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."

Comments

last week's news?

[flokemon]

http://news.bbc.co.uk/1/hi/business/2968106.stm

Re:last week's news?

[jeffreyporter]

I was under the impression that in the UK VAT is not applicable to second had goods. i.e. you buy a car from a guy down the road, you don't pay VAT on it.

So why would EBAY have to add VAT to second hand goods sold online?

Re:last week's news?

[brain159]

eBay have to charge VAT on their fees as paid by the seller, not the final item price as paid to seller by buyer.

What will happen?

[jolyonr]

if companies in the US, especially small etailers, don't bother?

Re:What will happen?

[aug24]

Pretty much what happens now:

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.

Re:What will happen?

[SkArcher]

Economically, however, Sales Tax (or VAT as its called here in the UK) is a vital tool for regulation of the economy, as lower Income Tax and higher VAT encourages people to save (especially in conjuction with a higher base rate of interest on borrowing to discourage people to take loans out and encourage them to keep money in bank accounts)

Re:What will happen?

[Ben Hutchings]

VAT was introduced as a temporary measure (a tax on luxuries) over two centuries ago to fund the Napoleonic War.

That's income tax you're thinking of. VAT is a recent innovation.

Re:What will happen?

[JaredOfEuropa]

A very good question, especially since this tax concerns non-physical goods such as web subscriptions, downloaded music and software, etc, that cannot be taxed at the border. I see three possibilities:

1) The small retailers will not bother with the hassle and expense of collecting tax for a foreign nation. The EU will not bother going after these retailers either, and all will be well.

2) The EU will force all EU ISP's to block net access to the small retailers' sites.

3) The EU (perhaps even with help from the US) will try and make these retailers reject sales from the EU.

This sounds like an administrative nightmare. The beauty of the Internet is that I can sell goods to anyone in the world who wants them, with a minimum investment in a website and the means to process credit card payments. This requirement could spell the death of that idea, and I find it incredibly selfish of the EU. What if every country made this a requirement? As a small retailer, I would suddenly find I have to collect taxes for the EU, certain US states, Russia, the Ukraine, Zimbabwe, Thailand, Australia, Venezuela... imagine the nightmare of doing administration for all this. Are they somehow counting on no other country implementing a similar policy?

Re:What will happen?

[Hittite Creosote]

VAT was introduced in 1973. Oh, and income tax was removed a year after the Battle of Waterloo, but was reintroduced in 1842.

Darn

[YeeHaW_Jelte]

I've been buying a lot online in the States lately because of the bonus I now get with the Euro being valued so high against the dollar. This will neatly compensate for the savings I make on the exchange rate.

However, there's nothing really new actually, because officially you were supposed to pay the VAT taxes when the product went through custom. The thing was, some packages would be intercepted in customs, and you'd get a bill for the VAT, and others wouldn't. Profit!

A Note to Europeans about taxes....

[adzoox]

A note to europeans about eBay:

How can you collect sales tax on a used item? The tax was already paid here by the original purchaser.

Most items I sell are used or "prepurchased" or involve a service. None of these items are taxable here and are considered sold at yard sale or at auction. Neither of which in my state are taxed. For some reason, some live (in person) auctioners charge tax here, but they aren't suppose to. They are told to by local governments who "slip it in"

Again, if something is used, taxes have already been paid and it's benefits to society have also created revenue generation, which in turn, is more tax collected. Say I buy a printer at retail. I pay the sales tax. Then, I use said printer to print my envelopes, receipts, business cards, correspondence, pictures to sell, etc etc - generating more income for my business. I have also used said printer purchase to make more money to spend and thus taxed, giving even more money to the government for the printer!

A lot of people that collect tax on eBay and especially Yahoo NEVER pay that back into the government. This is like the bogus people that collect tax at flea markets or for service calls.

I will hope that eBay will just add the VAT to the total bill so that we don't have to collect it and pay into some sort of escrow.

Re:A Note to Europeans about taxes....

[REBloomfield]

The tax is paid on the service ebay provides, not the goods that it allows to be sold through it.

Re:A Note to Europeans about taxes....

[nmg196]

> How can you collect sales tax on a used item?

You can't. And no-one's saying they will. They're talking about eBay themselves collecting the VAT - not the *sellers* on eBay! You never pay eBay for the items - you pay the seller. The seller then pays eBay a listings fee and this is what will be taxed - not the item.

