Slashdot Mirror
U.S. E-Commerce Sites To Collect EU VAT
A concerned US-based e-commerce company with inter writes "While we have all been fighting the Internet sales tax battle here in the U.S., the European Union of 15 countries has recently required that all U.S. companies with web sales to EU citizens start collecting the value-added tax on July 1, 2003. The Washington Post has a good article about this. It seems Ebay, AOL, and others caved in on this without much complaint. Can U.S. Internet taxation be far behind if we have to start collecting and reporting 15 different VAT taxes? And sorry Mr. or Ms. EU Citizen, your website subscription now costs 15% to 25% more, starting July 1. Hope you like this added value."
http://news.bbc.co.uk/1/hi/business/2968106.stm
if I buy something from the US and have it shipped by air freight to me in the UK, then I am supposed to put my hand up and give Her Majesty's government the tax.
Back in reality, Customs can and do stop parcels and insist you tell them what's in it. However, they ignore most of the stuff for private citizens and only go after the stuff for companies.
This is a good demonstration of why Income Tax is a much better form of taxation than Sales Tax: it's easier to enforce local taxation that way.
J.
You're only jealous cos the little penguins are talking to me.
Some companies have already found a way around this. For example, Play.com is located in Jersey, an island off the cost of the UK and France which is a tax haven. They can thus not pay any VAT, and still easily ship to the UK.
MoJo
const int one = 65536; (Silvermoon, Texture.cs)
SJW, n: "Someone I don't like, and by the way I'm a fuckwit" - AC
The tax is paid on the service ebay provides, not the goods that it allows to be sold through it.
This new taxation only concers eletronically transmitted goods. Like an MP3 file or a program. There is no change for physical goods, like books, DVDs or Computers. Those are still taxed when they come through customs.
Since non-physical, i.e. transmitted via the net, goods don`t go through customs, they have to find another way to tax it.
***Quis custodiet ipsos custodes***
http://slashdot.org/article.pl?sid=02/05/07/21542
good to see the search works for readers, it doesnt it seem work the same for editors
That's income tax you're thinking of. VAT is a recent innovation.
Im surprised... for a long time I really did think that most Slashdot posters actually thought about what they replied to... Do people really not bother to read about the subject first?
1) This is a tax on *digital* goods. Downloadable content. Online services. Nothing changes for physical stuff like books. VAT was always charged on those. Just like if you had ordered an item by snail mail.
2) What is all this nonsense about a sudden unfair trade advantage? EU based companies have had to pay EU VAT on their digital goods for ages! Finally the 15-20% advantage that the non-EU based companies were enjoying, has been rectified. Although I admit that having to work out 15 different VAT rates does present an extra administrative hurdle. Still, what are computers for if not to automate these administrative tasks?
AOL is one of the UK's largest ISPs. They got into the UK market early, at the time when most UK ISPs were small private companies, and have continued to be a major player in the UK market ever since.
But, because AOL UK is based outside the UK, AOL doesn't have to charge its customers VAT.
Good thing right? No. Bad thing. Very bad thing.
Whereas the UK-based companies, including almost all of the small private startups (many started by people who had previously run bulletin boards, etc), had to charge their customers VAT and then pass on that tax to the government, AOL used loopholes in the VAT legislation to avoid having to charge VAT yet it charged its customers the same amount that the tax-paying ISPs did.
In effect, AOL was able to charge its customers more for its services yet compete at the same level as everyone else - whereas the competition's prices included 17.5 percent VAT, AOL's prices included 17.5 percent extra profit.
Clearly, this has provided AOL with an artificial competitive advantage.
Breaking down the costs shows this more clearly:
AOL: £15.00/month charge, £15.00/month to AOL, £0.00 VAT to government.
UK-based ISP: £15.00/month charge, £12.76 to ISP, £2.24 VAT to government.
To make the same amount of money from each customer, the UK-based ISPs would have to charge £17.63 (£15.00 plus 17.5 percent).
Obviously, providing internet access costs money, and it's the difference between what you can charge and what it costs you that generates your profit. Well, in this case, it's like AOL has an extra £2.24 per customer for free. This isn't so much of a problem if operating costs are small, but it's a pretty big one when costs and charges are almost similar - and we all know just how cut-throat the ISP industry is don't we?
It's clearly ridiculous that two companies both providing the same service to the same customers in the same country should be effected by taxation so differently. And, of course, this point has been made by many within the UK internet community many times. However, until now, nothing's been done about it.
