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2015 Means EU Tax Increase On Cloud Storage, E-books and Smartphone Applications
schwit1 writes With the new year, a change in fiscal rules in the European Union is increasing the tax on many purchases of digital content like e-books and smartphone applications. Under the new rules, first approved in 2008, the tax rate on digital services like cloud storage and movie streaming will be determined by where consumers live, and not where the company selling the product has its European headquarters. Tax experts say Europe's revamped rules could add up to an extra $1 billion in annual tax revenue for European governments.
be thankful I don't take it all
And how much in compliance costs? I've seen stats on the US federal income tax that put compliance costs at about $300B for businesses and individual filers. It's not necessarily the tax rate that hurts the economy so much as it is the paperwork burden. Tax rates may hurt, but they can at least be planned for in advance. It's all of the compliance work that costs incredible sums of money to keep everything in order.
>> tax rate...will be determined by where consumers live
Wasn't there some nutjob article here last week about borders disappearing? Not as long as we have taxing bodies...
I paid my country VAT rate buying from UK stores many years ago. Actually big online retailers in USA started to add VAT with the rate of the customer origin many years ago too.
If the tax bill is based on where the customer lives, then prepare for less taxes. How long do you think it will take many Europeans to have bank accounts with addresses outside the EU? For instance, Jose Menendez of Spain might open a bank account in Morocco and have an address there that forwards mail to him in Spain. Now he can have an address in Africa and pay no taxes, as the taxes in the EU are based on where he lives. Or, he can simply buy EU electronic services using the name/account of someone in Russia, or the US or anywhere outside the EU. Given how you can choose a VPN that lets it appear you are in the country of your choice, how would they know? I'm not suggesting anyone do this, but when it comes to money, many people find cheating the government to be a sport.
So, if on my Ipod i will set the living place by choosing the first country on the list, Afghanistan, and will pay with Paypal or Bitcoin, will the tax be collected? How will the living place will be determined? Complexities are staggering.
On the other hand, there are approx 500 million people living in EU, which gives an average $2 revenue per person per year, or less than approx 1.5 EUR per year. Let's make a non-scientific assumption that 10% of the population are actually using the services, which gives $20 per user per year. It looks like active audience with the age of 16-45 is being targeted.
It is not a lot to the governments, but it could be a lot, a huge difference, for the new companies new businesses who will be offering the service. The compliance aspect itself will be a costly component of doing business. For those who do not think it is a big deal, tax non-compliance or even allegation can completely freeze the business.
All things added together only one conclusion comes to my mind. Taxes will be collected, but In the long term, the pirates will win and information WANTS to be free. We had Hollywood whining, and soon we will have tax authorities whining about "lost revenues".
So, if on my Ipod i will set the living place [to a country outside the European Union], and will pay with Paypal or Bitcoin, will the tax be collected? How will the living place will be determined?
if the vendor cannot reliably detect a VAT rate for you, they will use the fallback VAT rate of 15% for standard rate, or 5% for the reduced rate, which are the EU minimums for those rates.
The customer is in Afghanistan for all the vendor can tell. If VAT is based on the EU country of residence, what gives the EU authority to charge VAT on goods sold to customers outside the EU?
How stupid can everybody actually be? Tax on cloud storage? So they want access to your data, and they want to tax you for them having access to it and everybody in the E.U. is just okay with this?
First, "Cloud" is just a new buzzword for a very old idea of storing your data on other people's servers all under their control.
If you have your own servers, and your own internet connection, then you have everything you need to establish your own "cloud". Your data you can access anywhere on earth, and it will be under YOUR control. No tax, no access for others (unless you want them to).
Figure it out, it's not too hard.
5) PROFIT!
Don't be a fucking moron. If you buy something, you pay sales tax. This just makes edge cases related to the internet more sensible.
