A while ago I wrote a post to complain about a regulation in EU requiring all vendors selling to EU to be registered through an agent located in EU for logging sales tax. (See the post here) The fees these agents charge is outrageous considering the total sales we have in EU and their simple task as being only a tax log feeding point. I argued that this is filtering us smaller vendors out of the playfield and limiting the choice for EU consumers.
A concerned individual who is professionally related to the EU parliament responded and, after discussing with me, submitted a petition against the arrangement. You maybe able to see only the summary in the EU petition site, so we are now publishing the full text that he submitted.
In an age when a simple software can be easily installed on a vendor’s site to monitor all relevant sales and thus proper reporting of the related VAT, and payment of tax can be a simple click on a registered account, or even auto-paid, I see no reason at all why a so-called intermediary agent is at all mandatory, unless there are any other reason that has not been public.
Please do click on the support petition link and sign your name to support this plead. For the consumer to have the freedom of choice, for us to bring authentic quality to the world, for a balance of power between the powerfully rich and the small independents.
Lastly, I’d like to take this opportunity to express my gratitude to Iulian Robu, the writer of this petition. For his courage in taking on the very institution where he is employed, for his generosity in helping us small vendors, for his sense of justice. A very big thank you.
This link will take you directly to the EU petition website to sign in support of the petition: Support Petition
Petition full text
Petition No 0098/2022 by Iulian Robu (Romanian) on the effects of Council Directive (EU) 2017/2455 on consumer choice
This petition concerns Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods. More precisely, it concerns the way VAT collection is organized for small-value consignments bought from vendors established outside EU.
I will present a specific situation that I have encountered, but which illustrated how the new IOSS scheme (Import One-Stop Shop) works to the detriment of EU consumers by reducing their choices.
My specific case
I am a relentless fan of good tea. I have found two suppliers of excellent teas, unparalleled by any EU supplier I have tried, one located in Hong Kong, and another in Japan. They are both small merchants, selling their products via their own Web sites.
When I used to buy tea before July 1, 2021, before Directive 2017/2455 entered into force, I had to pay Luxembourg’s super reduced VAT rate of 3% (applied to foodstuffs) plus a 15 EUR customs handling fee to the Post Office, which was the carrier of the parcel. This was not an excessive burden, because, I thought, it usually amounted to about 17-18 EUR per 100 EUR of purchase value, which is roughly the standard VAT rate of 17% applied by Luxemburg.
I consider that paying taxes is fair and necessary, especially that they are reflected in Luxembourg’s excellent quality of public services. However, on my last purchase from Hong Kong (the e-shop is called Tea Hong, at www.teahong.com) I discovered that Luxembourg applied now the full 17% VAT rate, which it is allowed to do under the new directive (new article 369za of Directive 2006/112), and the Post applies the usual 15 EUR customs-handling fee. Thus for a purchase worth 98,26 EUR I had to pay 31,70 EUR in VAT and fees. If I consider that the difference between the standard VAT rate and the reduced rate, to which my purchase was entitled, and the handling fee applied by the Post, were avoidable “extras”, I paid an extra cost of more than 20% of the purchase value, which I find exorbitant.
This is not, however, a complaint against taxation practices in Luxembourg. According to the reasoning which underpins the new legal instruments available (namely Directive (EU) 2017/2455), the foreign vendors can register via IOSS and all should be well for the EU customer. In practice, things are not so smooth, though. When the new directive entered into force, Tea Hong announced via its Facebook page that they were suspending retail deliveries to EU and would try to set up an IOSS account (they also announced that their whole-sale customers were not affected). A few months later, they announced that, for them, a small operation, it was impossible to do so in practice and therefore there would be no more deliveries to EU retail customers (for the original post, see https://www.teahong.com/2021/11/13/eu- exclusionism/ ). I asked them to sell me some tea regardless, under the condition that I would pay taxes and all. I wanted to test the new system.
I also asked them to explain to me what the difficulties were, in order to understand why they had failed to register with IOSS. For, if the third-country vendor cannot register with IOSS, this affects the EU customer. According to Tea Hong, they approached several intermediaries; one kept changing fees for the service, others seemed to have additional hidden fees behind their announced ones, two of them never responded back after they had learned that Tea Hong projected sales of 4000 EUR in EU for the year 2022 (apparently, some intermediaries base their fees on the vendor’s turnover). According to Tea Hong, they netted 2500 EUR in EU sales in 2020 – a fairly small amount given that the fees asked by intermediaries vary between 2000 and 3000 EUR per year, plus additional fees for invoices etc. For a small operation like Tea Hong this is prohibitive (they also sell to the world at large, of course, the EU market representing about 5% of their retail turnover). They tried to register, nevertheless, with a view to further developing the EU retail market. Thus, Tea Hong made a bona fide effort to comply with the new EU rules during four months.
In their explanation to me, Tea Hong also mentioned a business in Switzerland selling chocolate and other Swiss products, with which Tea Hong have friendly relations, which gave up on registering with IOSS for the same reasons. Thus, Tea Hong does not seem to be an exception.
The end-result of all this is that the EU retail customers are oriented towards bigger suppliers, which have the financial and human resources to comply with the new system. I checked the Web sites of some of them and, as they explain, they are setting up a subsidiary operation in EU (see for example here: https://help.britishcornershop.co.uk/en/articles/44-will-i-be- charged-duties-for-delivery-to-the-eu in conjunction with https://help.britishcornershop.co.uk/en/articles/43-our-eu-warehouse ). Do I have to buy tea I don’t really like from a supplier just because they can deal with the new rules? This shrinking of consumer choice is profoundly regrettable.
