As a measure to reduce revenue loss on e-commerce transactions, on 14 December 2018 Germany published a new VAT law addressing the trade of goods on Internet marketplaces. The legislation modifies and extends the obligations the transacting parties are required to meet, effective since 1 January 2019 (1 March 2019 for merchants outside the European Union).

The law affects all deliveries of goods starting or ending in Germany. An important specification is that only trades that are realized entirely on an Internet marketplace fall under the scope of the legislation, meaning that in cases where the details of the sale (price, method of delivery, etc.) are set outside the platform, the parties are not subject to the obligations.

The platforms (Internet marketplaces) are defined by the law as a websites or other instruments on the Internet where information is published, enabling third parties to carry out transactions, while the operator is the entity that maintains the platform that makes the sales transactions possible. It is important to note that the definition includes other instruments apart from websites only. For example, the owner of an internet forum or chat service might also fall into this category if the platform enables sales transactions.

To comply with the new legislation, internet merchants shall apply for a new specific certificate with the relevant tax offices, which then must be provided to the operators of internet marketplaces. The certificate records the following data: the vendor’s name, address, tax number or date of birth (in the case of individuals), the place and date of departure and delivery of the goods sold, time and value of the sale. The operators must provide this data to the Tax Administration upon specific request.

Declaring and paying the VAT on these transactions remains the obligation of the merchants, but the operators can be held liable for non-payments of vendors using their platform if the certificates and transaction details discussed above are not recorded properly.

To avoid liability for unpaid VAT on transactions carried out on their platforms, operators might consider banning vendors who do not provide certificates and transaction data in a timely manner, and tax offices might also notify them about problematic merchants.

As the economy continues to become increasingly digital, the tax system will inevitably evolve with new legislation and regulations.  The dynamism of today´s economy poses much opportunity for businesses, but also requires a level of compliance and legal vigilance that many companies may not be equipped for.  Accordingly, the benefits to drawing on the expertise of specialized business consultancies can be expected to increase.