The exception perhaps would be new goods, but that would be up to the selling vendor to ensure they charge people the appropriate tax for their region.

Well, will only make me stop shop

[Anonymous Coward]

Living in sweden, the only reason that I buy stuff from Amazon is that (even including costs for transports), the books are like 10-15% cheaper, and that music cd:s are like 25% cheaper. If VAT is added, this price difference will be void, and thus I will simply stop buying stuff from USA. It will simply be faster, cheaper and more convenient to buy stuff locally. 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.

Re:Well, will only make me stop shop

[magi]

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.

Re:Well, will only make me stop shop

[pcaylor]

If you are buying music CDs 25% cheaper than what the RIAA has determined to be the correct price for your country, you are obviously a pirate. At least one quarter of every CD you own is illegal. With the current strength of the Euro against the dollar it could be as much as one third of every CD. A RIAA audit compliance team will be dispatched to your home to calculate the damages you owe and to cut out the pirated portions of your CDs. You will be notified of the damages you owe us in our press release entitled âoeSurvey shows one third of all CDs in Europe piratedâ

Re:Well, will only make me stop shop

[csteinle]

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.

Re:Well, will only make me stop shop

[mark2003]

You confuse equality of opportunity ("everyone can get rich, some will, some won't") with equality of results ("social equality", "social justice", or "evening out income"). The two types of equality are emphatically not the same thing. I would argue that one is the antithesis of the other.

I think you are missing the point. Social equality and social justice are the bedrocks of democracy (I take issue with evening out income). You cannot have equality of opportunity without giving everyone the same starting point. In (most of) Europe anyone with high enough grades can go to any university. In the US, Forest Gump can go to Yale because his dad is wealthy and the director of the CIA whereas as some poor kid with an IQ of 200 may never be able to afford to go to university (may have to look after sick parents who cannot afford health care for example). That is not equality of opportunity.

This is a Good Thing (tm)

[levell]

People in the UK (and presumably the rest of the EU) have always had to pay VAT on things they have physicially imported. Why should the internet be any different. VAT is an important component in the EU model of taxation and closing this loop hole can only be good for our public services like schools and hospitals. People always moan about taxes, it can't be that complicated to implement.

Why collect here

[uspsguy]

I've got to wonder why a US company would collect EU taxes. Wouldn't the destination country just do it when the merchandise is picked up?

Damn Euros!

[GMontag]

From my cold dead, er, wait . . .

Give me Liberty or give me, er, hold on . . .

If I had a hammer, I'd hammer, no, not that one . . .

No taxation without representation! No tea for me!

Crap! Isn't there an old bumper-sticker worthy phrase for this nonsense?

VAT

[pubjames]

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."

Assuming that governments have to collect taxes somehow, why is this a bad way to do it, as opposed to income or corporate tax?

Although many Americans give the impression that they think all taxes are evil, over here in Europe we quite like having things like free health care for everyone, tidy streets etc. We think that it makes for a fairer and more civilized society, even if it means that we are all a little poorer (in monetary terms) than you guys. Many of us find the attitude of some Americans - that taxes and social government are 'evil' - frankly a bit bizzare.

Although I guess it is understandable looking at the current state of politics in the USA. How is it that you guys no longer seem to be bothered about such essentials of democracy as transparency and avoiding rid of conflict of interest in your political leaders?

Re:VAT

[GothChip]

Because we also pay Income tax.

I don't mind the idea of paying tax. It's just the idea of paying tax when you earn it, paying tax when you spend it and paying tax when you even save it.

Why can't we just get taxed once.

But the most evil tax has to be inheritance tax. Even when you die you end up paying tax.

Re:VAT

[Guppy06]

" They are saying "if you want the _privilege_ of selling products to the EU, you will have to follow the rules". This is exactly as if the US would charge import duties when you receive expensive goods from overseas by mail... "

No, it's not. Customs and duties are collected at the point of entry, not the point of sale. This means the cost of the infrastructure to collect these is paid for by the destination. The EU wants VAT collected at the point of sale, which means that it's now the store's responsibility to conform to EU laws, not the purchaser's.

"In the case of products bought from non-EU companies that are physical items, customs collect the VAT and import duties."

Again, note that it's collected from the purchaser, not the store.

