Value added tax liability abroad
Most online merchants already know this. As soon as the mail order threshold for deliveries to customers in a certain country is torn, the Value Added Tax corresponding amount must be paid there. The same applies if you are a retailer participating in Amazonprograms such as CEE and Pan EU and supplying customers from an FBA warehouse. In this case, the foreign Value Added Tax currency is due in the respective country from the first euro.
In these cases, the customer is therefore charged not the German but the foreign Value Added Taxone. This is an unpleasant bureaucratic side effect of online trading.
Fortunately, there are now compliance platforms such as Taxdoo. Not only are your tax obligations abroad monitored here, but the regular reports for the foreign tax authorities can also be created automatically. Thus, only the money collected Value Added Tax from the customers has to be transferred to the tax authorities.
Missed the right time
However, there are many online traders who became liable to tax abroad years ago and only noticed this later. Some of them may also have shied away from the effort of registering and filing tax returns abroad. In most cases, however, sales have increased from year to year and in the meantime, a guilty conscience is increasingly weighing on them. Actually one would like to make a clean slate. However, penalties and interest are threatening, which would eat up the laboriously achieved profit. Not to mention the effort involved in calculating the figures and submitting tax returns retroactively.
Criminal law consequences threaten
And then there are possibly even more serious criminal consequences. You are quickly exposed to accusations of tax evasion when taxes are knowingly - or unknowingly - not paid.
Note: As an entrepreneur you are always obliged to inform yourself in advance about your tax obligations, also abroad.
There are many countries in Europe that do not see this quite so strictly. However, in some countries, especially Germany and Austria, criminal proceedings can be threatened if you as an online trader do Value Added Tax not pay the correct amount. In Germany you can even be prosecuted as a German merchant if you have evaded foreign taxes. Fortunately, this paragraph is not (yet) known to every German tax official or it is ignored because no German tax has been lost.
However, there is still the risk of being caught up in criminal proceedings.
High detection risk
The probability that the foreign tax authorities will get wind of the sales to domestic customers is not small. For example, the Austrian tax authorities have the right to request information from parcel services and thus find out which parcels a foreign trader has sent to Austria. Such requests for information have led to the opening of many criminal proceedings.
And even the German tax official could, with a glance at the accounts, notice if irregularities occur and inform the foreign tax authorities. Since Germany has already been asked by the EU Commission on several occasions to share more information with the other EU member states, this is not entirely unlikely in the future. The situation is similar in other countries, such as our neighbours in France and Denmark.
Keeping the past secret is not without danger
Many an online trader has at some point made his way through and registered abroad. However, they often make the mistake of hiding the past and only applying for registration for the future. What is actually a step in the right direction can hardly backfire.
Each registration application must state the date from which taxable transactions have been or will be carried out in the country concerned. If false information is knowingly given here, this is not only tax evasion, but is also documented in writing.
With a lot of luck, nobody questions or controls that. But if they do, it is not entirely unlikely that criminal proceedings for tax evasion will be initiated.
Impunity through voluntary disclosure
The only sure way to avoid criminal consequences is Self-disclosure. That sounds dangerous at first. Many may also think: Why should I report myself? But the big advantage is that you go out with impunity if you do it right.
Behind this is the idea that those who voluntarily and comprehensively come clean should not be punished. You just have to make sure that you do it right.
Most of you surely know the story of Uli Hoeneß. He also wanted to file a self-denunciation and thus get back into legality. Unfortunately, something went wrong, because mistakes were obviously made in the self-disclosure.
For a voluntary disclosure to be effective, certain formalities must be observed. At best, therefore, an advisor should be sought who has the relevant expertise in this area.
Reduce financial burden and possibly turn into additional profits
Apart from the criminal law aspects , no less important is how to approach disclosure without ending up broke. After all, in addition to the tax, the foreign tax authorities will want to have at least interest on the late payment of VAT. And for the administrative processing, support is probably also needed, which costs money.
In addition, you should take care to remain liquid. The tax must first be paid to the foreign tax authorities before a refund of the German tax is applied for. This could lead to temporary financial bottlenecks, as the processing also takes several months. Not to mention the fact that something can go wrong with the refund in Germany if the application is not processed correctly.
If you approach the processing strategically in the right way and develop an overall concept, you can not only keep the financial damage within limits, but also reduce or even completely avoid fines and interest payments by taking the right measures and their correct timing.
It is also possible to achieve, by means of different procedural regulations in the individual countries, such as different limitation periods, that you can get more tax refunded in Germany than you have to pay abroad - and you can do so quite legally. Thus, one or the other online trader has already completed the process of coming to terms with the past with a considerable profit.
Trust the experts
What you can do now and how you can get back into legality without having to fear serious consequences?
The answer is simple: Trust the experts!
KMLZ is your expert if you want to clean up your sales tax past. For many years, we have been assisting German companies in meeting their tax obligations abroad.
We have successfully handled many disclosures across Europe for online merchants. You get everything from one source and do not have to deal with different consultants from different countries. We will assist you with the corrections necessary for the past and also show you how this can be done with little effort.
With the right overall circumstances, the right tactics and a bit of luck, we'll be able to beat out tax refunds for you. We are also happy to involve your tax advisor, who will otherwise take care of you from A to Z. He is also a building block in the overall strategy.
Author of this article and your contact person at KMLZ
Dipl.-FW (FH), tax consultant
Phone: +49 89 217501250
And if you are at peace with the past, Taxdoo will help you to meet your current tax obligations abroad in a clean and efficient way so that you can concentrate on your core business.
Taxdoo is the leading compliance platform for the digital economy
... and provides the leading online retailers in Europe with numerous other compliance services via a unique platform in addition to the handling of ongoing Value Added Taxcompliance.
If you want to know more about how you Value Added Taxcan efficiently and securely map compliance, financial accounting and much more via a platform, then book your individual and free initial consultation with the compliance experts from Taxdoo!
P.S.: Taxdoo has been an official partner of DATEV in online trading since the beginning of 2020.