While the OP in principle is correct, the increased tax revenue is not the most important consequence of the change. The drastic part is the legal burden added on companies offering e-services. Any company (regardless of whether they are located in the EU or the US, regardless of their size, and regardless of their annual turnabout) that want to makes sales in the EU will now have to read and understand 28 different national tax laws regarding VAT. Not only do all these countries have different VAT rates, but they also have different exceptions depending on what it is that is sold. In one country the VAT rate might be 20%, unless the sale can be categorized for example as advertisement, in which case the VAT rate is 10%. In another country the item that is sold might be categorized in a different manner.
The burden of figuring out what tax to charge lands entirely on the salesman, even if he's just a hobbyist selling a single item. Needless to say, learning and keeping track of 28 different legislations is impossible unless you are a large corporation. But despite this, a german shop owner charging the wrong VAT rate for a bulgarian customer might end up being sued in a bulgarian court of law. And in the long run get extradited to bulgaria. Since this law change in practice is going to wipe out small business owners, there have been quite vocal protests raised. For example a twitter storm ended up making the #EUVAT hashtag trending at number 3 worldwide. (see http://euvataction.org/2014/12...) More information about what the salient consequences of the law change are can be found at http://euvataction.org/key-fac....
why does some fucker somewhere just get to make this shit up and then we all need to live with it? can't we just kill the people responsible and go back to when things were sane?
now look who's the moron. YOU
Since when do these sickening leftist scum bags care about the burden on the common man? None of them have ever worked a real job in their lives and all they care about is increasing their control. They're truly sickening bastards that need to be put down. Killing a maggot is a far greater crime than killing a hundred million leftists will ever be.
Thankfully, Apple take care of VAT/sales tax obligations for developers selling apps in their App Store. The sale contract is between Apple and the user. They pay the sales tax and pass us what's left.
Unfortunately, Google refuse to do this leaving the obligation with the developers. Our sales contract is directly with the user and we are responsible for paying sales tax in Venezuela or wherever the user is based.
The result: we don't develop for Android.
The simple solution is just not to pay the tax. What the hell is Venezuela going to do about it?
you are racist!!
oh this isn't the US? how do you all shut down opposition to taxes over there? here in the states we just call the other person racist if they don't like more taxes. keeps it simple.
Don't forget the big one here in the US: If you're against being beaten to death by niggers you're an EVIL RACIST!!!
Most of the US authors and artists I know who self-publish have recently been ranting about VAT MOSS compliance costs, and how it's basically too difficult and expensive to make it worth selling to Europeans since the new law kicked in, so their web sites now won't sell to you if you ask to ship to Europe.
The ones who aren't ranting about it either don't know about the issue, or are just planning to ignore the taxes.
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
Yes, the administrative burden is having a stultifying effect on cross-border trade. Example: for several years I have purchased access to the Usenet News server at the Free University of Berlin for 10 Euros/year. They have said that, because of the new EU and German VAT rules, they will no longer be able to accept payment from customers who are not tax-residents of Germany, which I am not. Apparently a number of websites of small traders in the UK are now putting up messages saying that they can sell to customers within the UK, and outside the EU, but not to those resident in other EU countries. So much for the "single European market". The EU has shot itself in the foot over this. And things are going to get worse: at present this VAT ruling only applies to electronic downloads (music, videos, ebooks, knitting patterns, etc.) but there are plans to extend it to physical objects. This seems crazy to me.
Most of the complaints here are in regard to complexity.
Wouldn't it be reasonable for the EU to then provide a webservice for such a calculation.
They take in an address/other info and tell you how much to add to the bill. How much info would be up to the EU. It's their citizenry. They can then vote on how much is too much. Heck, if they can force their own citizens to provide a government issued national ID and retina scan for every purchase for all I care.
They can provide healthcare and education. They should be able to build a webservice :P
I'm blowing several moderations in this thread to make this point, but it's important enough that it needs to be made.
Almost no small sites were doing there own checkout process, those that are can use VAT MOSS in the UK (I'm sure equivalents exist in other EU countries) to avoid registering with ANY new tax authorities.
