Amazon’s sellers have a problem with VAT settlements

Amazon is a joint-stock company that operates the world’s largest online store and is a sales platform for buyers and sellers from all over the world. No wonder that such a developed database of potential customers attracts entrepreneurs from the e-commerce industry, as a magnet. Unfortunately, sellers have a serious problem with the settlement of VAT on completed transactions.

What is sales on Amazon?

The main parties to transactions carried out by the Amazon platform, contrary to appearances, are not the seller and the customer, but the seller and Amazon. In simple terms, the cooperation is based on the following scheme:

• The seller displays his products on the platform.
• It then sends them to Amazon’s warehouses located in Poland or another country.
• The seller’s goods remain in the warehouses until they are purchased by interested customers.
• At this point, Amazon’s obligation to ship the goods to the address provided by the buyer is updated.
• In the event of any problems on the part of the buyer, Amazon will take over the customer service (including the return procedure).

Selling products on Amazon is a major convenience for retailers when they want to go beyond national borders. Such a solution eliminates the problem of creating shop structures abroad, its promotion, generating customers and gaining credibility in their eyes, as well as logistic problems related to the shipment of goods and customer service and returns.

How is sales taxed on Amazon, and how should it be?

Under tax regulations, the use of the services of the e-commerce giant Amazon should not generate any problems. Since the formal contractor of Polish entrepreneurs is Amazon’s branch located in another EU member state, sending products to its warehouses should be considered an intra-community supply of goods. Consequently, such transactions should theoretically be taxed at a zero rate of VAT, since the obligation to pay the amount of VAT lies with the purchaser, Amazon in this case.

That is the theory, but practice shows something completely different.

The amount of tax due is settled on the basis of an invoice issued by Amazon. This in turn contains information such as the price of the euro of the product, the zero rate of VAT and the tax identification number assigned to Poland. However, in accordance with Article 42 paragraph 1 point 1 of the VAT Act, the 0% rate applies only to those sellers who are provided with a proper and valid tax identification number established for intra-Community transactions, assigned by the country in which the buyer has its registered office.

Therefore, providing two tax identification numbers on the invoice issued in the same country (in this case in Poland) will result in the transaction being treated as a regular domestic supply and being subject to VAT at the rate of 23%.

Shipping of goods to warehouses in Poland

What if an entrepreneur decides to send goods to a warehouse located in Poland? In this case, there are two scenarios.

According to the first scenario, Amazon will issue an invoice with the tax identification number assigned to Poland. Then the situation is similar to the situation in the case of sending goods abroad, i.e. the invoice will contain two numbers assigned in the same country (in this case Poland).

In the second scenario, Amazon will issue an invoice with the tax identification number assigned in Germany – the company’s registered office. Then the entrepreneur making the transaction will be able to take advantage of the zero VAT rate.

How to avoid a higher tax rate when shipping goods abroad?

Companies trying their hand at selling through Amazon should not give up their fight for a lower rate of taxation on their transactions. In this case, there are two solutions.

First, sellers may try to communicate with Amazon’s consultants to convince them to provide the group’s foreign tax identification number. In practice, however, it is not that simple, it requires patience and steel nerves. The final solution is not certain and depends on the attitude of the employees of the concern. Moreover, convincing them to include their foreign identification number on the invoice does not automatically mean that it will also be included on future invoices.

Secondly, in the event of a potential dispute with the tax authorities, it is worth trying to explain the nature of the problem and signal that placing an incorrect identification number on the invoice is only a formal error. In this case, it should be noted that the seller has fulfilled other material conditions, including the most important one, i.e. the supply of goods abroad. The ruling of the Court of Justice of the European Union (judgment of 15 September 2016, case ref. C-518/14), in which the court confirmed that formal errors (e.g. lack of NIP on an invoice) are less important than meeting other material conditions, may be helpful.

Sellers may also apply for a change in the nature of cooperation with Amazon, i.e. transformation from purchasing goods by the concern into making them available only in their warehouses. In such a case, sales will be settled in Poland until the applicable limit for the value of goods sold is exhausted. Moreover, sellers may conclude transactions with Amazon after the goods have been transported abroad. This, however, requires them to register as a VAT payer in the relevant country.

Why do sellers lose out on higher VAT?

Settlement of sales transactions on the basis of a higher VAT rate means that for sellers, the possibility of increasing the attractiveness of their offer by competing on the price is seriously limited. A higher tax implies a significant reduction in the cost-effectiveness of taking such action. As a result, it may turn out that going abroad with your product offer is no longer lucrative.

Author: Robert Nogacki, legal adviser, Kancelaria Prawna Skarbiec specializes in asset protection, strategic consulting for entrepreneurs and crisis management.