"but since nobody would actually bother to do it, now non-EU online services will be required to collect the VAT for the government if they want to sell to EU consumers."

So what you're saying is that international businesses are being penalized for the actions of the EU's own citizens? What, it's OK so long as it's not the US doing it?

"VAT is not a tax on the stores, it is a tax on the consumer."

It's a tax on the stores because the stores are the ones that have to pay for the infrastructure needed to collect some other country's tax.

Only for digital (non-physical) goods

[mocm]

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.

Re:Eh? Do you really TRUST them with your money:?

[Hrshgn]

>Why would you want to give your hard earned money to a government? Because you want the government to be able to provide services to all citizens. That's what a social democracy is all about. I for one have just received my university degree and I still have money on my bank account because education is supported by the government here in Switzerland. Thank you society! Hrshgn

Re:Simple Greed

[radish]

You only pay the VAT once. As it stands now, you pay the tax free price to the retailer, then (supposedly) pay duty & VAT during import. Of course usually you don't do that because the package is just waved through (I've NEVER had to pay duty or VAT on any imports).

What will happen next month is that the VAT will be collected by the retailer, and they will be responsible for sending it to your government. The duty will still be chargeable on import (I assume), but you won't need to pay VAT twice.

Re:Nop...

[Branc0]

That's exactly what the EU wants with this law. To support the local industry and diminuish the imports of goods from other contries, especially U.S.A.

Re:The EU is a real mess....

[LeftOfCentre]

I do not believe that Europeans generally dislike the governmental structure of the United States, but rather the policy of the government which is significantly more to the right on the political scale. The way I feel is, if we have to become a big federal country in order to stand up to the US (which I sadly feel is increasingly necessary, for many reasons), then so be it. There will be drawbacks as well but we will have to accept them as the alternative is worse. Small independant countries are shark meat in today's world.

As for socialism, well, the EU institutions as such and the treaties that founded them really are fairly liberal (in the non-American sense, where liberalism is considered freedom, etc).

I think your comparison with the USSR is quite a bit off. We're talking about old and stable democracies with market economies.

AOL UK's unlevel playing field

[WIAKywbfatw]

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.

Actually, we don't care...

[Anonymous Coward]

We Europeans simply don't care about the US, we don't spend out days wishing we were Americans, we don't envy the US, we are not always comparing ourselves to Americans, we don't think we have a lot to learn from America, America is on the periphery of our consciousness.

We organise things (like health care) the way we like them, and we organise things (like taxes) the way we like them.

We are big and economically powerful enough that major (and minor) American companies *have* to comply with our laws if they want to benefit from our large market.

And if Americans don't like it, don't like us, don't like the way we do things, don't like the EU, guess what? We don't care...

The whole thing explained

[azummo]

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:

• - For EU companies: Little or nothing.
• - For USA companies: They will have to collect VAT tax from the UE citizens and forward it to the EU.
• - For EU individuals: They will have to pay the taxes because the law will be enforced at the point of origin.
• - The market: EU companies will gain the advantage they had lost due to unfair practices of the UE citizens (or customs offices).

This may seem strange, but is just a way to enforce the law which will, however, put some hassle to USA companies.

Why Sales Tax is Bad

[Jonathan]

Assuming that governments have to collect taxes somehow, why is this a bad way to do it, as opposed to income or corporate tax?

Because in a fair tax, the rich pay either the same, or more than the poor. Income tax handles this -- either with a flat percent or with increasing brackets. The problem with sales tax is that while Mr. Millionaire might buy more things than you do, he doesn't buy *proportionally* more things -- a man can only drink so much beer, after all.

So as a total percentage of income, Mr, Millionaire pays *less* sales tax than you! Not very socially progressive, eh? Not surprisingly, the rich have always hated income tax and preferred sales tax for exactly this reason.

We already pay VAT - just not direct

[erroneous]

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.

Re:Eh? Do you really TRUST them with your money:?

[mark2003]

Railway lines?

Don't be ridulous - I can buy a HumVee and drive anywhere I want, when I'm not in my private jet.

Organised public transportation is communism - it takes your freedom!

Re:You're so silly

[joonasl]

The funny part is stores in most of Europe can't display the VAT tax separately, because your government is afraid if you saw how much tax you paid every day on necessities, you'd rebel in 6 months.

