European Moratorium

No Sales To Europe

European laws going into effect January 1, 2021 impact global e-commerce. Each online business must determine whether the volume of sales to the United Kingdom and European Union (UK/EU) outweigh the effort to accommodate international taxation.

ClinicalPosters is indefinitely suspending sales to UK/EU, which make up less than 1% of transactions. Rather than blocking affected countries access from the entire website, all shoppers are encouraged to have or create an account for checkout. This can involve adding an email and password to complete the transaction. The store can then display an appropriate banner message for affected countries. After login, add-to-cart buttons are inactive for visitors from the following regions:

Visitors from UK/EU may still read blog articles and subscribe to A Bit More Healthy newsletter.

Advantages of International Trade

Many people equate the shopping experience with being able to see, touch, feel, and try out merchandise. This tactile interaction is the distinction between shopping within physical stores and shopping online. Lower prices, global selection, and travel restrictions motivate more consumers to shop online.

Online shopping increases the number of potential customers beyond a local geographical region. Retailers can ship products all over the world without a physical presence in other countries.

Britian Scuttles International Trade

The European General Data Protection Regulation (GDPR) was the first effort to bring the world’s merchants in compliance with European law. With draconian penalties, any online retailer must follow guidelines for collecting European site visitor information. The complexities of GDPR data maintenance that went into effect on May 25, 2018 precludes some international sellers from servicing the European Union.

As of January 1, 2021, merchants outside of Europe must obtain appropriate Economic Operator Registration and Identification (EORI) Number (or XI EORI Number for Northern Ireland only). This facilitates collecting and remitting Vatican Tax (VAT) of up to 20% of purchase price. Brexit further complicates the matter with separate but similar requirements for Great Britain and Europe. This means merchants and consumers are subject to at least two more different licenses, tax rates, and tariffs. Even sales between Britain and the European Union must collect taxes according to respective laws. It is a bookkeeping nightmare.

Effects of Global Taxation

UK VAT is due at the point of sale instead of at importation on business-to-business (B2B) and business-to-consumer (B2C) sale of goods if the consignment is valued at less than £135 (about $179 USD). This value relates to the whole consignment, not the value of individual goods in the consignment. These changes impact many businesses, including:

• Any business that sells goods to consumers in the EU Member States and the UK—whether directly or using an online marketplace.
• Any business that has a B2C sales channel.
• Any online marketplace (OMP) that facilitates the sale of B2C goods.
• Freight forwarders, postal operators, and express carriers, among others.
• Any business importing goods into the UK with a consignment value of less than £135 for sale to UK customers both on B2B and B2C sales.

Usually, the merchant collects and remits sales and use tax for transactions within the province or state of the business. For interstate or international sales, consumers are responsible for reporting and remitting use tax. The problem is that most consumers consider products tax-free and never report or pay sales tax. Addressing this, the United States, interstate sales tax is progressively going into effect with with varying sales thresholds.

UK/EU is mandating international tax collection regardless of sales volume. Whether the sale is to a ‘UK customer’ will be determined by whether the final customer’s delivery address for the goods is in the UK, irrespective of the customer’s billing address.

It goes something like this: When selling to a UK customer (B2C), the value of the shipment determines whether a business collects VAT tax at the point of sale. When selling to another business (B2B), the merchant can omit VAT tax from the invoice if the buyer has a valid VAT Tax number. The buyer pays VAT when filing business taxes. If the merchant cannot obtain a customer VAT Tax number, the sale is handled like a B2C transaction. Whether or not the merchant collects VAT Tax on the sale, customs documentation must have a valid EORI Number issued by the destination country.

Configuring websites to make geographical price distinctions requires collecting location-based data. As a result of GDPR, some UK/EU shoppers may decline permission to track their location. Another option is to require customers have an account with address on file before checkout. Sites may force login prior to shopping.

Some online stores increase product prices for UK/EU customers. Others add fees during checkout. To account for fluctuating exchange rates, U.S. websites may require minimum sales to be over $200.

Defection from European consumers by outside resellers may be at the heart of global VAT Tax collection requirements. By leveling the playing field, so to speak, there is less advantage for UK/EU customers to shop outside of the country. In addition to paying VAT tax, they also pay for shipping and tariffs. With the lack of incentives, customers shop within their respective countries. So the local economies prosper, in theory.

The repercussions of such precedents can result in other countries implementing parallel laws. Ireland is readying similar requirements. Such transcontinental commerce laws will cause many small businesses to exclude themselves from countries requiring complex compliance.

References

1. UK implements new e-commerce VAT rules effective 1 January 2021. ey.com
2. Changes to VAT treatment of overseas sold to UK customers. gov.uk