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2015 Means EU Tax Increase On Cloud Storage, E-books and Smartphone Applications

Posted by timothy on from the takings-clause dept.

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.

10 of 164 comments (clear)

  1. should five per cent appear to small by fche · · Score: 4, Funny

    be thankful I don't take it all

    1. Re:should five per cent appear to small by AmiMoJo · · Score: 4, Insightful

      Actually VAT is 15-20% in the EU. We like it that way, it pays for stuff like our socialised healthcare and affordable/free education.

      --
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  2. $1B in new tax revenue! by MikeRT · · Score: 5, Interesting

    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.

    1. Re:$1B in new tax revenue! by FooAtWFU · · Score: 4, Insightful

      It's particularly lovely in this case because you need to record not just the customer's location and the tax rate there, but also some corroborating evidence that the customer is in fact in that location, then register with the appropriate authority in that location. The reporting burden is going to mean fewer small sites capable of doing their own checkout process.

      --
      The World Wide Web is dying. Soon, we shall have only the Internet.
    2. Re:$1B in new tax revenue! by N1AK · · Score: 4, Insightful

      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. Did you ignore that because it doesn't gel with your hyperbolic or did you not even know about it?

      Short of setting an EU VAT rate there's not much else the EU could do. Let one country undercut others on VAT and you'll get big players like Amazon/Tesco setting up firms with 'headquarters' there to pay the lowest rate.

    3. Re: $1B in new tax revenue! by ben2027 · · Score: 3, Informative

      Ok so thats your first bit of evidence. Where's your second? The law requires two bits of non-contradictory bits of evidence to be retained. Billing address in Spain but IP seems to be in Germany? You need to go find a third bit of evidence to support one or the other. In terms of ensuring you are always in compliance, its actually a lot more complicated/involved than you seem to think.

  3. Re: less tax revenue by ben2027 · · Score: 3, Informative

    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

  4. Re: This is nothing new for me. by corychristison · · Score: 3, Informative

    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.

  5. Re:This is nothing new for me. by Nemosoft+Unv. · · Score: 4, Informative

    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:

    • Having to explain to your customers again and again that the price changes depending on which country they live in (which was not the case before) and yes, because you live in country X you pay more than a customer in country Y.
    • "Country hunters", people who will simply fill in bogus information to get the lowest price.
    --
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  6. This is not the most important part of the change by j1976 · · Score: 5, Informative

    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....