Legislative Resolution: Online platforms should pay for tax fraud

Chancellor Angela Merkel (CDU) is on vacation, so may Vice Chancellor Olaf Scholz (SPD) on Wednesday for the first time direct the Cabinet meeting. And the Minister of Finance has let the Federal Cabinet pass a bill to stop tax fraud in the booming online trade. Internet platforms such as Ebay or Amazon will in future be liable for sales tax fraud on sales through their sites. This is intended to increase the tax revenues of the state by several hundred million euros a year.

“We end the illegal practice of some traders on electronic marketplaces, which evade sales tax and thereby gain unfair competitive advantages,” said Scholz the German Press Agency. Bundestag and Bundesrat still have to agree. As of 2019, the online marketplaces for the VAT of their dealers should generally be held liable.

Only if the companies submit a certificate to the tax office about the tax registration of the sellers who are active in them, they are not liable themselves. Online trade has been growing vigorously for years – especially traders from the Far East pay again and again when selling their goods on Internet marketplaces Value added tax. The hope is that the state will soon record a significant increase in tax revenues. So far, the duty of taxation is at the dealers who use the platforms for the sale of goods. “In doing so, we protect all tax-friendly companies and also ensure fair competition between domestic and foreign sellers,” said Scholz, explaining the tightened rules.


The most important questions and answers.

Why is?

The taxman escapes through VAT fraud on online marketplaces each year a lot of money, of several hundred million euros is mentioned. Money that could benefit all citizens, the development of roads, the modernization of schools and bridges, more investment in schools and training. An example: Often behind sellers of electronic products on marketplaces such as Amazon or Ebay hide dealers from China. You pay a price including VAT, but the goods come without a bill, the sales tax to be paid to the treasury of the dealer is simply not paid. This usually has no consequences, because it is difficult to prosecute these companies and make them liable. “This increases their return and is a significant distortion of competition,” says the Managing Director of the German Trade Association, Stefan Genth.

How should such a fraud be prevented?

Under the tax law, third-country suppliers also have to pay sales tax on products sold in Germany, even if they are sent via product warehouses or intermediaries in Europe. According to estimates, thousands of dealers, especially from the Far East, are said to be on the platforms that circumvent tax payments. Scholz uses his bill on “Avoiding sales tax losses in Internet trade” with the operators of the platforms, which are now liable. “In the future, the operators of electronic marketplaces will be responsible if the sales tax is not paid when trading via their platform,” says Scholz. It’s about more tax justice. The goal is up to 500 million euros more in tax revenues from 2019.

How should that work?

Numerous tax rules are being amended, and from 2021 this is also planned for the entire EU level. In the future, companies such as Google and Amazon, which earn billions in Europe but hardly pay taxes, will be asked to pay more with a digital tax. The federal states are responsible for levying the tax, especially Baden-Württemberg and Hesse had put pressure for a settlement. In the future, all operators of marketplaces are obliged to record the name, address, tax number, delivery and shipping address as well as the time and amount of the turnover from the merchants operating there. Only if the companies submit to the tax office a certificate of tax registration of the sellers who are active in them, they are not liable themselves.

Are there already effects of tightening?

Yes. Hesse Finance Minister Thomas Schäfer (CDU) emphasizes: “It is an important step in the fight against tax crime, if the federal government now wants to implement the liability rules initiated by our countries.” According to the tax office Berlin-Neukölln, which is responsible for the turnover of foreign online retailers in Germany, the number of registered online retailers based in China, Hong Kong and Taiwan increased more than sixfold between May 2017 and the end of July 2018 to 2835, Schäfer emphasizes. Otherwise they have to fear that the operators of the Internet marketplaces will block these dealers – because they can not be interested in being overburdened with criminal proceedings.

How do Amazon and Ebay react?

Amazon does not want to comment on the project, but a spokesman says: “We lock a seller account immediately when a German tax office notifies us that a seller does not comply with his tax obligations.” Ebay spokesman emphasizes: “We have none Tolerance for traders who do not comply with their legal obligations in their dealings on the Ebay marketplace. “The German law plans but meet with Ebay on criticism, because they should enter into force before the planned EU regulation in 2021:” Alleingänge, the one to fragmentation is a huge burden for global companies. Moreover, regulations that cause massive restructuring in the processes but do not provide for longer implementation deadlines are particularly burdensome. ”

What are the consequences for consumers and German dealers?

“For the consumer, nothing changes, because they also have to pay the sales tax,” says Oliver Prothmann, President of the Federal Association of online retail. “But now, if the black sheep are caught in retrospect, then this tax ends up in the state where it belongs.” Although the law targets traders from the Far East – it could also have an impact on online retailers from Germany. The German Trade Association (HDE) welcomes the plans – but the draft shoots in one place beyond the goal, says Genth. “The push to take all dealers into account, including the Germans, goes too far.” Anyone who has his company headquarters in Germany and a VAT number, could already be controlled by the authorities today. Prothmann criticizes that the problem is not really solved. The responsibility is transferred from the tax office to the marketplaces: “However, it is not regulated how the black sheep can really be found and taken out of the system.”

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