Some of the larger ISPs disadvantaged by this situation have threatened to take their operations overseas too, so as to put themselves in AOL's priviledged position, but this has never really been an option for the smaller guys that have been around from day one and that have hung on in there - relocating your business overseas isn't cheap and easy.
Even if AOL starts paying VAT now, the damage has already been done. Almost a decade of tax-free operation has allowed it to become one of the most dominant UK ISPs - all that extra cash has bought it a lot of extra TV and radio advertising as well as CDs.
I'm not in favour of taxation for taxation's sake but I am in favour of a level playing field. And, in AOL's case, the field's finally being levelled out.
"Accept that some days you are the pigeon, and some days you are the statue." - David Brent, Wernham Hogg
Let me explain how this VAT thing works as i've read a few incorrect statements.
When you are an EU customer and are importing goods, or buying a service, from a company in another EU state you will have to pay the VAT to either your own state, if you have a VAT number (i.e. you a re a company or a professional), or to the state from which you're buying from.
Let me give a few examples:
Company A in IT buys from Company B in DE:
A pays the net price to B and IT VAT to the Italian state.
A, because is a company, will subtract the VAT payed from the amount it owes to the state.
Individual A in IT buys from Company B in DE:
A pays the net price + DE VAT to B.
B will in turn forward the DE VAT to their own state.
Now that's the situation in the EU. If you're buying from the USA the things are a little bit different:
Company A in IT buys from Company B in the USA:
A pays the net price to B and the IT VAT + customs to the Italian state.
Individual A in IT buys from Company B in the USA:
A pays the net price to B and should pay IT VAT + import tax to the Italian state.
What really happens is that, often, A will not pay the VAT nor the import tax because the package is not checked at the customs.
This is, however, illegal.
What is going to change:
This may seem strange, but is just a way to enforce the law which will, however, put some hassle to USA companies.
If we in the UK (and I presume the rest of the EU) order from US companies we already have to pay VAT and other import duties at customs.
Just because it ships from the US retailer without paying that tax at, say $100, doesn't mean that is the end price for us the consumer. As well as paying your retailer in dollars I have to pay my customs in pounds. It's not a simpe one-click purchase and then delivered two weeks later.
This is a procedural change to close the loophole by which many packages get through without duty paid, and to stop the customs warehouses being clogged with unclaimed thinkgeek.com packages, and which will mean, hopefully, that my parcel doesn't wait in customs a week while I arrange to pay additional import fees.
Currently importing from a US retailer is not worth the hassle for me as a consumer. Perhaps this change will make those retailers more attractive to me.
erroneous: look me up in a dictionary
My suspicion is that this is also the reason why the EU wants to add this tax: It is a way to force citizens to buy stuff from the EU instead, thus supporting the local industry.
That's very much the reason, just add the word fairly to supporting. Just like all American companies have to pay VAT for the stuff they sell, all domestic European companies have to pay VAT when they sell online services. As these American companies apparently do not, they would have a clear unfair advantage in competition.
It would be rather idiotic to support the competitiveness of foreign companies with tax-free status, while taxing domestic companies. The situation would, of course, be different if online services had a tax exemption status also in Europe.
The case is somewhat similar as the hormone beef quarrel. European farms are forbidden by law to use hormones to beef up the beef. American farms are not. Therefore, if hormone beef imports from America are allowed, they have an unfair advantage over domestic producers, and the actual result is that consumers get the unwanted hormone beef on their tables anyhow, regardless of the laws that intended to prevent that in the first place. That's why they have changed the target of prohibition from production to selling and importing. USA of course doesn't like that.
Sorry, but that's not entirely true. The EU is funded from VAT, and it wants the money; whether the money comes from sales to local or foreign companies is very much a secondary concern. This will avoid a tax loophole, nothing more (that is, that customs don't have the man-power to manually check every single non-VAT-registered import shipment).
Of course, on another note, VAT isn't a flat tax in many (most?) EU countries, but varies from product to product (for example, books in the UK are VAT-free, clothing is at 5%, and most other things are at 17.5%)..../P.
James F.
Errr....what?
Value Added Tax is a tax on the value you've added to a product. If you buy a widget at 10UKP and sell it at 15UKP then you pay tax on 15-10 = 5 UKP. (Well, in principle; the mechanics are a bit more complicated. You charge VAT on the full price of everything you sell, pay VAT on the full price of everything you buy, take the latter from the former and pay the result to the authorities).
