German Cabinet Passes Draft Law to Enforce Sales Tax Collection

The German cabinet on Wednesday passed a draft law that will enforce sales tax collection on sellers in Germany that use EU based marketplaces.

Earlier in the week, we got wind of a new law being considered, but we did not have the draft law to read yet when we published the story.

READ MORE: Germany May Force Sales Tax Collection on eBay and Amazon

Now that it is public, the primary aim of the new law is to cover a major loophole by foreign based sellers using a German or EU-based marketplace to sell goods but not submitting the required sales tax to the state.

According to the German finance ministry, several hundred million of Euros per year are not collected as primarily Chinese sellers, but also from other third-party non-EU countries, are listing products on marketplaces based in Germany and the EU, are collecting the sales tax, but are not submitting it to the state.

In essence, this law will stop sales tax fraud.

For clarification to U.S. readers, in Europe, it is standard that the “sale price” includes all sales taxes.

Therefore, European consumers assume they are paying taxes, when in fact, the companies were pocketing the taxes as extra profit or artificially keeping prices below their competition as they had no intention of ever paying the tax.

The new law will make marketplaces like eBay.de and Amazon.de responsible to collect those taxes if the seller does not submit them to the state.

Neither eBay or Amazon in Germany have provided any guidance on how they will deal with this new requirement, which is set to go into effect on January 1, 2019.

It is possible they may just start collecting the tax from the proceeds of all sales made by foreign sellers registered on those marketplaces to avoid any claw back enforcement by the tax authorities.

Real Importation Not Impacted

For sellers who do not use the German-based or other EU-based marketplaces, there should be no change.

Sales from U.S. sites such as amazon.com or ebay.com will continue to be treated as imported products if shipped from outside the EU, meaning all duties and taxes are the responsibility of the importing buyer.

This is good news for U.S. and other non-EU based sellers that are just shipping from their warehouse in the U.S. or non-EU country.

However, for sellers that are considering using an EU-based fulfillment center, even if selling from non-EU marketplaces such as ebay.com or amazon.com, there could be tax collection implications.

Anytime a seller uses an EU-based marketplace or fulfillment center, the seller is creating a legal connection to the country which may require them to obtain a tax identification number.

That kind of “hybrid” seller may be required to provide more details to eBay, Amazon, or other marketplaces that operate in the EU.

Criticism

While the new law is technically still a draft law that has to be approved by the legislature, it appears to have the necessary backing, especially since some of the larger German states are really behind this change.

There are some critics of this law that argue with ongoing discussions in the EU to pass a single sales tax collection standard for all countries by 2021, why bother with this now as it could all change.

However, with the known propensity of EU politics dragging their feet well passed self-imposed deadlines, this law may also push the EU to actually follow through with its own version to avoid other countries adding their spin to the tax collection problem.

And how this may impact sellers in the UK after BREXIT, no one knows…

What’s your take on this new German draft law? Let us know in the comments below or over on our Facebook Group.

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