The main reason for this change, which was agreed in 2008 and came into effect on the 1st of January 2015, is to stop companies like Amazon, Apple, Google and other large companies from enjoying low taxes as they base their digital services arm in Luxembourg. For ebooks, they enjoy a low 3% sales tax. A very nice loophole for these large corporations but it has rightly so been closed.
The knock on effect is that small business and retailers have to deal with this new EU VAT change too where VAT needs to be calculated at the customers location rather than the sellers location. Once they do this, they then need to report it to their respective government. This adds a lot of administrative burden on small sellers that are barely making any sales.
The most important thing that the EU could have done which they didn't do is to have a threshold so that small business and individuals aren't affected. Recently, Japan introduced a similar change but maintained a threshold to protect small businesses: http://www.vatlive.com/asia-pacific/japan-consumption-tax-fo...
The EU VAT change is an unnecessary burden for small business and individuals which is why we handle VAT completely for our customers.
Wouldn't a clever idea be to let the payment procesor handle the taxes? so you hand over to google/amazon/apple to do your payment, and give them a tax free price, and they apply the tax for the buyers location, and compile a monthly invoice for you?
Here is a blog post by Andrus Ansip, the European Commissioner for the Digital Single Market, on the new EU VAT rules. It's not a particularly supportive or re-assuring post given the criticisms of the new rules
Apparently these rules were agreed in 2008. Countries have obviously failed to communicate the impending changes. I liked this comment below the post:
"And so much for it being in place since 2008.
This is akin to the Vogons in Douglas Adam's Hitchhikers Guide to the Galaxy claiming that the plans for Earths destruction have been available for viewing on Alpha Centauri for 50 years."
“On display? I eventually had to go down to the cellar to find them.”
“That’s the display department.”
“With a flashlight.”
“Ah, well, the lights had probably gone.”
“So had the stairs.”
“But look, you found the notice, didn’t you?”
“Yes,” said Arthur, “yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying ‘Beware of the Leopard.”
It's worth noting that the post you linked to was from 16 December 2014, which is ancient history in terms of this issue. Vince Cable (the UK's Business Secretary) wrote a similarly ignorant and dismissive response[1] to an on-line petition on 8 December.
However, there has been a lot of further discussion, at least in the UK, since that time. It seems that the government and tax authorities here may finally be realising how much they screwed this one up.
Unfortunately, since most of the small businesses elsewhere in the EU don't even seem to know they're now breaking the rules and their respective tax authorities seem far less bothered about those rules, there isn't the same level of protest (at least not yet) so Eurocrats like Ansip may or may not be under any real pressure to fix the problem so far. And it seems that any serious fix does require further action at EU level, because national governments and tax authorities don't have the flexibility to make unilateral decisions on some of the key points (unless they flagrantly ignore the rules themselves, as several do seem to be doing already).
As I mention in my post below, if you're a non-EU company selling digital goods and services to EU customers, then strictly speaking these new rules don't change much - it's was already the case that non-EU suppliers that supply electronically supplied services to EU customers (B2C transactions, not B2B) should be charging the customer VAT at their local rate.
Businesses could choose to register in each state or a single one using the VoES (VAT on e-services) system. These rules have been in place since 2003.
However I imagine that a lot of non-EU companies didn't bother with this either out of ignorance or simply because they didn't care or thought it could be enforced.
Under these new rules, MOSS replaces VoES but it's practically the same thing. This mostly affects EU businesses who now have to charge the rate where the customer belongs, not where the supplier belongs.
I think ignorance is almost exclusively why non-EU companies didn't use VoES. I never heard of it until this fall when I started hearing rumblings of VAT MOSS.
When starting a small business where you sell digital goods, one of the last things you are thinking about is researching tax laws for the 250 countries around the world (or trying to find an accountant versed in tax laws around the world). Instead, you worry about laws based on where you operate from.
I realize that the EU implemented VoES since it is easier to enforce tax collection on businesses than individual consumers, but it is pretty messed up from a conceptual standpoint. Making every business that could possibly ever sell a non-physical good from a website have to register in foreign countries, deal with making international wire transfers, generate invoices based on laws in 28 different countries, etc. The alternative being consumers pay the appropriate tax to the country they already pay taxes in…
If you want help determining what rate to charge a customer, I built both JS and Python libraries that include functionality to:
- Determine rate based on
- phone number
- billing address
- self-declared location
- IP address
- Validate VAT IDs
- Fetch exchange rate info from the European Central Bank
It's also important to note that these new rules cover the sale of digital goods to CONSUMERS only, if you are (for example) a registered business in the UK and selling to a registered business in Germany, German VAT is not applied, and you do not have to pass it on (via VATMOSS) to the German government.
it's less about the payment processing but about the invoicing and billing itself. anyways, it means more complexity for start ups in the EU which sucks
The new EU rules are only for digital products right? So how about selling a "magic bean" that comes with a free download of whatever you're selling? Or sell a "planting of a seed" service that has a user area that contains special bonuses, like a download of whatever.
