Selling through Amazon FBA (Fulfilment by Amazon) brings a number of advantages, but also situations where goods are damaged, lost, returned by a customer, or end up being disposed of. In some cases, Amazon pays the seller compensation (Reimbursement), while in others it physically destroys the goods (Disposal).
From an accounting and VAT perspective, however, it is not just about how Amazon names the transaction. What matters most is what actually happened to the goods, why the amount was paid, and where the inventory was physically located at that moment.
1. Compensation from Amazon: Is it subject to VAT?
Amazon may pay a seller compensation (Reimbursement), for example, for lost or damaged goods. For VAT purposes, it is crucial to distinguish whether this is genuinely compensation for damages, or whether the payment has the character of remuneration for the supply of goods or the provision of a service.
If the payment merely compensates for a loss and is not direct consideration for a specific supply of goods or services, it is generally not consideration for a taxable supply. This principle is confirmed, for example, by German tax rules. Conversely, if the amount economically represents consideration for a specific supply or service, its tax assessment may be different.
Therefore, the mere designation of a payment as a Reimbursement in an Amazon report is not decisive for VAT purposes. It is always necessary to assess the true economic nature of the specific payment.
Overview of typical transactions in Amazon reports
| Transaction type in Amazon report | What it means in practice | Recommended approach to VAT |
|---|---|---|
| Warehouse Damage / Lost | Damage or loss of goods in the warehouse | Verify potential compensation and its tax nature |
| Customer Return (Sellable) | Return of goods by a customer that can be resold | Assess the impact of the return on the original sale and VAT |
| Customer Return (Unsellable) | Return of damaged or unsellable goods | Assess the original sale and subsequent disposal of the goods |
| Disposal / Removal Order | Disposal or removal of goods from the warehouse | Write-off of inventory and proof of actual disposal |
| FC Transfer | Transfer of own goods between warehouses in different EU states | Verify the regime for transferring own goods and related registration and reporting obligations |
2. Disposal: What about VAT when disposing of goods?
Another frequent situation is the disposal of goods directly in a logistics centre, whether based on the seller's request or according to Amazon's internal procedures. With disposal, it is primarily crucial to prove that the actual destruction or removal of the goods took place.
The EU VAT Directive stipulates that in the case of duly proven or confirmed destruction, loss, or theft, under the conditions laid down by the Directive, the adjustment of the original tax deduction shall not apply. This principle is also confirmed by the judgment of the Court of Justice of the EU in case C-127/22. The Court dealt with, among other things, the voluntary destruction of goods and emphasised that the destruction must be duly proven or confirmed and the goods must objectively lose all usefulness in the context of economic activity. Disposal leading to the irreversible disappearance of goods can be assessed in the same way.
How to prove disposal?
For FBA, it is therefore advisable to archive in particular:
- Amazon Removal Order / Removal Order Detail Report,
- status or confirmation of completion of the disposal,
- identification of items (SKU, ASIN) and exact quantity of goods,
- date of creation and completion of the disposal,
- identification of the fulfilment centre (warehouse code, e.g. PRG2), if available,
- internal accounting document for the write-off of inventory.
The better you can link the documentation from Amazon with a specific accounting record, the easier it will be to prove the actual execution of the disposal during a potential tax audit.
Therefore, it is not enough to simply record the goods in the accounting as "disposed of" – conclusive documentation enabling you to prove the actual execution of the disposal is essential.
3. Customer returns: When might an obligation to adjust VAT arise?
From a VAT perspective, customer returns present a different situation. If a customer returns goods and, as a result, the original transaction is cancelled or reduced, an obligation may arise to adjust the tax base and related VAT. The EU Directive provides for a reduction of the tax base in the event of cancellation, refusal, or price reduction after the supply takes place, with specific conditions laid down by individual Member States.
However, the mere fact that Amazon records an item as a customer return does not automatically mean that it is always necessary to make the same VAT adjustment.
It depends primarily on:
- the nature of the original sale,
- who was the supplier for VAT purposes,
- whether the original transaction was actually cancelled or price-adjusted,
- the way Amazon processed the refund to the customer,
- the specific country and its local VAT rules.
For cross-border FBA sales, therefore, always assess returns in the context of the entire transaction, not just according to the status in Amazon Seller Central.
4. Beware of transfers of own inventory between EU states
One of the frequently overlooked topics in Amazon FBA is the transfer of one's own goods between EU Member States (FC Transfers).
As part of its logistics network, Amazon can move inventory between fulfilment centres in different countries without direct intervention from the seller. For example, if goods owned by a Czech company are moved from a German warehouse to a Polish one, from a VAT perspective, this may constitute the transfer of one's own business assets to another Member State.
According to Article 17 of the VAT Directive, under specified conditions, the transfer of goods forming business assets to another Member State is considered a supply of goods for consideration.
In practice, this may therefore give rise to:
- an obligation to register for VAT in individual countries,
- an obligation to report transfers in the relevant tax returns and other statements according to the rules of the given country,
- the necessity to track the physical location of inventory in detail.
Specific obligations must always be assessed according to the country from which and to which the inventory is being transferred, and according to the circumstances of the given case.
5. What should an e-shop record during FBA? (Checklist)
To seamlessly prove accounting and tax treatment, we recommend systematically collecting the following documents:
For lost or damaged goods:
- Amazon Reimbursement report,
- reason for compensation,
- SKU/ASIN and quantity data,
- any communication or records regarding the loss or damage.
For disposed of goods:
- Removal Order and confirmation of the completed disposal,
- date and quantity of destroyed units,
- identification of the warehouse / fulfilment centre,
- internal protocol on the write-off of inventory.
For customer returns:
- information about the original order and subsequent refund,
- proof of any restocking of the goods into inventory,
- record of subsequent sale, disposal, or other handling of the goods.
For inventory transfers:
- overview of inventory movements between countries (Cross-Border Inventory Movement),
- identification of the country of origin and the destination country,
- quantity and value of the transferred goods,
- the time period when the inventory was located in individual states.
Conclusion
From an accounting and tax perspective, Amazon FBA generates a much more complex structure of transactions than a standard e-shop. For damaged or lost goods, it is necessary to correctly determine the nature of the compensation; for disposal, to prove actual destruction; for returns, to assess the impact on the original sale; and for inventory transfers, to keep an eye on VAT obligations in individual EU states.
Correctly maintained records of FBA movements are not a mere formality – they are a basic prerequisite for you to be able to prove the correctness of the chosen tax procedure during a potential tax audit.
Do you want to have your Amazon FBA transactions under control without unnecessary administration?
At Taxeedo, we will help you with the complete recording and tax processing of cross-border e-commerce so that your accounting complies with legislative requirements in the Czech Republic and other EU countries.