When David Zapolsky, Amazon’s Chief Global Affairs and Legal Officer, arrived in Brussels in April, he came bearing a number that his company believes tells a story European policymakers should hear: 40 billion euros. That is the sum that European small and medium-sized businesses sold through Amazon’s stores last year, a milestone, he says, demonstrating both the power of the EU’s Single Market and also the distance it still has to travel.
“European small and medium-sized businesses are absolutely able to take advantage of the Single Market. It is what makes Europe a strong place to do business,” he says. But the focus of his visit was to help remove barriers for these sellers. Of that 40 billion, 13.5 billion represents exports from sellers’ home countries to other EU member states – a figure Zapolsky argues could be significantly higher if Brussels were to address what he describes as a glaring anomaly in the bloc’s VAT collection framework.
The anomaly centres on the “deemed supplier” mechanism – a mandatory VAT collection regime under which marketplaces like Amazon must collect and remit sales VAT on behalf of certain sellers. The problem, Zapolsky explains, is that the regime is only partial: it applies exclusively to non-EU sellers and only in specific circumstances. EU sellers are excluded, meaning they must continue to manage VAT obligations themselves in every member state where they make sales.
“If you’re a seller from the United States and you want to sell into Europe, Amazon will do the heavy lifting of collecting VAT in whatever country the product is sold and remitting the VAT to the relevant government,” he says. “A European seller, by contrast, has to do it all on their own.
27 different VAT numbers
Additionally, they currently need up to 27 different VAT numbers, depending on the EU countries where they store and sell consumer goods. They are responsible for figuring out the different VAT rates depending on the customer’s country and the product categories.
He notes this is not lost on the businesses Amazon serves. Rules introduced partly to capture large non-European direct-to-consumer platforms have left European sellers competing at a structural disadvantage against the very traders the legislation was designed to bring into compliance. “It’s ironically made it easier for them to sell and comply with this regime than European sellers,” he says.
That concern echoes across the European Parliament.
Pablo Arias Echeverría, the Spanish centre-right MEP who is a Member of the Parliament’s internal market committee, argues that the enforcement gap is as damaging as the regulatory one.
“We have the highest level of protection for consumers, but if there are companies that do not comply, it doesn’t matter how high the level is,” he says. “Retailers from third countries that we cannot be sure are complying with our rules are competing in unfair circumstances with local European companies. This does incredible damage to European SMEs, to consumers, and to the credibility of European institutions.”
For Arias Echeverría, the solution begins with a simple insistence: the rules that apply to European sellers must be seen to apply to everyone.
A €128bn fraud gap
Zapolsky’s case for EU VAT collection reform goes beyond simplification into competitive fairness. The current asymmetry in the EU Marketplace VAT collection regime, he argues, has opened a major fraud vector. The E-commerce deemed supplier regime is mandatory but partially applies only to non-EU established sellers; some non-EU traders have learned to exploit the gap. By falsely claiming to be established in the EU, they can sidestep the deemed supplier obligation entirely and, in many cases, avoid paying VAT at all.
“That contributes to a VAT gap of over €100bn that the EU isn’t collecting,” he says – a figure disclosed by the European Commission. Extending the deemed supplier mechanism to EU sellers, he argues, would help close this gap, levelling the playing field, and with remarkable financial efficiency to EU budgets, “because the VAT operational and IT systems already exist and are fully operational for non-EU sellers, expanding it would require no new IT infrastructure, no new reporting systems, and no additional audit and enforcement burden for governments. It would allow the EU to collect more VAT. It’s an elegant solution all around.”
European Commission officials have shown receptivity to the argument, he says, though progress has been slow.
Elsewhere, a VAT number reconciliation reform – part of the European Commission’s VAT in the Digital Age reform – has entered into force, but will not take effect until July 2028. “It’s been a struggle for SMEs the entire time we’ve been in business,” Zapolsky says. “It would be great if it could happen faster.”
The ‘Terrible Ten’
The Terrible Ten is a list of Single Market barriers the European Commission has committed to tackling during its current mandate. Beyond VAT, the list includes divergent national recycling regimes, and inconsistent product labelling requirements across member states.
Zapolsky is careful to credit the Commission for taking the list seriously, but he is pointed about the obstacles that remain.
“There is great receptivity,” he says. “But there is lots of complexity in obtaining member state agreement and sometimes unanimity for some of these reforms.” The VAT reconciliation deal, he notes, took years of negotiation across 27 capitals before it could be closed.
He is similarly focused on what he regards as a certain myopia in some member states’ approach to Single Market reform. Governments that believe sheltering domestic sellers behind regulatory complexity will protect their competitiveness are, he argues, miscalculating. “What it really does for your small business inside your own country is to put them at a disadvantage to sellers in other countries who are selling beyond their own member state.”
Those at the sharp end of these barriers are less diplomatic.
Alexander Giersz, co-founder of Calcuso, a German online educational supplies retailer that has navigated the EU’s patchwork of compliance requirements to build a cross-border business, distils years of experience into a single sentence: “If I had to send a message to EU policymakers it would be this: harmonise, harmonise, harmonise; simplify, simplify, simplify.”
It is a sentiment that will resonate in Brussels, where the Commission’s own reform agenda is built on precisely that premise – even if the pace of delivery has tested the patience of the businesses it is meant to serve.
Alexander Giersz, co-founder of Calcuso, speaking at an event in Brussels about operating as a small business within the EU’s Single Market. Image provided by Amazon.
AI: opportunity and regulatory risk
Zapolsky is optimistic when the conversation turns to artificial intelligence, though here too he carries a message for Brussels. Amazon is rolling out a suite of AI-powered tools aimed specifically at supporting smaller sellers. Amazon’s AI listing features allow a seller to submit the web address of their existing product catalogue and have Amazon’s systems automatically translate and generate store listings in multiple languages.
A second product, Amazon’s Seller Assistant, currently being released in Europe, uses AI to help sellers manage inventory, sharpen pricing, track sales data and conduct market research in near real time. “That allows sellers to focus on what really matters for their business, making sure that their products are the best and that their customers are happy,” Zapolsky says. “And removes a lot of the difficult, tedious work of running a business.”
When asked whether such tools could reach the micro-businesses and rural enterprises, such as a small textile maker in rural Galicia, which remain furthest from the Single Market, Zapolsky is unequivocal: “Absolutely. We’re specifically designing products and services to meet seller needs, and I think there’s great potential for that.” AI, he argues, could unlock hundreds of millions of euros in additional trade if the regulatory environment allows it.
Legislation, mindset – or both?
When pressed on whether the barriers facing European SMEs are fundamentally a matter of legislation or political culture, Zapolsky declines to choose between them. Both are required, he says, but legislation alone will not suffice without a shift in how member states understand their own economic interests.
“Those member states, who might resist legislation, need to understand that the sellers in their own countries are going to benefit tremendously from eliminating these barriers. That’s the work,” he says. “And as a result, they should be the most ardent advocates of the types of legislation that will actually make this a reality.”
Amazon’s message to Brussels is not primarily about the company’s own commercial interests, as those are served by a more integrated European market. It is, Zapolsky insists, about the many sellers whose goods move through Amazon every day, and who are carrying the costs of the EU’s unfinished business.
“We consider ourselves an advocate on their behalf here in Brussels,” he says, “to try to get those reforms across the line.” Whether that advocacy translates into reform before the Commission’s current mandate ends will depend, Zapolsky acknowledges, on the political will of the member states as much as on officials in Brussels.
Interview conducted by Tamsin Rose.
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Source:
www.euractiv.com