I've seen reports of people arguing along those lines to circumvent the new rules for now, e.g., selling software on CD that is posted to the purchaser with a free accompanying download. Some are trying a similar strategy without any physical element involved, but instead relying on the presence of some manual step, such as attaching a PDF to an e-mail sent by a real person rather than being a fully automated download.
I haven't seen anyone challenge the validity of the physical product workarounds so far, but note that similar rules are due to apply to physical sales as well as digital ones from next year, so this is probably a temporary reprieve at best.
Maybe. Some countries have all sorts of anti avoidance rules when it comes to tax.
As a small company, do you really want to go to court because you're selling beans instead of downloads? I assume this will be spotted relatively quickly when authorities do an audit. Also, the larger players, they would never use this.
The rules apply to digital products AND services (e.g. memberships, cloud storage ...). You'd need to physically ship something to avoid the rules, but then, other burdens (import/export/customs/taxes) come in place.
One workaround is to change your business model and accept donations instead. That obviously won't work for everyone, obviously.
This works because tips and gratuities are not considered taxable consideration for VAT purposes and therefore outside the scope of VAT. It has to be a genuine tip though - i.e. voluntary, no minimum or recommended amount and not a condition of purchase.
There is a platform out there that lets you sell things under this model but I can't remember it's name.
Extract more money from Amazon by harming small businesses, because no tax is ever high or complicated enough! Hooray! Everybody is so much better off now that we have to pay more money to the EU to conduct business. It's so great.
Happily it turns out that these new rules only apply in cases where the EU provides an important service: the legality of the trade itself in the first place.
That has nothing to do with this change in VAT rules. If that loophole actually existed Amazon would already be using it.
US businesses are actually required to charge VAT, but smaller operations get away without doing that. At Amazon's volume it makes sense to set up tax entity in the EU to avoid import duty.
For example for amazon.com selling to a consumer in Ireland sees 17% import duty + compunded 23% VAT on the item cost and the shipping cost.
US/non-EU companies selling digital products and services to the EU is most certainly NOT exempt, and it wasn't exempt before these recent changes - it's been a requirement that US/non-EU businesses selling digital services register to charge VAT to EU customers at their local VAT rate since 2003!
Rather than registering in each EU country, they could register in one country and use the VoES system to submit their returns.
It was because of this ruling that big companies like Amazon found a workaround by setting up subsidiaries in countries with low VAT rates like Luxembourg and sold their goods from there. This meant they could charge Lux VAT instead of the customer country's VAT rate.
This obviously gave them an unfair advantage not only over local businesses but also non-EU businesses that used the VoES system.
In effect these new rules change little for non EU businesses. The VoES system is being retired in favour of the new MOSS system which is effectively the same sort of thing, only now, ALL businesses including those in the EU, have to charge local VAT when selling digital services to the EU.
For e big companies like Amazon, this closes a loophole. For those who were correctly charging VAT under the VoES system, nothing much changes. For those non-EU companies who were chose not to comply with the 2002 rules, well I'd imagine they will continue to not bother. And those who were ignorant of them (many I'm sure) might now be a bit more aware.
But of course the businesses it affects the most are small EU businesses who now have to charge different rates of VAT or use MOSS when they didn't before.
Customs in the customer's country may intercept the package and charge VAT and duty for it. That has happened to me from time to time with Amazon as far back as 1998.
US companies need to comply with these rules, but many of them don't.
I think the main issue here is enforcement. I don't think it's reasonable to expect the IRS to enforce foreign legislation on US companies. And that's exactly the reason why US companies often don't comply.
Edit: I'm talking about digital downloads and digital services. If you're shipping goods then there might also be import duty liabilities, not sure.
[+] [-] abs_farah|11 years ago|reply
The knock on effect is that small business and retailers have to deal with this new EU VAT change too where VAT needs to be calculated at the customers location rather than the sellers location. Once they do this, they then need to report it to their respective government. This adds a lot of administrative burden on small sellers that are barely making any sales.
The most important thing that the EU could have done which they didn't do is to have a threshold so that small business and individuals aren't affected. Recently, Japan introduced a similar change but maintained a threshold to protect small businesses: http://www.vatlive.com/asia-pacific/japan-consumption-tax-fo...
The EU VAT change is an unnecessary burden for small business and individuals which is why we handle VAT completely for our customers.
I am the founder of Payhip: https://payhip.com
[+] [-] maccard|11 years ago|reply
[+] [-] chestnut-tree|11 years ago|reply
https://ec.europa.eu/commission/2014-2019/ansip/blog/euvat_e...
