The end of July, the German government approved a draft law to tackle VAT fraud in online sales. Specifically, to tighten the rules for e-commerce giants like Amazon and eBay. The German government has estimated that it loses up to 500 million euros a year in unpaid sales taxes on goods purchased from sites like Amazon and eBay and online companies outside Germany.
Finance Minister Olaf Scholz shared in a statement, “We are ending the illegal practice of some vendors on online marketplaces who evade the sales tax and unfairly give themselves competitive advantages.”
The price German customers pay for online purchases does include VAT. The problem is that foreign-based vendors never pass the taxes on to the German state. The proposed legislation would oblige online shopping platforms to track sales by third-party companies on their website. They would also be required to then pass on relevant information to the finance ministry, so those firms can be taxed. If this measure fails, the online platforms themselves could be liable to pay the necessary sales taxes.
The proposed German legislation, which still needs to be approved by the German Bundesrat (the legislative body) and the Bundestag (the national parliament), would take effect in 2019 – two years before a similar scheme for the entire E.U. comes into force. (This has led to some criticism over Germany rushing into measures ahead of the EU-wide legislation.)
Online retail is booming in Germany. According to data, e-commerce in the country was worth almost 60 billion euros in 2017, up 11 percent from 2016. Recently, this failure to collect sales taxes has become an increasingly significant issue.
What does this mean for consumers? German consumers buying goods from countries like China and the U.S. on online marketplaces could be charged additional rates in the future to cover sales tax. Sales tax that online platforms are now liable for.
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Author Bio: Payment industry expert Taylor Cole is a passionate merchant account expert who understands the complicated world of accepting credit and debit cards at your business. His understanding of the industry and web merchant has helped thousands of business owners save money and time.