Background

LEGO BrickLink® is a global marketplace for LEGO products and aims to empower the creativity of adult fans of LEGO (AFOL). The European Union (EU) announced changes to Value-Added Tax (VAT) rules for cross-border business-to-consumer (B2C) e-commerce activities which would affect how VAT would be collected on an order.  This project presents my approach to designing for compliance.

Overview

Research

Business Constraints

Research Goals

To better understand what solutions were needed, we needed to understand how VAT was currently collected and how it needed to be collected when the new rule came into effect.

• Understand the new rule

• Understand how BrickLink and its sellers need to comply

• Discover the goals, needs, and frustrations of BrickLink users involving VAT

Tax Experts

We turned to the LEGO international tax team and Deloitte, our tax consultants, to understand the new rule. Rules and regulations were written in legal jargon and were confusing to understand. Our tax experts helped translate the rules so we were able to digest the information.

Insights

The rule stated that BrickLink is not liable for VAT collection on cross-border sales within the EU and that the responsibility falls on the Seller. We learned that two options were available for distance selling when the Seller’s total cross-border sales surpassed €10,000.

1. VAT OSS Union Scheme

2. Local VAT Registration

To comply

Non-EU sellers selling to EU buyers

BrickLink must collect VAT directly from the buyer on orders under €150.

Third-Part Integration

We also worked with Sovos to integrate their tax reporting services into the platform to help calculate the VAT for orders placed. Previously, we were manually inputting VAT rates into the system, because they rarely changed. It was important for me to understand how we use Sovos and how it affected the design.

Competitive analysis

In order to gain more insight on how other e-commerces were handling the new rule, I turned to global marketplaces such as Amazon, eBay, and Etsy. Since the rule was not in effect yet, I was unable to gather useful information.

USER FEEDBACK

We posted an announcement on our community forum regarding the rule changes.  I worked with the product manager to review the responses and gather feedback and pain points our users had.

PAIN POINTS

VAT-registered shouldn’t pay VAT

From the feedback, we learned that our B2B buyers were concerned with getting charged VAT because usually the end consumer would pay VAT. Previously on the site, B2B buyers would not need to pay VAT because they worked with the sellers directly to manually exclude VAT on their orders. Currently on BrickLink, there was no way to indicate whether a buyer was a B2B buyer.

Asking our Users

To learn more about VAT OSS registration, we reached out to our BrickLink Marketplace Panel consisting of a group of select buyers and sellers meant to be the voice of the community. We asked our Sellers about their OSS registration and received screenshots of their registration confirmation.

Insight

We learned more about registration and confirmation which helped inform the design to prevent fraudulent OSS registration submissions.

Define & Ideate

VAT OSS Union Scheme

We looked into the new VAT OSS Union scheme and learned what our Sellers needed to do to comply. EU Sellers who sell to multiple EU countries can register for the VAT OSS Union scheme. The program was created to simplify the process of collecting and paying VAT across countries within the EU.

How would VAT OSS registration be validated?

To prevent fraudulent activity, we needed to figure out how to verify a Seller’s OSS registration. We researched services that could verify OSS registration numbers similar to an API that was integrated to verify local VAT registration, but no such services existed.

Local VAT Registrations

In order to sell products to buyers in specific EU countries, the EU Seller must register in the countries where the Seller wants to sell to.

Validating local VAT registrations 

BrickLink provided EU Sellers who were VAT-registered the ability to include VAT in their prices by submitting and verifying their VAT registration. We already integrated an API to validate VAT IDs. With the new rule, we needed to allow Sellers the option to validate multiple VAT registrations.

Lofi Ideation

Based on user feedback and pain points, I determined that we needed two solutions to reach our goals.

• For Non-EU sellers selling to EU buyers, we wanted to provide our B2B users a way to exempt their orders from being charged VAT.

• Intra-EU transactions, our sellers need a way to collect buyer’s country VAT rate.

B2B

I started with a few ideas on how we can implement B2B. I suggested to tag buyers as B2B and the buyer would be exempt from paying VAT.  I went over a few ideas with the product manager and lead developer and the easiest implementation was to include it at the checkout process. Any other option would be too complicated to implement. It would touch old code which we were avoiding because of the rearchitecting.

Verifying OSS Registration

For intra-EU sellers, it was our responsibility to ensure that our sellers were collecting the correct amount of VAT.  We needed to verify that sellers were registered and able to collect VAT from other countries but there were no APIs we can use to verify OSS registration. As a marketplace we also had to register since we were also collecting VAT from the buyers, and we received an IOSS number. I based my early designs on this number.

Since we already had a design system in place and an existing VAT section in Seller settings, I started to design the medium fidelity wireframes. The most important part was the content and instructions. We needed to ensure that our users would be able to understand the new settings.

After receiving the OSS registration confirmation from our users, we learned that each registration includes a start date. We also learned from our tax team that the earliest start date was the date the new rule would go into effect. This helped me design the form to include a start date field and a requirement for the field.

Prototype & Testing

Prototyping Mid Fidelity Wireframes

We tested the design solutions with our tax team and Deloitte. Because this involved tax and legal, we needed to get their approvals on the final design and copy. 

Insight

Deloitte mentioned that our user’s registration would yield an OSS number, not have an IOSS number.

IOSS vs. OSS

We reached out to our Marketplace Panel, a group of users dedicated to providing feedback, and asked about their registrations. When we finally received information from our sellers, I was able to use their registration to help me design a form that would prevent fraudulent activity. Our goal was to prevent sellers who weren’t actually registered from turning this feature one.

Final Design

B2B

A user would be able to set the order as a B2B order at the checkout page by verifying their VAT ID, which proves they are a VAT-registered seller. A modal will appear and users will be able to verify their VAT ID. After verifying, the order summary will reflect zero VAT. There’s also a setting to have that apply to future orders.

ENABLE DISTANCE SELLING

In order for sellers to be able to charge buyer’s country VAT rate, seller must enable distance selling which will let the system know to collect buyer’s country VAT rate for orders below 150 EUR. Sellers can toggle distance selling to enable the feature. I used a toggle to stay consistent with the existing VAT settings design. To enable, the seller must verify OSS registration or local VAT registration, which is registering in each country they do business in. 

Here we focus on OSS verification. The form includes the start date and registration number which I drew from the registration scans we received from our users. We also require sellers to upload the scan of their registration. We would be able to review the scan and make sure that it wasn’t  a fraudulent registration.

Post-launch

IMPACT

We were able to meet the deadline and we released all features by the effective date. Both, BrickLink and our sellers were able to comply. We had a total compliance rate of 89%

Next steps

WHAT I LEARNED

• It was really restrictive having to work around the rearchitecting. If we weren’t working with a deadline and there was no penalty, I would have wanted to wait until after the rearchitecting.

• I would want to research different country’s tax regulation upfront. I would like to see if solutions overlap. This can speed up our global compliance rate.

Next in Queue: Distance selling admin tool

When we received scans of the OSS registration, someone from our team will have to review that document and verify its authenticity. We planned on building an admin tool for this task. We would also be liable to make sure that if our sellers surpass the 10,000 EUR threshold, we will need to require the sellers to turn on distance selling. If sellers do not enable, we would need to block our sellers from selling within the EU.