That is some combination of unrealistic and simply wrong.
For one thing, there are thousands of small/micro businesses -- actually, it could be millions, but no-one has accurate figures across all of Europe yet -- that are theoretically affected by the new EU VAT rules this year. The governments of the states individually and at European level completely dropped the ball on this one. They didn't even realise those businesses existed, as they have now openly admitted while panicking about the damage they've inadvertently done and now can't fix in time.
Many of those businesses have no idea they are now breaking the law. They haven't been told anything by any government authority, most of them don't have an accountant, and even if they do, even most accountants didn't see this one coming. Until this year those vendors probably weren't doing anything wrong because they were far too small to go above their state's VAT registration threshold while they sell their band's music or their knitting patterns or their e-book as a digital download. Under the new rules, there is no minimum threshold for registration any more: sell a 5 Euro download to one customer in any other EU state and you need to register either with that state's national tax authority or with your home nation's MOSS scheme.
Now, as soon as you're caught in the net, you are now into the practically impossible auditing requirements that require two non-conflicting data points to verify a customer's location. Even most payment services, marketplace sites and professional accountants can't cope with this yet, never mind your mother's side business selling PDFs of the local church's choral arrangements for a token charge to raise some money to fix the church's broken window with a simple web site and a PayPal button.
Of course, all of this is being done because you now have to charge VAT at your customer's state's rate instead of your home state's. You almost certainly don't know that yet when you first show a customer the price, because you don't have the required multiple non-conflicting data points to satisfy the audit rules. In practice, that means you probably can't comply simultaneously with both the new EU VAT rules and existing consumer protection legislation that requires prices for B2C transactions to be advertised tax-inclusive, and you will be breaking some law one way or another even if you make a good faith effort to comply.
Even if you are doing almost everything yourself and can comply with the audit and advertising rules, you then need to register with your national data protection authority because you'll have a requirement to maintain personal data about your current and past customers for 10 years and be subject to audit at any time by any of 28 different tax authorities. Or you don't need to register, because the data falls within an exception. Not even national governments are giving consistent information on this point so far.
Once you've registered with everything you need to register for, you might then wind up putting up your prices for everyone, because you're now effectively prevented from relying on the VAT threshold (though to be fair at least some EU states have taken emergency steps within the last few days to address this problem).
On top of all of that, you now have ongoing reporting obligations that probably require you to understand a minimum of two VAT-related returns (one national in your home state, one MOSS) so you can look forward to either spending several days becoming an expert on your national tax law or paying a substantial amount of money to professional accountants and hoping that you can find one that understands the
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
It will *DESTROY* compettetion between member states of the EU by small traders, while making absolutely no difference to Amazon, ebay, chinese sellers etc.
The irony is that if they don't fix this mess quickly, it will make quite a different to big business. Specifically, big business will be the only business that can afford to keep track of the compliance rules, so small businesses will have to sell via marketplaces run by big businesses and give big businesses a substantial cut of the revenue. Amazon and friends won't need to play games basing themselves in tax-efficient places in Europe; they can just place themselves tax-efficiently on a global level and wait for all the small businesses in Europe to give them a 30% cut of everything sold on-line.
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
read and understand 28 different national tax laws regarding VAT
Which isn't half as much trouble as you make it out. Firstly, most people who are half-way serious about selling something online use some kind of merchant service that will manage that for them. Secondly, you don't need to read the whole law. You only need to understand what the tax rate for your product is. If you're a small company or hobbyist, you're unlikely to have more than one class of products.
And in the long run get extradited to bulgaria.
Total nonsense. To be a crime, and not just a misdemeanor, you have to commit tax fraud intentionally. You won't get extradited for a misdemeanor.
Assorted stuff I do sometimes: Lemuria.org
For starters i'm not very clear on how this is affecting me... and tbh why this has to be implemented. Why are taxes being placed regionally or as per localities? Can somebody provide a simpler explanation like the one at http://bit.ly/1xEXf7K... this seems like a much more reliable community.
