Selling to corporate customers (B2B) through the Amazon Business programme presents a great opportunity for e-commerce sellers to achieve higher order volumes and reach European businesses. However, B2B sales involve specific tax rules that cause headaches for many sellers and their accountants.
One potential risk is the incorrect application of VAT exemption on cross-border sales within the EU. A problem can arise, for example, when the Amazon system issues an invoice without VAT to a customer whose Value Added Tax (VAT) registration number is invalid or cannot be verified in the European VIES system.
Many sellers rely on Amazon's automated processes, assuming the platform sufficiently checks the accuracy of tax data. However, this may not always be true.
In this article, we will explain how B2B invoicing works on Amazon, what role the VIES system plays, who bears responsibility for the accuracy of tax data, and what to watch out for when reporting these transactions in tax returns.
1. How VCS and the automatic reverse charge mechanism work
If you sell on Amazon as a VAT-registered business, you can use the automated Amazon VAT Calculation Services (VCS). Its purpose is to calculate the correct VAT amount for individual transactions based on available data, such as the place of supply, origin of goods, and the buyer's tax status.
In a B2B transaction where the buyer provides their corporate VAT number registered in a different EU Member State to the one the goods are dispatched from, a VAT exemption under the intra-Community supply of goods regime may be applied, provided legal conditions are met.
In such a case:
- The invoice for the customer is issued without VAT under the tax exemption regime with the right to deduct.
- The tax liability is declared by the buyer under the reverse charge mechanism in their home country.
At first glance, this is a convenient and automated process. However, a problem can occur when buyer verification on the platform's side fails or when the entered data does not reflect reality.
Warning: Amazon's automatic VAT calculation does not, in itself, guarantee that all legal conditions for exempting a specific transaction from VAT have been met.
2. Invoicing risk: What if the buyer does not have a valid VAT number in VIES?
One of the important conditions for VAT exemption for the intra-Community supply of goods under Section 64 of the Czech VAT Act No. 235/2004 Coll., and Article 138 of the VAT Directive, is that the customer must be a taxable person and must have provided their valid VAT identification number for cross-border trade within the EU to the supplier.
In practice, however, situations can arise on Amazon where:
- The buyer enters a VAT number that has been cancelled, is invalid, or is incorrectly stated.
- The customer has a national tax identification number but is not registered for cross-border trading within the EU.
- There is a time delay or error when verifying data in the VIES system, yet Amazon generates an invoice without VAT.
It is important to know, however, that an invalid verification result in VIES does not automatically mean the customer is not a business. The reason might be, for example, an incomplete VAT registration or the fact that the VAT number has not yet been activated for cross-border trading.
Furthermore, the mere validity of a VAT number in VIES does not automatically guarantee the right to VAT exemption. The supplier must also meet other legal conditions, particularly proving the actual dispatch or transport of the goods to another EU Member State and fulfilling related reporting obligations.
Who is responsible for invoicing accuracy?
Many sellers believe that if an invoice is issued by Amazon's automated system, the responsibility for its accuracy shifts to the platform. Such an assumption can be highly risky.
Through VAT Calculation Services (VCS), Amazon provides automated VAT calculation and the issuance of tax documents. The system relies, among other things, on tax registration numbers, VAT settings, and other data provided by the seller or the customer.
Amazon explicitly states in its documentation that the seller is responsible for the accuracy of the data and settings used for tax purposes, including the accuracy of calculations, invoicing, and tax reporting. At the same time, it assumes no liability for incorrect invoices if they result from inaccurate or incomplete data provided by the seller or customer.
Therefore, if a tax authority discovers during an audit that the legal conditions for exempting the supply of goods from VAT were not met, it may demand payment of the tax from the supplier. Depending on the specific circumstances, late payment interest and potential penalties may also arise.
For this reason, it is important to regularly check not only the issued invoices but also the accuracy of the tax data upon which Amazon calculates the VAT.
