Returns with differing VAT rates

We explain the principles of returns in connection with the OSS scheme in the linked support article. 

However, some special features need to be taken into account in the case of VAT  rate changes. 

You have received a return, but at the time of the original sale, a different VAT rate was valid than the tax rate currently valid in the respective country? Then read on - in the following we explain how returns with different tax rates are to be handled for VAT / OSS purposes. 

It is important to note that we can only ensure the correct reporting of returns if your VAT declarations are also submitted by Taxdoo. If you have returns that are affected, which are not handled by Taxdoo, then you must ensure that the relevant corrections are made in the local VAT returns yourself. You will find more detailed information below. 

Which cases are affected? 

Generally, the cases that are affected are those where an EU state has made a VAT rate change. 

For example, due to the COVID-19 pandemic, there was a temporary reduction of tax rates in some EU countries. Germany reduced the standard tax rate from 19% to 16% and the reduced tax rate from 7% to 5% in the second half of 2020. As of January 1, 2021, the previous tax rates were reinstated. 

How does this affect the OSS process, and what do you need to keep in mind? 

We will use an example to illustrate this point. 

Example: 

A sale made from Poland to an end customer in Germany that was liable for tax in Germany in December 2020, due to the exceedance of the then applicable distance selling threshold, was subject to the temporarily reduced tax rate of 16%. 

A movement of goods made in January 2021 was taxable at 19%. 

If a return is now made in August 2021 for a sale that was originally made in December 2020, the question arises as to how the return is to be accounted for in a VAT context. 

At what tax rate should the return be declared? 

In eCommerce, what is colloquially referred to as a return or credit note is, from a VAT perspective, the reversal of a sale. 

This means that the customer has returned the goods in order to get their money back as they are, for example, not satisfied with them, or the goods were damaged.

In these cases, if the online seller refunds the received payment, they can also be reimbursed for the VAT from their respective tax office, insofar as it has already been paid. As such, the sale is, for VAT purposes, reversed. 

Therefore, the refunds must also be declared with the originally applicable tax rate. 

Can these returns be declared via the OSS scheme? 

In principle, returns can be declared via the OSS. A detailed description of how this can be done can be found under the following link: https://support.taxdoo.com/hc/de/articles/4408684274322-Retouren-im-OSS-Verfahren.

However, the OSS scheme only stores the current tax rates. Other (previously paid) tax rates cannot be selected. 

Returns that have to be corrected to have a tax rate that was valid at another time can therefore not be taken into account when using the OSS scheme. 

These returns are to be included in the current local VAT return. 

If you have booked the returns for the respective country via Taxdoo, then we will ensure that these transactions are declared via the local VAT return. 

If you do not use Taxdoo for local filings, you must ensure that you receive your refunds via corrections made to your local VAT returns. 

In the transaction list, which you can download from your Taxdoo dashboard, you will find such sales under the following description: “B2C_DISTANCE_LIABLE_IN_ARRIVAL_COUNTRY_LOCAL”.

Please note: In addition to the pandemic-related, time-limited tax rate change, EU member states may regularly adjust their tax rates. In all these cases, returns must be handled on an individual basis.