Firstly, most people who are half-way serious about selling something online use some kind of merchant service that will manage that for them.
Wrong. On some estimates so far, that group is actually a minority of the small and microbusinesses affected by these measures. It certainly isn't "most".
Secondly, you don't need to read the whole law. You only need to understand what the tax rate for your product is.
Wrong. You also have to understand, for example, the rules for issuing VAT invoices, which again differ widely among the 28 EU states.
Of course, even if you were right, "understanding what the tax rate for your product is" is no small thing now. Each state has its own quirks about different rates for different types of product. You can't even rely on the obvious indicator, the ISO country code that pretty much everyone's database uses, to reliably determine which tax rate applies in some cases.
To be a crime, and not just a misdemeanor, you have to commit tax fraud intentionally. You won't get extradited for a misdemeanor.
Of course it's unlikely that someone is going to be shipped off to another country and tortured to death because they didn't collect 17 Euros of VAT. However, you are effectively now subject to audit by any of the 28 states' national tax authorities if you sell digital products within the EU, and if you've ever actually run a business and had your number come up for an audit, you'll know how much fun that is.
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
Oh fuck off, it isn't some universal truth. I'm buying from taxed income, and in a download situation the governments have the sum total of fuck all to do with it, nor are they doing anything in terms of providing utilities or services, recompense, or policing.
Wrong. On some estimates so far, that group is actually a minority of the small and microbusinesses affected by these measures. It certainly isn't "most".
Really. Maybe I learnt something new today, or maybe we're talking about different things. You see, I'm not talking about Grandma's Handmade Socks or the local pizza delivery service - they're not worried about cross-border commerce. These businesses are the vast majority of microbusinesses. But they are not affected by this measure.
the rules for issuing VAT invoices, which again differ widely among the 28 EU states.
Really. Apparently I was dreaming when a 30-second Google search turned up this informative overview that includes, among other things, a bullet list of what an invoice has to contain.
However, you are effectively now subject to audit by any of the 28 states' national tax authorities
Again, maybe I will learn something new today, but so far I assumed that existing cooperations of the tax authorities would make it so that only your countries tax agency will ever audit you, however it may do so on request from another tax authority.
Assorted stuff I do sometimes: Lemuria.org
I beg your pardon, but AFAIK VAT on ebooks in Italy is going to be lowered from 22% to 4% aligning it to that of paper books.... #abookisabook
You see, I'm not talking about Grandma's Handmade Socks or the local pizza delivery service - they're not worried about cross-border commerce. These businesses are the vast majority of microbusinesses.
Grandma's Homemade Socks aren't affected this year because they don't supply digital products on-line. If the current plans haven't changed by the time the VAT rules change again in 2016 to include physical products as well, you should probably start planning for another significant dent in the European economy.
Pizza delivery companies aren't microbusinesses. Microbusiness in this context usually refers to individuals who sell something on the side to make a little extra money on top of their day job.
There have been reasonable estimates already that in the UK alone there are more than a quarter of a million such businesses selling on-line and affected by the new rules. Representatives of the UK government and tax authorities have already admitted that they didn't appreciate how many such businesses there were or how much they would be affected by these new rules.
I don't really see what the number of other microbusinesses that may exist has to do with anything. We're talking about on-line sales affected by the new rules, as you noted yourself in the post I first replied to.
Apparently I was dreaming when a 30-second Google search turned up this informative overview that includes, among other things, a bullet list of what an invoice has to contain.
Look at the length of the document you just linked to. Seriously. Then consider how many other documents like that someone might have to read and understand to determine which tax rates apply and what else they need to do. Then consider how much effort would be required for compliance by someone who makes a few hundred Euros a year selling a PDF of face painting ideas for kids' birthday parties, and tell me whether it's still worth trading.
Again, maybe I will learn something new today, but so far I assumed that existing cooperations of the tax authorities would make it so that only your countries tax agency will ever audit you, however it may do so on request from another tax authority.
