Indirect taxation associated to e-commerce
The purchase and sale of products and services over the Internet, which is known as e-commerce, has grown immensely in the last decade. According to the National Statistics Institute (“INE”), more than 31.5% of the population in Spain of between 16 and 76 years of age has purchased some product online in the last year, among other things, because it permits accessing all kinds of products offered by suppliers anywhere in the world with just a click, at any time of day and without having to leave your desk.
But when consumers and companies from different countries deal with each other, questions begin to arise about the value added tax (“VAT”) treatment of these transactions: what tax rate must be applied, that of the country where the supplier is established or that of the consumer? What formal obligations must be met?
The answer to these questions depends on whether a physical product is being acquired that must be sent to a specific place, or whether it involves a service, something intangible, that must be downloaded onto the computer (films, music, software, etc.), given that each of them receives a specific and differentiated treatment.
This time we will focus on the analysis of the taxation of tangible goods, mainly in the European Union. The purchase of goods by final consumers (who are not traders or professionals for VAT purposes) from suppliers established in another EU state, are in principle subject to VAT in the state of the supplier, which is where the transport commences.
In order to prevent distance sales platforms from being set up in countries with lower rates while respecting the general principle that VAT is levied where the goods are used, article 34 of Directive 112/2006/EC, of November 28, 2005, on the common system of value added tax, and articles 14 and 68 of VAT Law 37/1992, of December 28, 1992, establish a specific regulation for distance sales to final consumers. Moreover, a maximum sales threshold is established below which the VAT applicable to the sale is that of the seller’s state of residence. Above that threshold, the sales will be subject to VAT of the country of destination of the goods.
The VAT treatment of sales made to customers located in Spain (excluding the Canary Islands, Ceuta and Melilla) is as follows:
The last issue of the Fashion Law newsletter, prepared by our specialists in Intellectual Property, includes a more extensive version of this article along with other issues relating to e-commerce.
Garrigues Technology and Outsourcing Department
