European governments want to collect taxes on international purchases made by their residents; marketplaces want to comply with government regulations around such taxes; and sellers are left in the middle.
In the case of sellers outside the EU, a recent change by Etsy is leaving them confused and uncertain about how to handle pricing and many are deciding whether selling to customers in Europe is worth the aggravation.
Sellers are still discussing the controversial changes Etsy made with regard to how listings appear to shoppers based in EU countries, and we turned to global trade expert Amy Morgan at Avalara to see if she could shed any light on the issue.
To recap, Etsy told sellers last month that it must comply with international consumer laws that require listing prices of physical items sold by Etsy shops to be inclusive of value-added tax (VAT), goods and services tax (GST) and other local taxes. “Shops in the United States will still be able to access the sales tax tool to set tax rates for US states, zip codes and zip code ranges,” it explained. “However, these shops will no longer be able to set tax rates for anywhere outside of the US.”
That means US sellers can list an item at $75 on Etsy.com, but the same listing when viewed by EU shoppers will see messaging indicating that the price includes VAT.
Some US sellers have said they are receiving cancellation requests from UK shoppers who had assumed their prices included VAT since Etsy displays their listings with the message “VAT included (where applicable)” in the UK.
Avalara’s Amy Morgan was not able to speak specifically on how Etsy handles or should handle the issue, but explained how VAT impacts online sellers in the US.
“Your overarching question, “How do sellers price goods for the US market and then have the price include VAT for EU shoppers,” is one we’re seeing more as it relates to cross-border transactions – and businesses want the customs duty and other import taxes and fees included as well,” she said.
“Additional factors such as VAT, or other forms of consumption tax and/or other fees must also be considered. Therefore, B2B sellers should calculate landed cost using a few different supply chain scenarios, so they can evaluate which cost and responsibility mix is best for their business.”
“We’re not familiar with Etsy’s specific tools or approach. They are in the best position to discuss the details with you.” But VAT compliance can be extremely confusing, she added, regardless of the tools an ecommerce website offers its sellers.
Morgan provided additional information via email, which we’re including in its entirety:
Here’s the bottom line: The key to determining the seller’s “duty-and-tax-inclusive price” of an item is to calculate the “landed cost” of the physical products before the point of sale, and then set the retail price accordingly to cover these cross-border costs. Typically, landed cost is comprised of the
- Cost of goods +
- Total door-to-door shipping costs, including insurance +
- All export/import customs duties and taxes
As you know, historically global shipping and international trade was reserved for big companies with the resources required to manage the disparate steps involved in moving shipments worldwide. Today, however, many small to medium sized businesses (SMBs) – such as those selling on Etsy – are now able to sell globally, but they’re also likely confused when it comes to landed costs.
By calculating an estimated landed cost before anything ships, sellers can uncover both overt and hidden costs associated with a cross-border transaction, so there are no surprises when the shipment arrives at its destination.
Additional factors such as VAT, or other forms of consumption tax and/or other fees must also be considered. Therefore, sellers should calculate landed cost using a few different supply chain scenarios, so they can evaluate which cost and responsibility mix is best for their business.
You asked about different approaches used in the marketplace for determining an all-inclusive price. Automation is one way to simplify it for sellers. A comprehensive automated solution helps save sellers save time, money, and frustration. For example, Avalara’s Landed Cost automates calculation of duty rates and helps businesses determine the correct tariff code for each product.
You can find sellers discussing the issue on the Etsy discussion boards.