In Switzerland, it is a little different. You arn't just drafted at random. Every able bodied male under gos military training and has to take a "refresher course" every year. All of them are sent home after training with their weapons and gear. This creates for a make shift militia. There is very little ill feelings towards the process and with that in mind, it makes a very effective way to maintain neutrality. No sane person would come up against a willing militia a quarter the size of Switzerland's population.
VAT was introduced in 1973. Oh, and income tax was removed a year after the Battle of Waterloo, but was reintroduced in 1842.
If you buy goods which aren't zero-rated, though, it's more complicated. In general terms, Customs duty is added on the basis of the value of the goods including the cost of shipping and insurance. VAT is then added (17.5% in the UK) on the value of the goods including the duty (yes, you do pay VAT on the customs duty!). The fee from the handling company is between you, the shipper and the vendor, but I think it's part of the terms of service (using the word "service" loosely). You don't get it with goods shipped by post.
There are thresholds below which value duty and VAT aren't charged: on postal imports the limits are £18; or £36 (actually 45 Euro) for gifts (there are rules defining the meaning of "gift"). Just to complicate things, these limits apply to the intrinsic value of the goods, which is the price paid for the goods exclusive of shipping etc.
The effect of that is that the costs associated with buying from abroad cut in quite suddenly and dramatically. I can buy something for, say $25 (about £15.50) plus $11 (£6.80) shipping and handling and pay no import charges at all, but goods costing $30 (£18.75-ish) +s/h will cost me £25.55 (goods + shipping) plus, say £2.55 in duty (depending on the exact nature of the goods, obviously) plus £4.91 VAT (17.5% on £28.10). That's a total of £7.46 in charges, as opposed to nil for goods only slightly cheaper.
Of course, all this applies to physical goods. The article refers to digital goods and services. No-one is going to be paying one penny, or Euro extra in VAT for goods bought from outside the EU because of this.
Disclaimer: I work for HM Customs and Excise, who collect these charges. Until quite recently I specialised in the valuation of imported goods.
Legally, you should be paying import tax on this at the moment - or at least that is the case in the UK. I understand that EU law is harmonised on this.
There is an allowance of £18 (or £36 for "gifts"), but any package worth more than that is subject to both import duty and VAT at the point of entry to the EU. The importer (i.e. you) is responsible for paying this.
The issue here is around services and products with no tangible substance. When do these enter the EU? The ruling basically means that sales of these items takes place within the EU, and therefore the vendor is liable. The other option would be to say the purchaser is importing the goods, and make them liable. Obviously, this would be much harder to actually collect on, as you have to rely on individuals to a) declare it, and b) know they need to declare it.
It's all about levelling the playing field between EU and non-EU vendors. Previously, we had the perverse situation of EU vendors having to pay more tax on sales in their home market than non-EU vendors.
To verify this, quoted from Europemedia: "From the first of next month, a new EU directive will be enacted, forcing all internet companies to impose VAT (value-added tax) on all digital sales. This amounts to a tariff of between 15 and 25 per cent on items such as software or music downloads, any transactions as part of online auctions and subscriptions to internet service providers, sold over the internet anywhere within the European Union."
In other words, the tax is on services and digital products sold to EU citizens on the Internet. It's still annoying (and hellish for small shareware shops to deal with!) but at least it doesn't affect the cost of physical goods... yet.
And in the case of online auctions, this means that the EU will tax the service eBay provides, not the actual product supplied from seller to buyer.
Jouni
Jouni Mannonen | Game Designer, Consultant
If your family makes $20000, and you pay no tax (as is presently the case in the US),
I call bullshit on you. I make less than 20 000 dollars a year, yet I still pay Federal, State, and Social Security taxes. Perhaps, if you'd look at the facts rather than listening to liars with an agenda...
Black and grey are both shades of white.
The fact of the matter is that billionaire CEOs routinely get cars, jewelry, real estate or other valuables without paying for them.
More accurately, they get use of valuables without actually obtaining ownership, since obtaining ownership would equate to income. No tax law can touch this.
BTW if I knew of the specific loopholes I would not be posting here
Well, I do know a couple of people who are accountants for large (multi-billion $) companies, and they are the source of my knowledge about how the wealthy avoid taxes. Your view is the common urban legend and is, according to people who should know, groundless.
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