Catch 22: How to Sell a New Phone at the Price of a Used One

Used, yet new. Although it sounds like the beginning of a joke, this unusual oxymoronic definition has allowed a number of online stores to sell phones, laptops, and other technical goods without VAT. And thanks to the fact that they label new packaged products as ‘used’, they offer significantly lower prices than traditional competitors. What is the ‘catch 22’? How can such traders have prices that are ten to fifteen percent lower, and sometimes even more, than their competitors? For example, a new iPhone 15 costs €1450 in one online store, while in another it costs €1214. The explanation lies in Article 95, Paragraph 4 of the Value Added Tax Act, which allows for a ‘special taxation procedure for the delivery of used goods, works of art, collectibles, or antiques carried out by a reseller, applying a special taxation procedure on the difference in price (margin) achieved by the reseller.’ But how can a new packaged phone be considered used? We received an explanation from SmartLab Shop, a company that sells phones in this manner.

Pawnshop Type of Business

– Although these are new, packaged, and unused devices that come with original accessories and manufacturer’s warranty, according to the law, such devices are treated as used goods. That is why they cannot be advertised as new; instead, according to the instructions from the State Inspectorate, the sentence must read: ‘According to the law, such devices are treated as used goods even though they are new, packaged, and unused devices that come with original accessories and manufacturer’s warranty.’ The law does not define the use of goods; rather, they are treated as used after a physical person has paid VAT in the final market. Those same physical persons sell their property to us or someone else based on a purchase agreement that does not include VAT, and accordingly, VAT is not included in the outgoing invoice. This is a pawnshop type of business. That is why prices are significantly lower than those of a large number of traders – explained SmartLab Shop.

How do online traders acquire tablets, laptops, and many other technical goods that they sell in their web stores according to this principle? Is it possible that they actually buy such a large quantity of goods from a number of physical persons? Or does just one physical person buy a larger quantity of goods from a company and then sell it to the webshop, and after such a transaction, the product becomes used?

Unfortunately, SmartLab Shop did not want to disclose the details of its business model.

– We are not obliged to provide explanations and interpretations for all other inquiries because these are internal business processes that are a trade secret – the company responded.

Although we also requested a detailed explanation of the phenomenon of ‘newly used’ products from the Tax Administration, we only received a general response about the margin tax, but not one regarding whether it applies to specific online sites. For that, they say, monitoring of individual companies needs to be conducted.

Special Taxation Procedure

– Used goods, to which a special taxation procedure for used goods, works of art, collectibles, or antiques applies according to the Value Added Tax Act, are defined as material movable property suitable for further use in the condition in which it is found or after repair, with the exception of works of art, collectibles, or antiques and precious metals from codes KN 7106, 7108, 7110, and 7112 and precious stones from codes KN 7102 and 7103. Regarding the determination of whether the phones in question are used goods, it is noted that the Tax Administration continuously conducts measures within its jurisdiction, which include checking the correctness of the application of tax regulations, and every received inquiry or complaint is accepted as useful information in directing and determining the priorities of supervisory activities – reads the response from the Tax Administration.

Although it remains somewhat unclear whether the Value Added Tax Act is correctly applied in online stores that sell new technical goods as used, this loophole in the law is certainly beneficial for individual customers. This cannot be said for companies, as in this case they cannot utilize input tax deductions, which is why the mentioned products are not a cheaper alternative for them.