Many Amazon sellers are finding in their VAT reports two new transactions types called comingling sale and comingling buy. The purpose of this post is to make some clarifty on the VAT on Amazon comingling sales and purchases, that is, on how they must be reported in the VAT tax returns.
What is the Amazon comingling program?
Many Amazon sellers trade exactly with the same goods manufactured by the same supplier. To better service customers, Amazon makes a pool inventory with these items and distribute them among its different fulfilment centers across Europe. Of course, Amazon keeps a control on the ownership of the inventory.
Imaging that Seller 1 receives an order for a good from a customer located in country A. Although the seller 1 is under the Amazon Pan European program, Seller 1 does not actually have the good ordered in country A. Then Amazon serves the same good from the inventory of the item in country A, which belongs to Seller 2. As you can guess, the problem here is that no one can sale what does not own, so a swap of inventory between Seller 1 and Seller 2 must take place.
Amazon explains that three transactions take place:
- A normal sale from Seller 1 to the customer
- A sale from Seller 2 to Seller 1 – so that Seller 1 can get ownership of the item sold to the customer.
- A purchase from Seller 2 from Seller 1 – to return the good to the inventory of Seller 2.
Unfortunately, Amazon does not give much details on how these transactions are handled in practice (what are the prices used, for instance) and in which countries takes place. Common sense dictates that the swap of inventory between Amazon sellers takes place in different jurisdictions. Seller 2 sales the item in Country A and buys it back in Country B, where Seller 1 has availability of the item sold.
Graphically, the VAT on Amazon comingling sales could be structured as follows:
All these transactions take place simultaneously. This graphic is drawn from seller 1 point of view. He will have a comingling buy in country A and an offsetting comingling sale in country B.
VAT on comingling sales in Spain
I guess that in most European Union countries the same conclusions would be reached, but I will analyze the matter from the Spanish VAT framework. As you know, the EU VAT Directive allows for small differences. So let us say that in the example above, Country A is Spain.
Thus:
- Transaction 1: The order for item X is not a taxable event for VAT purposes
- Transaction 2, the comingling buy, is a domestic transaction, fully taxable in Spain. However, assuming that Seller 2 is not established in Spain, the taxpayer would be Seller 1 under the reverse charge mechanism. In principle, the input VAT could be recovered by Seller.
- Transaction 3 is a standard B2C domestic sale fully taxable in Spain. Assuming that Seller 1 is established in Spain, it would charge Spanish VAT to the customer.
Therefore, both transactions 2 and 3 are domestic transactions subject to Spanish VAT. The only thing that could change is who is the taxpayer, which could vary depending whether the sellers are established in Spain or not.
Finally, transaction 4, the comingling sale, is a sale outside the scope of Spanish VAT. The taxable jurisdiction is not Spain. It takes place in other EU country. Generally speaking, since this is a B2B sale, the taxpayer would be the recipient (seller 2) under the reverse charge mechanism.
As a conclusion, comingling sales are a great commercial strategy of Amazon to enhance the service to clients and to manage inventory wisely. It is probably more environmentally friendly since it saves a lot of unnecessary dispatches. However, tax wise it makes VAT reporting complicated. As you have seen, the simple “swap” of inventory between sellers’ triggers two additional transactions – for each of them- taxable in different jurisdictions.
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