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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...
Up to now, this only happened when the retailer had a branch where the customer was located; US Retailer w/ branch in Germany selling to a German customer.
Now, all retailers in Europe have to deal with the hassle of having to individualy deal with the seperate tax offices in all the (european) countries its customers are located in.
Abslolute nightmare.
One exception: for b2b deals where the customer has an european tax ID, it's possible to bill without tax and the customer has to pay the tax to its local tax office.
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It seems like it'd attract less attention to only avoid some of the VAT rate - so PO box and VPN in Switzerland (8% VAT) could still attract a decent saving. Personally, I stopped offering digital downloads - the costs (and more to the point, risk) of compliance simply weren't cost effective given the time could be better spent charging an hourly rate. I've a strong suspicion that the additional revenue won't be nearly as much as predicted, most of which will likely be wasted in ill-fated attempts to force non-EU providers into compliance
This is so much more than that.
I own a web hosting business. My company id based in Canada (where I reside), and my servers are located in Canada.
If a European resident decided they wanted to do business with my company, all of a sudden I have to submit to their tax rules. I must collect and submit taxes to their countries government. Obviously I have the choice to decline, and tell the potential customer to go do business elsewhere... but that is bad for business.
I can register with MOSS in the UK, and it will allow me to accomplish this hassle much more easily, but it is still a complete pain in the ass.
"For all the vendor can tell" - patently not true, as the vendor won't rely solely on customer supplied information. Don't expect to be able to purchase anything with a payment method which doesn't corroborate location information supplied by the customer - this is not done on the honour system - so bitcoin et al are out.
Regarding sales to entities outside the EU, this is already covered by EU rules and VAT isn't charged for those sales - if, that is, the purchasers payment method details corroborate the extra-EU claim....
None of this is new, its all based on EU tax rules which have been in force in some manner for some time.
Yes, there's some paperwork involved.
Some? We have 35 different VAT regimes here... And VAT changes regularely. Try to integrate that into your webshop.
The problem with this system is that it's backfiring. Yes, it is intended at the big companies who can pick a convenient country to pay taxes in. But it only hurts thousands and thousands of little mom-and-pop webshops who suddenly need to file extra paperwork, keep "2 reasonable proofs of location of the buyer" (Duh? Over the internet?) and must keep that information for 7 years (Hello! Security breach knocking at your front door!). So, to downloading a font, a game, or anything else purely digital, I now have to enter my address details into each and every shop. Why? It's a freaking download. Creditcard number should be enough.
Then there are 2 additional problems:
"Fix it? It has been disintegrated, by definition it cannot be fixed!" - Gru in Despicable Me.
Is Switzerland part of the EU VAT system?
Regardless forget 8% - the place to be this year is Heligoland, part of Germany but with a 0% VAT rate.
Or the Channel Islands, a British Crown Dependency and though not part of the EU they are part of the EU Customs Territory. They too have 0% VAT.
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....
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.
Personally, I stopped offering digital downloads - the costs (and more to the point, risk) of compliance simply weren't cost effective given the time could be better spent charging an hourly rate.
This is one of the things that has most annoyed me. I have multiple businesses, one of which is a consultancy that charges for my time and therefore lets me put a very clear lower bound on how much my time at work is worth. By that standard, the amount of time I have spent dealing with this issue on behalf of other businesses interests I have is already a loss of thousands of pounds.
So, the "correct" commercial decision for me is to just carry on with the consulting business and close down all the genuine start-up work I've been building up on the side just as some of those ideas are starting to show returns. Of course, this is exactly the "wrong" decision if your goal is to support European economies and increase long term tax revenues, because in that case you really want me to take the risks and start the new businesses that have a chance of succeeding on a larger scale, not to follow the "safe" but inevitably more limited consulting path.
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
Yes, there's some paperwork involved. So, do the paperwork and there are no problems. It's the cost of doing business.
Congratulations, you just killed an entire sector of the European economy, which can no longer afford to operate.
You don't run a successful economy by making the price of doing business, particularly for small businesses, more than they generate in total revenues. That is literally now the case for thousands of businesses, though no doubt many of them will continue to operate illegally anyway because they don't even know they're doing anything wrong.
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
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
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
If you disagree, post your argument. (-1, Overrated) isn't your personal censorship tool for views you don't like.
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.
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.