3. How to correctly report these transactions in statements and returns
To prevent potential additional assessments and complications during a tax audit, it is important to adhere to several basic principles:
- Do not rely blindly on automation: Regularly check data from Amazon VAT Transaction Reports and verify the validity of customers' VAT numbers for B2B transactions. As evidence for a potential tax audit, we recommend archiving confirmation of the VAT number verification from the VIES portal, including the exact date and time of the check (timestamp, PDF, or screenshot). This allows you to prove that you verified the validity of the buyer's VAT number at a specific moment.
- Watch out for status changes over time: For regular B2B customers who purchase from you repeatedly, it is worth verifying the validity of their VAT numbers in the VIES system on a regular basis. A customer's tax registration may change or cease during the course of business cooperation. Therefore, it is important not to rely solely on historical verification and to check the current status of the VAT number.
- EC Sales List (Recapitulative Statement): Cross-border B2B supplies of goods exempt from VAT under Section 64 of the VAT Act must be reported in the EC Sales List. An incorrectly stated or invalid VAT number can lead to a request from the tax administrator to correct or supplement the data. The correct reporting of these transactions is an important part of proving the entitlement to the exemption.
- Correcting incorrectly issued documents: If you discover that Amazon has issued an invoice without VAT to a customer who did not meet the conditions for VAT exemption, the situation must be addressed immediately. First, verify the buyer's actual tax status and the circumstances of the transaction in question. Depending on the outcome, it may be necessary to correct the invoice, adjust the reporting of the transaction in the VAT return and EC Sales List, or subsequently declare and pay the VAT. The specific procedure always depends on the nature of the transaction and the relevant tax regulations.
Beware of Amazon FBA and Pan-European FBA
Sellers using the Amazon FBA and Pan-European FBA programmes should also pay special attention to the correct reporting of VAT.
In these programmes, goods may be stored in various EU Member States and subsequently dispatched to customers from different European warehouses. This has a fundamental impact on the tax assessment of individual transactions. Not every B2B order represents a cross-border supply of goods from the Czech Republic.
To correctly determine the tax regime, it is therefore necessary to know the actual country where the goods were located prior to dispatch, the destination country of delivery, and the buyer's tax status. Depending on the specific situation, this may involve, for example:
- A cross-border supply of goods between two EU Member States.
- A domestic supply of goods within a single Member State.
- A transaction requiring reporting in a country other than where the seller is established.
For this reason, it is not enough merely to check the customer's VAT number. For correct tax reporting, it is essential to also monitor the movement of stock between individual Amazon warehouses.
4. How to minimise risks in B2B sales on Amazon?
To ensure your invoicing is correct and prepared for a potential tax audit, we recommend adhering to the following principles:
- Regularly check monthly reports: In the Amazon VAT Transaction Report (AVTR) files, pay particular attention to the columns containing buyers' VAT registration numbers, countries of dispatch and delivery of goods, and information on transaction types.
- Verify customers' VAT numbers and archive evidence: Do not rely exclusively on Amazon's automatic checks. Verify the validity of VAT numbers via the VIES system and save the verification results, including the date and time of the check.
- Maintain orderly records: Keep evidence of the transport of goods to another EU Member State. When proving the legitimacy of a VAT exemption, these are just as important as verifying the buyer's VAT number.
- Monitor stock movement within FBA: If you use Pan-European FBA, regularly check in which countries Amazon stores your goods and from where it dispatches individual orders. This information is crucial for correctly determining the place of supply and tax obligations.
- Keep an audit trail: For every significant stock change, it should be possible to trace back and link the Amazon report, specific item, quantity, date, warehouse, and accounting record.
- Automate checks: Manually verifying hundreds of B2B transactions from Amazon is time-consuming and prone to human error. It is therefore worthwhile using specialised tools designed for e-commerce accounting and VAT management.
Do you want to be certain that your B2B invoicing on Amazon is free of unnecessary risks?
Proper VAT management in international sales requires knowledge of EU legislation as well as the data structures of e-commerce platforms. At Taxeedo, we specialise in comprehensive VAT agendas for sellers on Amazon and other marketplaces.