Return to Sender: Is Europe’s cross-border e-commerce boom about to fizzle?

Leveling the playing field

A China-based e-tailer told Air Cargo World that the revision to Sweden’s VAT policy reduced the platform’s sales to the Scandinavian country, particularly for low-value goods. For costlier exports, the e-tailer which declined to be named, typically declares goods from China in a second E.U. country before transferring them into Sweden “tax free.”

Currently, when merchants outside of the E.U. import packages to member countries that are valued at less than €22, the shipment is exempt from VAT while parcels valued at less than €150 are free from duty. Austrian retail association Handelsverband estimates that some 97% of the 560 million parcels shipped from China to the E.U each year are delivered without any VAT or duty being collected. Although many of the items are low-value goods truly valued at below the €22 threshold, a number of parcels are misclassified – which has many European tax authorities worried they are missing out on millions in VAT revenue.

This loophole could soon close following a directive published last spring by the E.U. Commission which will abolish the €22 exemption in January 2021. Austria, following Sweden’s lead, will implement the policy a full-year earlier in 2020. Once regulations are harmonized, it will no longer be possible for shippers to avoid paying on e-commerce imports into the E.U. “Online companies will have to collect VAT even if the transactions take place through warehouses based in the EU,” said Andy Hsu president Greater China, Dimerco Express Group. In an instant, this will mean customs authorities will find themselves having to assess VAT on millions more items.

Implementing the new tax, especially by the 2021 target date, will likely be “challenging,” added Hsu. The good news is, where there are obstacles, there are digital innovators with proposed solutions. Handelsverband says that implementation of an E.U.-wide VAT scheme for inbound cross-border shipments will require “a digital customs clearance with pre-dispatch messages according to the Swiss model.” Such a model, “can be implemented even if there are few human resources in the customs authorities,” according to the association.