VAT Exposure Risks Lurk in Amazon's Pan-European FBA Service

A company that had grown rapidly during the COVID-19 pandemic found itself in trouble when letters arrived from tax offices across Europe, claiming they had failed to register for Value Added Tax (VAT). The issue arose because Amazon's Pan-European Fulfillment by Amazon (FBA) service was moving stock between warehouses, triggering VAT registration obligations in every country where that stock was being held.

The company had chosen the Pan-European FBA option to sell across markets in Europe, but this meant that even before the first sale, the movement of inventory into a warehouse in another country would trigger a VAT registration. For example, if a Spanish company used Pan-European FBA to sell across markets in Europe and stored stock in Germany, they would be required to register for VAT in Germany, regardless of how many sales were made there.

The situation was further complicated by the One Stop Shop (OSS) system, which allows companies to report sales to consumers across the EU through one Member State instead of registering separately in every country where their customers are. However, OSS does not cover VAT created by moving inventory between countries.

To avoid similar problems, it's essential for businesses to understand how VAT applies to their specific situation and plan accordingly. This includes making sure every department is aligned before choosing an operating model and knowing exactly where stock sits and what that means for VAT obligations.