From 1 July 2021, a number of amendments to Directive 2006/112/EC (the VAT Directive) affecting the VAT rules applicable to cross-border B2C e-commerce activities came into force.

The Council adopted these rules by Directive 2017/2455 in December 2017 and Directive 2019/1995 in November 2019 (VAT e-commerce Directives). The changes addressed challenges arising from the VAT regimes for distance sales of goods and from the importation of low value consignments.

The main changes that entered into force on 1 July 2021 are as follows:

• Extension of the VAT Mini One Stop Shop (MOSS) to a One Stop Shop (OSS): VAT MOSS applied only to the supply of telecommunications, broadcasting and electronic (TBE) services. However, from 1 July 2021, VAT MOSS was extended to a OSS. The two schemes covered by MOSS, the Union scheme and Non-Union scheme, remained in place with their scope extended. The Non-Union Scheme was extended to cover all B2C services supplied by non-EU suppliers to customers in the EU. The Union Scheme was also extended and applies to non-EU and EU established suppliers for different types of supplies.
• The treatment of online marketplaces and platforms as deemed suppliers for certain transactions: New rules were introduced for online marketplaces and platforms facilitating supplies of goods in the EU. Where online marketplaces or platforms are facilitating certain supplies of goods, they will be deemed to be making the supplies themselves. As such, the online marketplace or platform will be responsible for accounting for the VAT on those supplies.
• Introduction of a new Import One Stop Shop (IOSS): The VAT exemption for goods in small consignments of a value of up to €22 was abolished with effect from 1 July 2021. From that date, all goods imported into the EU are subject to VAT, irrespective of their value. The customs duty exemption for goods of up to an intrinsic value of €150 which are imported into the EU did not change. A new IOSS was introduced to simplify the importation of low value goods into the EU. Low value goods are goods that are imported into the EU from a third country in consignments that do not exceed an intrinsic value of €150, excluding goods that are subject to excise duty. The use of the IOSS is currently not mandatory for business.
• Introduction of special arrangements for certain imports of goods: Special arrangements were introduced for goods in consignments of an intrinsic value not exceeding €150, excluding goods subject to excise duty.

The changes made to the VAT Directive were transposed into Irish law through a Regulation made under Section 3 of the European Communities Act 1972. Revenue has published guidance on its VAT e-Commerce Rules webpage.

Recent Developments

In advance of the one year anniversary of the introduction of the VAT e-Commerce Package, on 1 July 2022, the Commission carried out an ex-post evaluation of the VAT eCommerce Package. The results from the evaluation and updated revenue figures point to a successful implementation. In the first six months of operation, Member States collected €6.8 billion in VAT revenues via the expanded OSS portals. In addition to this €6.8 billion, over €2 billion in VAT revenues was collected on imports of low value consignments not exceeding €150. Almost €1 billion in “new” VAT was collected as a direct result of the new rules.

On 5 April 2022, the Council of the European Union adopted Council Directive (EU) 2022/542 (the Reduced VAT Rates Directive) which introduces EU VAT rate reforms.

Under the Directive, EU Member States have the ability to apply reduced rates and a zero VAT rate to an updated list of supplies. These rules are designed to provide greater flexibility to Member States in the rates they can apply and were introduced with the aim of helping Member States strengthen the resilience of their health systems, improve their digital performance, and contribute to a climate-neutral and green economy.

While it was originally intended to apply from 1 January 2025 to harmonise and eventually eliminate reduced and super-reduced rates, the changes apply with effect from 6 April 2022 (i.e., the date of publication in the Official Journal of the European Union).

The main provisions are as follows:

• Article 98 has been amended to provide that Member States may apply a maximum of two reduced rates no less than 5% to the categories listed in the new Annex III. The application of reduced rates under Article 98 is capped at 24 categories within Annex III.
• Article 98(2) now also provides that in addition to the two reduced rates, Member States can also apply a reduced rate lower than the 5% minimum and an exemption with deductibility or zero-rate to certain categories in Annex III, namely supplies covered by categories (1) to (6) and (10c). These cover food, water, medicine, medical equipment, transport, books, and solar panels.
• In addition to this, Member States applying historical derogations at 1 January 2021, can also continue to apply a reduced rate lower that the 5% minimum or zero-rate to those supplies under the new Article 105a, but only where they are covered by the new expanded Annex III.
• Member States can only apply a reduced rate lower than the 5% minimum or zero-rate to a total of 7 categories of Annex III, this limitation applies to any option exercised in respect of categories (1)-(6) and (10c) as well as any historical derogations to be retained. Where a Member State has historical derogations in excess of 7 categories, those derogations must be phased out by 1 January 2032. Equally, any derogation that does not fall within the new Annex III will also be subject to this sunset clause.
• To ensure equal treatment, Member States can opt to adopt derogations that are currently applied by other Member States. If this option is exercised, it will be subject to the conditions applying to the derogation in that Member State and will also be subject to the limitations outlined above.
• Article 105a also provides that Member State currently applying a reduced rate not less than 12% on the basis of an historical derogation may continue to apply this indefinitely. It also provides that reduced rates and exemptions in respect of fossil fuels and other goods impacting emissions such as peat and firewood, should be phased out by 1 January 2030. Reduced rates and exemptions in respect of chemical pesticides and fertilisers should cease to apply by 1 January 2032.

The Department of Finance will decide what changes to Ireland’s VAT rates are to be considered as part of the Tax Strategy Group discussions in advance of Budget 2023.