We simply don't know yet. It is clearly the case that any of the 28 states' tax authorities will have the legal right to audit. There appear to be some procedures under discussion that would try to make things more sensible in that any audit would be co-ordinated by your local tax authority, at least in some states. But again, you're talking about 28 different tax authorities that each work their own way and they can and do interpret VAT rules differently. It is certainly not as simple as "only your home tax authority can ever audit you". That would rather defeat the intended point of these changes, after all.
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
that in the UK alone
The UK is a special case here in that you don't have to register for VAT at all unless your revenue is quite considerable (much bigger than any microbusiness). So yes, for the UK, a lot suddenly changed.
Look at the length of the document you just linked to. Seriously.
It has a TOC. It took me literally 10 seconds to find what I was looking for in it.
We simply don't know yet.
We can agree on that. Maybe I've just been in too many positions where people came to me all day long complaining that this or that change or proposed change will make the sky fall. Maybe I've become desensitized to these alarms, because I've heard a new one like it every week for a decade.
Right now, on "we don't know" we can agree. Because I wouldn't bet my house on that nothing bad will happen, either. But I don't see the sky falling.
Assorted stuff I do sometimes: Lemuria.org
Well, let me give you one data point. I have a business that is big enough to be worth continuing under these conditions, but only does a tiny amount of trade across EU borders (we're UK based and the US is by some way our biggest international market so far). It's larger than a microbusiness but still in its early days being run on the side by the founders rather than with any full-time staff.
We knew some time ago that the change to charge VAT in customers' local currencies was coming (no thanks to HMRC, I might add) and we planned for that in plenty of time, so from that point of view all we had to do was figure out what tax rates to put into our DB for different country codes. It seems like you think this is all that is required, and if it were then I would agree it wasn't an unreasonable change from a tax policy point of view.
What we didn't know was everything else that was going to follow from that change. For example, we had to implement geolocation and various reporting on top of it, in order to satisfy the two criteria rule.
That required significant programming skill and general awareness of what was possible, which to a non-programmer selling PDFs with a PayPal button would be rocket science. And of course it's only possible because we built our own site; as far as I can tell, most payment services and a lot of marketplace sites don't actually provide enough data to comply yet, and European governments have had to make temporary changes to the rules (basically saying that they'll ignore this one in practice) so there is breathing room to sort the mess out.
Even we are still vulnerable to problems if a customer changes their self-declared location to something that conflicts with their geolocated IP address, because now we're required to find and record a third data point to disambiguate, and what is that supposed to be? Again, not all payment services will disclose that kind of information, so you can't rely on that. You could hassle your customers for extra data, but it might not count because any amount of customer-volunteered information is only deemed to be a single data point for these purposes.
Even given a perfect system where no customer ever disagrees with their geolocated IP address, that geolocation is itself entirely dependent on the availability and accuracy of a suitable database, which no EU government is currently offering to businesses despite officially recommending using a geolocated IP address as one of the data points.
On top of that, there is an as-yet unanswered question about what happens for recurring payments, where typically the data is collected up-front and then later renewals are charged automatically without any customer involvement and therefore without collecting or validating any extra data points to go with that transaction.
All of that is because of one knock-on effect of these new rules, which is not inherent in the tax policy itself. And I haven't even mentioned a bunch of related issues like the data protection implications, the fact that a country code alone isn't actually enough to determine the tax rate in some cases, the consumer protection rules that require displaying the full tax-inclusive price a customer will pay before you necessarily have enough information to make that determination, and the additional burden of updating all your accounting and reporting practices to cope with the barely document MOSS procedures.
Bottom line: As an experienced programmer with full control of the site and reporting scripts, this has still probably taken me a week of effort altogether, maybe more by the time you include all the reading of background material to figure out what was required in the first place. That might have cost another small business hundreds or more likely thousands of pounds if they'd had to hire a freelancer for a short-term gig to do the same work, while those who don't run their own sites and instead operate via marketplaces are entirely reliant on the marketplace to get it right, which most don't
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Good points with solid first-hand experience, thank you.