That's complete BS. All receipts that are to be kept in any kind of official records MUST have the VAT amount and precentage shown, so all the stores are obliged to write such a receipt if asked (due to which allmost all modern cash registers print it automatically).

I guess, it's also a question of what you are used to, but I really got irritated in most US shops due to the fact that the listed prices did not contain VAT. IMHO it's nice to know how much the thingy your are about to buy will eventually cost with out calculator..

Why is tax bad?

[CompVisGuy]

OK, nobody likes to pay more for the same goods. Nobody likes the idea that their hard-earned cash is going to the government.

But where is the money really going? If we assume for a moment that you have a government who spends their collected taxes wisely (not always true, I'll admit), then that money gets put to good use.

Such taxes will be used to pay for health care (here in the UK we have a nationalised health service, paid for by taxes), transport infrastructure (roads, rail, air etc.), education (again, here in the UK, schooling is paid for by taxes, and university education is mostly paid for by taxes), police, ambulance, fire services etc. etc.

If EU citizens were shopping in the US via the web, because it is cheaper, those taxes wouldn't be being paid, and the services that rely on them would be underfunded.

I can only speak from a UK perspective on this, but while our education, health etc. services are free from many US-citizen's perspectives, they are terribly underfunded. General elections are usually fought on the basis of taxation, and the population votes for the party offering the lowest taxation (a simplification, but it's almost this simple) -- so there is little growth in the amount of money that can be spent on public services.

To put this in perspective, a few months ago I saw a news item announcing good news: NHS patients with a specific serious heart problem had their operation waiting times cut by 6 months: the waiting time for the surgery was now just 18 months. I ask those Americans reading this: would you buy health insurance that had an 18 month waiting list for major heart surgery?

If I was faced with the choice of being able to buy a DVD for £15 rather than £20, or having a health service that actually worked, guess which I'd opt for.

Re:That is the whole point

[aaarrrgggh]

All that having been said, I would prefer the elimination of income tax and capital gains tax in favor of a federal sales tax (even if said tax were 30%)...

The whole problem with tax code is that there are special considerations to help stimulate the economy.

If you tax sales rather than income, that has an unfair effect on people scraping to get by, while assisting people that save their money, not contributing back to the economy.

Flat income taxes are the only way to go. In Hong Kong, you pay (IIRC) 15% flat tax on income. It really sucks your first year (when you effectively have to pay tax for two years with one check), but it's a great system. People are still afriad of Inland Revenue to some extent, but the tax dollars aren't wasted on a huge auditing system. Filling out your paperwork takes a couple minutes, then a half-hour in line if you need to file in person.

Re:I agree

[YrWrstNtmr]

For instance, I know I don't pay anything towards machines for killing.

Really? Sweden does not have an Air Force? A Navy? An Army? Does not Sweden produce a very capable set of fighter jets, SAABs?
Does not Sweden still cling to the archaic concept of a draft ?
Are Swedish military personnel not currently deployed to such places as Afghanistan and Kosovo?

Thus in Sweden, I can live almost as well by not working as working.

IOW, an apparently otherwise intelligent young male, can live as a leech on the ass of everyone else, contributing nada. And brag about it.
The only reason you don't pay anything towards a military is because you don't have a job, and thus pay no taxes.
Yeah...that sounds like my kind of paradise.

I get free medical care.

"Free", only because you are a leech with no job, and pay no taxes.

And my country is free of racial tension because we have strictly limited immigration from trouble makers.

IOW...instead of allowing immigration, and possibly helping some poor slob who wants a better life, you selfishly keep your 'paradise' for yourselves. Must maintain that Nordic racial purity. Keep out anyone you don't like the looks of.

To clear things up a little...

[Jouni]

The original posting is a bit misleading, the tax is only on "sales of digital goods and other electronic transactions", as stated by the article (which nobody reads :)).

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

Sounds like a god deal to me!

[jmorris42]

Basically this is a tax on large multimational corporations. So that makes small companies more competitive. What's not to like?

AOL, eBay, etc have to comply because they have operations in the EU. Small companies, located entirely in the US can safely ignore anything the EU says because their laws don't leave their borders any more than a US law can apply to a company in the EU.

This is just a larger version of the fun we get inside the US with sales tax. Buy from a small outfit and you don't pay sales tax unless you are unlucky enough to be in the same state. Which, btw, is why so many mailorder/online retailers avoid establishing operations in high population states.