically what tax issues arise when selling on Amazon and how these issues can be resolved.

Practical implementation of the VAT cut on Amazon

In principle, the Amazon marketplace must first be divided into two areas: The relationship between the retailer and Amazon (B2B), and the relationship between the retailer and the end customer (B2C). In both constellations, invoices are issued which are subject to sales tax. The correct sales tax must be stated in specially issued invoices. Invoices that the retailer receives from Amazon should definitely be checked for accuracy.

Corona boom on Amazon — changes for selling on Amazon as a result of the tax cut?

The corona lock down was already a huge win situation for Amazon. As a result of the VAT cut, the online giant's sales are likely to rise even further as people will continue to buy from Amazon. However, whether the value-added tax reduction is passed on to the customer depends on whether a company sells as a seller or as a vendor on Amazon.

The sales tax cut for vendors

At Amazon Vendorprogram does the retailer sell to Amazon in a B2B relationship Amazon itself acts as a seller and invoices the end customer. In this case, vendors simply have to check the statements for the correct sales tax, which they receive from Amazon.

The Amazon fees

VAT is also charged for the various fees on Amazon. These fees can affect both sellers and vendors. In the Seller program, for example, shipping fees, the subscription fee and costs for advertisements from Amazon to the retailer are calculated.

There should be no differentiation questions here, as Amazon invoices the retailer every last month for the current month. On these invoices, all services are listed as individual items for every single day of the month.

NOTE: All incoming Amazon invoices at the end of July should be checked for the correct VAT amount.

The sales tax cut for sellers

Sellers sell their products directly to the end customer and invoice them. Therefore, sellers must independently address the sales tax issue and correct invoicing.

When defining and setting the correct sales tax rate, it is questionable in this case what date is decisive for determining it: Order date? Invoice date? Dispatch date? Date of receipt of payment?

In sales tax law, a delivery is considered to have been carried out when the service recipient has received power of disposal of the goods. If the goods are shipped to the customer, the start of the shipping process is considered the date of performance in this case.

The sales tax rate is therefore generally determined in accordance with Dispatch date.

Practical implementation of the tax cut for selling on Amazon

When invoicing on Amazon, sellers have various options: They can write the invoices themselves and upload them to Seller Central. Alternatively, you can use tools that have a connection to Seller Central and automatically handle invoicing. Examples of such tools include. Amainvoice or Amazon's sales tax calculation service.

For their own invoices, which are uploaded to Seller Central, retailers must ensure that they apply the correct sales tax rate on the invoice. The various tools do this automatically; it can be assumed that this will be changed in good time.

NOTE: Contact your billing service provider in good time and ask them whether there is a need for action on your part and coordinate processes in your company.

Does the sales tax cut have to be passed on to the customer?

The draft law on the Second Corona Tax Assistance Act does not provide for an obligation to pass on the tax cut to the end customer. The pricing policy is left to the company itself.

What impact does the tax cut have on Amazon returns?

A common question concerns the tax treatment of returns, i.e. orders that were calculated according to the old sales tax rate and are returned at the time the new sales tax rate applies.

A return is the rescission of a purchase, which always requires a refund of the sales tax charged to the customer at the time the order was placed.

Examples of how to delimit the sales tax rate:

sources:

[1] See above: “An ambitious program”, online: https://www.bundesregierung.de/breg-de/aktuelles/konjunkturpaket-1757482 [accessed on 30.06.2020]

[1] See above: “Special session on the economic stimulus package on 29.06.2020”, online: https://www.bundesrat.de/SharedDocs/pm/2020/010.html [accessed on 30.06.2020]

[3] See above: “Federal Council compact. The most important information about the meeting.”, online: https://www.bundesrat.de/DE/plenum/bundesrat-kompakt/20/991/991-pk.html?nn=4352766#top-1a [accessed on 30.06.2020]

[4] Cf. Iser, J.: “VAT reduction. Amazon can be happy.”, online: https://www.zeit.de/wirtschaft/2020-06/mehrwertsteuersenkung-effizienz-konjunkturpaket-bundesregierung-corona-krise [accessed on 30.06.2020]