July 2021 | latest update: April 2023 | by Lili & Felix
July 2021 is a big one for VAT; not only the EU changes its rules significantly but so does Germany.
While the new EU rules impose VAT on all products ordered online by consumers from outside the bloc (formerly, packages under the value of 22 euros have been exempt from such a tax), the new German rules concern transparency and accountability of sellers.
Because of a new amendment introduced to German VAT law, sellers active on online marketplaces are required to display their VAT ID on the platform as of 1 July 2021. Earlier, sellers were able to withhold their VAT ID (or in case of many small businesses, even forgo possessing one) as long as they displayed their registration certificate. That is no longer possible.
On the one hand, this is good news for online marketplaces. In contrast to calls from society to make marketplaces more liable for their listings, the new rule absolves them of their obligation in Germany to pay sellers’ VAT in case sellers weren’t paying them. The display of VAT ID effectively enables the government to go after tax evasive sellers instead of holding the marketplace responsible.
On the other hand, the new rule also makes life a bit more difficult for online marketplaces (not to mention sellers, especially those small businesses that weren’t required to apply for a VAT ID before.) From now on, the VAT ID becomes another piece of information marketplaces have to collect from sellers before allowing them to sell. Existing sellers who don’t provide this information could risk the suspension of their accounts.
While some marketplaces may have the infrastructure to collect and store VAT IDs, others may not, or at least not yet. And there’s a whole other bunch of issues the new rule creates.
For example, where to display the VAT ID? Some marketplaces have a section called “about the seller” but others don’t. Are they obligated to code it into their platform?
Screenshot of a “Detailed Seller Information” section on Amazon.de
What happens to sellers without a valid VAT ID displayed? This could be a golden opportunity for competitors to play “big brother” and notify authorities if rival sellers don’t comply with the new rules right away.
And what about sellers that aren’t required to pay VAT in Germany but are still present on Amazon.de, ebay.de and other online marketplaces registered in the country? Currently, German authorities are swamped by VAT ID application requests coming from China, Hong Kong, Taiwan and Macau.
Then there’s the question of authentication. Is the marketplace required to check if the VAT ID given is, in fact, correct and valid? That leads to another question, the issuing of the VAT ID in general. What checks does the German authority perform when a seller applies for a VAT ID? (This authority is the Finanzamt when the application comes at the time of the company’s creation, or the Bundeszentralamt für Steuern if it occurs at a later point in time)
Also, has the seller’s address been verified? Has the seller’s VAT ID been registered on a marketplace before? Which further data do sellers need to provide (e.g. bank account number, etc?)
And here’s the most important question for online brand protection experts: can the VAT ID lead us to fraudulent sellers infringing on another brand’s IP rights?
Changes of any kind tend to have various impacts, both positive and negative on stakeholders. The new German VAT rules are no different.
More information means more clues for online brand protection experts to investigate. When we encounter a seller who infringes on our client’s IP rights, we want to find out and verify their identity as soon as possible. A VAT ID could be a powerful tool that leads us to the real culprits a lot quicker than a fake email address or phone number.
This database, for example, provides an excellent searchable collection of VAT IDs in the EU as well as other countries like the UK, the United Arab Emirates, Malaysia, Singapore, and Taiwan. We feed the VAT ID or business name into the search bar and get all the information the company provided to the authorities.
Screenshot of the homepage of vat-search.eu, a VAT ID database
The new rule also gives opportunities for us to enhance our cooperation with tax authorities. If we discover a fraudster using a fake VAT ID on a marketplace, or a genuine ID being used to sell counterfeit products, globaleyez is ready to reach out to the tax authorities and let them know about the fraud.
In addition, the obligation to give official tax information provides a serious hurdle for fraudsters. If they’re slowed down or even scared away from German online marketplaces by the new rule, we’ll be the first to applaud.
Unfortunately, the new rule also has a negative side effect for honest sellers in every industry, especially small businesses that have been exempt from VAT regulations so far. The obligation to apply for and provide a VAT ID creates new hardships for them.
Then there’s the question of the public display of such sensitive information. While it provides for more transparency and protection to consumers, it also creates new opportunities for identity theft.
German VAT IDs could get stolen en masse and used by fraudsters anywhere in the world. Identity theft is already a serious problem, and with a powerful tool like a German VAT ID at their disposal, fraudsters could fool marketplaces, authorities and consumers alike.
While it’s definitely good news that we’ll have more information to go on when investigating a fraudulent seller, the potential increase of identity theft is worrying. Nevertheless, the new regulation helps us zoom in on fraudulent sellers who are infringing on our clients’ IP rights.
We see four clusters of cases where this could occur.
A fraudster could steal the VAT ID of an honest company and use it to register their own business. For example, the different sellers of two listings have the same German VAT ID.
Screenshot of the Imprint containing the VAT ID of a seller on ebay.de
Screenshot of the Legal information of a seller on ebay.de with the same VAT ID
Since this is impossible, we examined the two storefronts and realized that they had nothing in common. Therefore, we’d say that one seller (the one offering counterfeit products) simply grabbed a publicly displayed VAT ID and placed it on their site to appear as if they’re complying with the regulation.
When we come across cases like this, after consulting with the brands in question, we can notify the party whose ID was most likely stolen as well as the marketplace to get the infringing content down.
Stealing a VAT ID may be too much work, especially if you can just make one up. Why not write random numbers and paste it on your seller site as your VAT ID?
Luckily, the VAT ID database helps us in this case as well. Because what happens if you type in a non-existent VAT ID? This:
Screenshot of a VAT database search with no results
In cases like this, we can alert the marketplace and have fraudulent content posted by this seller removed.
Fraudsters can simply decide to try their luck and not comply with the new rules, hoping nobody will notice. While we’re not specifically looking for VAT IDs of sellers, we’ll definitely notice if a seller infringing on our client’s IP rights is not complying with the regulation.
If we come across an infringing listing with no VAT ID displayed, we’ll notify the marketplace and have the listing removed. We can even have those listings deleted that don’t show the trademark but have the logo removed or blanked and let customers know in the description that the product will be delivered with the logo of the customer’s choice. These products are also infringing and thus can be removed.
When counterfeiters and other fraudsters are in it for the long term, it may be worth it for them to make the effort and appear as legit as possible, even if that means taking the time and effort to apply for an authentic German VAT ID.
Listings like these possess valid German VAT IDs, and yet they’re selling counterfeit products with an address listed in China.
In cases like this, we definitely get closer to the seller of counterfeits, since they must have given some data to the German authorities when registering their VAT ID. We at globaleyez are happy to ramp up our cooperation with the authorities in our effort to push back against counterfeiters.
And we are definitely needed, because the authorities can only do so much.
"If they pay their taxes according to regulations, the German tax authority is not likely to revoke a company’s valid VAT ID, even if they sell counterfeit products. Luckily, online brand protection experts can still report and remove fraudulent listings, with or without valid VAT IDs."
New rules often mean a lot of confusion until stakeholders learn how to comply with them and they become an accepted part of normalcy. While the new VAT ID requirements may initially make life more difficult for businesses, we hope that in the long term the pros will outweigh the cons and the new rules will indeed help increase transparency and accountability.
One thing is sure though: with or without a valid VAT ID, fraudulent sellers will not cease their IP-infringing activities.