Distinction between merchant and Back Market VAT
As a reminder, Back Market is a platform providing its services as an intermediary between buyers (consumers) and sellers (merchants). As a service company, Back Market invoices its services only to sellers in the form essentially of a commission on the volume of sales made by a merchant on the platform. This service, carried out in BtoB, is in principle subject to VAT at the common law rate of 20%.
The classic rules of VAT on services are applied: for a merchant domiciled in France, a VAT rate of 20% is applied, for a merchant from the European Union, the VAT self-liquidation system applies and for a merchant located outside the EU, the service is in principle not subject to VAT. In all cases (FR+ EU), the merchant's intra-community VAT number is shown on the invoice in question.
VAT on sales made on Back Market
Back Market is a B2B platform; thus merchants must offer an invoice (proof of purchase) to the final consumer; for the latter, there is no possible VAT recovery since he is a final consumer (not subject to VAT) and not a taxable company/professional.
Furthermore, traders may be subject to different VAT regimes either automatically or on an optional basis: the margin VAT regime (applicable to second-hand goods); the VAT regime on distance selling, VAT exemption schemes in certain cases, etc. In the context of VAT on margin, the rate of 20% applies to the margin made by the merchant, and not to the displayed price of the product excluding VAT.
The margin VAT regime is thus favorable to the second-hand market, and to date, reconditioned goods are considered as second-hand by the tax authorities.
Back Market's liability with regard to VAT owed by merchants
Generally speaking, the platform does not guarantee the tax status of merchants or the invoices issued by them. However, Back Market does take all necessary steps to inform merchants of their tax obligations (legal obligations imposed on electronic platforms) and to identify the existence of obvious fraud committed via our platform. This is a set of obligations of means and not of results. Thus, a major educational effort has been initiated with our merchants, as well as contacts with specialized service providers (e.g. Muloot) to assist merchants, particularly in their registration at the VAT one-stop shop.
In accordance with the law against tax fraud (dated 23 October 2018) Back Market has been making the mandatory annual declarations linked to its status as a platform since this year. These were made at the end of January 2020 and relate to the total volume of business carried out by merchants over the calendar year 2019 (in France for foreign merchants or globally for French merchants). The information is twofold: on the one hand, each merchant is informed of its business volume and the resulting reporting obligations, and on the other hand, full information is sent to the DGFiP on all merchants and their business volume.
In addition, the company has set up "Know Your Business" type procedures that allow merchants to be questioned before being given the opportunity to sell on the platform. This process documents both the information transmitted to merchants via their commercial contacts (commercial calls, CRM notifications) and the information provided by the merchants. These processes are in response to the entry into force of the anti-fraud law applicable on 1 January 2020 (and in particular with regard to payment solidarity); their documentation makes it possible to eliminate the risk of implementing the platform's solidarity.
Future regulation of VAT on distance selling (from 1 January 2021)
In this context, and in the event that the merchant is subject to a VAT regime on distance sales, Back Market will have to comply with a set of obligations, in particular with regard to the implementation of the VAT one-stop shop and the tax treatment of imports (in the latter case, BM may be directly liable for the payment of VAT). The VAT one-stop-shop provides for new thresholds that will have to be applied by merchants within the European Union (a ceiling of €10k for all sales made outside the merchant's country of origin under the distance selling scheme). Therefore, we ask our distance selling VAT merchants to provide us with a copy of the tax document certifying their intra-community VAT number in the European Union countries where they operate sales*.
*The rules on the territoriality of VAT vary according to the nature of the merchant's tax system: in the case of VAT on margins, the applicable VAT is in principle that of the place where the merchant is located; in the case of VAT on distance selling, the applicable VAT is that of the place of receipt of the goods.
The case of solidarity on the payment of VAT (which will only apply from 01/01/20) only applies as a last resort in a situation where a merchant is suspected of fraud and despite several notifications from the DGFiP, the merchant concerned has not been excluded from the platform by the company. Indeed, if the tax authorities have doubts about a merchant, they will send the company a request to collect information. The company must respond to this request. If the administration informs Back Market of a doubt about the merchant's situation, then the company implements certain measures that may go as far as excluding the merchant from the platform. Solidarity is only required in the case where, although a doubt has been notified (at least 3 times with a response time of 1 month from each notification), Back Market has left the merchant active on the platform.