Yes, it's an additional burden and I don't think the two-data-points requirement is great, though I can't immediately think of a better solution that isn't trivial to game.
The problem is that there's no good way to make the rules better. Keeping business-country-VAT is an open invite to more Amazons to incorporate in low-tax countries. Putting a only-applies-to-more-than-one-million-revenue-companies exception on it would mean the same thing has different taxes depending on whom you buy it for (and would utterly destroy small shops that happen to be in a high-VAT-country).
No matter how you skin the cat, the result is ugly.
Assorted stuff I do sometimes: Lemuria.org
The summary calls it a tax increase, but the tax rates aren't changing (or if they are, it's up to the individual member states, not the EU). What the EU is doing is closing a tax loophole that allows big companies (Amazon and the like) to put their European office in a tax haven so they don't have to pay any sales tax in the EU. But now they have to pay the VAT rate in the country where the customer is, rather than where their own office is.
In principle that's totally reasonable. What upsets a lot of people about this new rule is that small time PDF publishers may have to register for sales tax in 28 countries as well as collect data on where their customers are (and the rules for that are really confusing) and keep that data for 10 years, when previously they didn't have to know anything about their customers (because they just downloaded the thing, and payment was handled by a payment provider), and they didn't even have to pay any VAT at all because they were below their countries VAT limit, due to their low volume of sales. The new rule doesn't seem to specify any minimum.
I got the impression that this was already the rule for physical objects. And there it makes sense, because at least you know what address you're shipping it to. It'd be crazy to do this only for downloads and not for physical stuff.
By the way, the argument that is significantly hurts the common market, is a really good one. I'm sure that should be able to get some people to take a closer look at the effect of this new rule; it goes completely counter to the primary purpose of the EU. I've also heard from a number of non-EU shops that they're not going to sell to the EU anymore because of this. I think a lot of people are panicking a bit too much, but the result for EU customers is clearly a very negative one if this means they can only buy stuff from local or very large webshops.
Wrong. On some estimates so far, that group is actually a minority of the small and microbusinesses affected by these measures. It certainly isn't "most".
Really. Maybe I learnt something new today, or maybe we're talking about different things. You see, I'm not talking about Grandma's Handmade Socks or the local pizza delivery service - they're not worried about cross-border commerce. These businesses are the vast majority of microbusinesses. But they are not affected by this measure.
Every small-time RPG publisher selling a few PDFs per week is affected by this. And many believe they're even affected if they don't live in the EU. Some have announced they won't be selling to EU countries anymore (which still means they need to figure out where their customers are from, of course).
Big part of the problem is that information is sparse and very late. The law may be from 2008, but most shops only heard about this a few weeks ago. So now people are panicking. Justified or not? Nobody really knows.
It seems to me that the most practical solution is to say if you're going to charge tax that is going to the tax authorities in another EU country, those authorities must use a standardised EU-wide tax rate for cross-border sales.
This does mean each nation would have to surrender some control over its tax levels, which is a threat to national governments and not likely to go down well. But then this whole policy is designed to undermine precisely that independence anyway, so I'm not sure that's really any worse. After all, it is quite strange that extra-national taxes are effectively levelled in the first place, something that in itself is only enforceable in practice because of EU-level agreements between the affected countries.
Clearly the same idea doesn't scale to a global level without completely killing off small to medium-sized businesses and doing horrible damage to global trade, so if the states of the EU want a special arrangement, maybe the burden should be on the EU to make it workable.
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
True, a unified "EU VAT" would be ideal. But given the realities of politics, it's not something that will happen within this decade.
Assorted stuff I do sometimes: Lemuria.org
Perhaps not, though I suspect neither is collecting the level of extra tax revenues they think they're going to get from the recent EU VAT rules...
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.