It seems that the new directive attempts to discourage as much as possible the direct purchase of goods from third countries. Besides the fact that the directive creates an “intermediaries market”, who seem to freely choose their customers based on arbitrary criteria such as annual turnover, it also allows member states to apply the standard VAT rate to goods normally subject to reduced rates, if the foreign vendors do not have recourse to intermediaries (article 2 point 31 of Directive 2017/2455 adding new article 369za to Directive 2006/112). The fact that the new directive explicitly mentions the possibility for member states not to apply a reduced VAT rate where it were otherwise applicable seems to be an incitement to apply the highest rate in order to discourage purchases from vendors who do not have an IOSS account.
The difficulty – both logistical and financial – that small, specialty vendors from outside EU encounter under the new system, as well as the punitive VAT rates and customs-handling fees levied on the EU retail customers receiving the parcels, both seem to work towards the same objective – discourage direct purchases from outside EU. This dramatically restricts the choices available to EU citizens.
However, this is not just about my little tea habit. Think of all the non-EU nationals who live in the EU and want to keep in touch with their culture by ordering books in, say, Russian, Turkish, Chinese, etc. Or CDs and DVDs. And there are many other inconspicuous corners of citizens’ everyday life which have been affected by this clumsy piece of legislation. The EU exists in the larger world, and its inhabitants are inevitably connected to the world at large; it is unfair to limit these connections by creating rules impossible to fulfil (or which can be fulfilled only at great financial and logistical cost) by small, specialty vendors, a situation which ultimately penalises the EU customers. For example, if I want to order a specific book from Russia (I speak Russian and I follow Russian literature) and it costs me 30 EUR, and I have to pay 5,1 EUR in VAT (17%) and a 15 EUR handling fee to the Post Office in Luxembourg, the handling fee alone increases the cost to me by 50%, which is ridiculous (if the vendor is IOSS registered, the EU customer pays no customs-handling fees to the carrier). Besides, under Annex III point (6) of Directive 2006/112, books too can benefit, normally, from a reduced VAT rate. But I don’t think a small bookstore in Russia will stomach the IOSS registration procedure as it has been described by Tea Hong.
If, however, I want to buy a certain number of specialty items (such as rare books published in small print runs) which can be found scattered across several booksellers, then I will have to pay the 15 EUR handling fee for each parcel. For example, if I buy for 30 EUR from one vendor, then 27 EUR from another, and 43 EUR from a third, I will have to pay 45 EUR in handling fees for 100 EUR of goods, which is a 45% surcharge (not counting the standard VAT rate instead of a reduced one) – a profoundly unreasonable situation.
Even though the customs-handling fee charged by the Luxembourg Post Office seems to be a purely internal affair, it is not. Rather, it is a national-level consequence of an imperfect EU- level law. This fee is meant to cover certain costs, so it will not go away soon. In Belgium, the Post Office charges 15 EUR (https://www.bpost.be/en/receive-parcel/customs ). The German Post Office explains on its Web site: ‘the current customs clearance fee of EUR 6 (incl. VAT) will be charged [as of July 1, 2021] in addition to the import charges. Such service fees for customs clearance similar to Deutsche Post’s disbursement fee are common in other countries. For example, fees of EUR 10 or more are charged in Austria and the Netherlands’ (https://www.dpdhl.com/en/media-relations/press-releases/2021/deutsche-post-dhl-groupinforms-customers-international-shipping-of-goods.html ). It is a universal fee for a service generated by an imperfect European law on small-value imports for individual consumption. The solution would be to establish a system for direct VAT collection from foreign vendors, instead of the current superfluous “intermediaries market”.
On many official national Web sites explaining the new system to citizens who buy goods online from outside EU, the readers are advised to choose suppliers that have IOSS registration. This is sound advice for mass-market products, but for specialty products such as tea and books, for example, the quality, content and identity of the product can be decisive in a customer’s choice and can be offered only by certain specialty vendors.
According to the European Commission’s brochure on The New Consumer Agenda 2020-2025 (https://ec.europa.eu/info/sites/default/files/consumer_agenda_-_factsheet_-_en.pdf), ‘[p]urchases from sellers outside the EU increased from 17% in 2014 to 27% in 2019′. Many of these and future groups of consumers will be without doubt penalized by the new system. Even though the Agenda is concerned with the protection of EU consumers abroad, inside the EU they are subject to unjustified difficulties and extra costs when they want to make purchases outside EU; this is especially incomprehensible as the new system applies to small-value
purchases meant for one’s own consumption.
I would like to emphasize once again that I do not challenge the need to collect VAT on purchases, but rather the way this tax is collected. The entire IOSS system seems to be designed, incomprehensibly, to limit EU consumers’ choice to large and powerful providers of mass-market goods.
In an era where technologies exist to make payments by smartphone or automatic transactions worth millions on the financial markets, it is difficult to believe it is not possible to set up an automatic system for direct VAT collection and avoid the (very expensive and arrogant) middlemen. Is it a good idea to subcontract tax collection to the market? My experience has shown that, for an EU retail customer, it is not.
Collecting VAT on the purchase of goods seems to be a legitimate aim of any public authority, but the way it is organized effectively penalizes both customers and specialty vendors, and favours big companies, which have the power to deal with the system. As this system is meant for consignments of a maximum intrinsic value of 150 EUR, the cost of the purchase automatically increases for the customer by 10-20% if the vendor has no IOSS registration. This cost increase for a small purchase from outside EU has no justification, especially if one considers that EU prides itself on its policies for consumer protection, competition and consumer freedom of choice.