Apparently these rules were agreed in 2008. Countries have obviously failed to communicate the impending changes. I liked this comment below the post:
"And so much for it being in place since 2008.
This is akin to the Vogons in Douglas Adam's Hitchhikers Guide to the Galaxy claiming that the plans for Earths destruction have been available for viewing on Alpha Centauri for 50 years."
[+] [-] toyg|11 years ago|reply
“But the plans were on display…”
“On display? I eventually had to go down to the cellar to find them.”
“That’s the display department.”
“With a flashlight.”
“Ah, well, the lights had probably gone.”
“So had the stairs.”
“But look, you found the notice, didn’t you?”
“Yes,” said Arthur, “yes I did. It was on display in the bottom of a locked filing cabinet stuck in a disused lavatory with a sign on the door saying ‘Beware of the Leopard.”
[+] [-] Silhouette|11 years ago|reply
However, there has been a lot of further discussion, at least in the UK, since that time. It seems that the government and tax authorities here may finally be realising how much they screwed this one up.
Unfortunately, since most of the small businesses elsewhere in the EU don't even seem to know they're now breaking the rules and their respective tax authorities seem far less bothered about those rules, there isn't the same level of protest (at least not yet) so Eurocrats like Ansip may or may not be under any real pressure to fix the problem so far. And it seems that any serious fix does require further action at EU level, because national governments and tax authorities don't have the flexibility to make unilateral decisions on some of the key points (unless they flagrantly ignore the rules themselves, as several do seem to be doing already).
[1] https://www.change.org/p/vince-cable-mp-uphold-the-vat-exemp...
[+] [-] lukeredpath|11 years ago|reply
Businesses could choose to register in each state or a single one using the VoES (VAT on e-services) system. These rules have been in place since 2003.
However I imagine that a lot of non-EU companies didn't bother with this either out of ignorance or simply because they didn't care or thought it could be enforced.
Under these new rules, MOSS replaces VoES but it's practically the same thing. This mostly affects EU businesses who now have to charge the rate where the customer belongs, not where the supplier belongs.
[+] [-] wbond|11 years ago|reply
When starting a small business where you sell digital goods, one of the last things you are thinking about is researching tax laws for the 250 countries around the world (or trying to find an accountant versed in tax laws around the world). Instead, you worry about laws based on where you operate from.
I realize that the EU implemented VoES since it is easier to enforce tax collection on businesses than individual consumers, but it is pretty messed up from a conceptual standpoint. Making every business that could possibly ever sell a non-physical good from a website have to register in foreign countries, deal with making international wire transfers, generate invoices based on laws in 28 different countries, etc. The alternative being consumers pay the appropriate tax to the country they already pay taxes in…
[+] [-] JonM|11 years ago|reply
[+] [-] wbond|11 years ago|reply
I also wrote up a bit about dealing with registering for VAT MOSS, generating invoices, etc.
[+] [-] JonM|11 years ago|reply
[+] [-] moe|11 years ago|reply
It's not a timesink, it's a freaking black hole.
[+] [-] tomrules|11 years ago|reply
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] brador|11 years ago|reply
Are these workable or too far out?
[+] [-] Silhouette|11 years ago|reply
I haven't seen anyone challenge the validity of the physical product workarounds so far, but note that similar rules are due to apply to physical sales as well as digital ones from next year, so this is probably a temporary reprieve at best.
[+] [-] charlesdm|11 years ago|reply
As a small company, do you really want to go to court because you're selling beans instead of downloads? I assume this will be spotted relatively quickly when authorities do an audit. Also, the larger players, they would never use this.
[+] [-] mstolpm|11 years ago|reply
[+] [-] lukeredpath|11 years ago|reply
This works because tips and gratuities are not considered taxable consideration for VAT purposes and therefore outside the scope of VAT. It has to be a genuine tip though - i.e. voluntary, no minimum or recommended amount and not a condition of purchase.
There is a platform out there that lets you sell things under this model but I can't remember it's name.
[+] [-] gamblor956|11 years ago|reply
You gain nothing by selling beans (with free downloads) except extra costs for you and extra hassles for your customers.
[+] [-] dreamdu5t|11 years ago|reply
[+] [-] Tombone5|11 years ago|reply
[+] [-] waps|11 years ago|reply
Because selling products to the US is VAT-exempt, and US companies selling to EU customers is also VAT-exempt.
I'm betting the first company doing this will be amazon.
[+] [-] Kudos|11 years ago|reply
US businesses are actually required to charge VAT, but smaller operations get away without doing that. At Amazon's volume it makes sense to set up tax entity in the EU to avoid import duty.
For example for amazon.com selling to a consumer in Ireland sees 17% import duty + compunded 23% VAT on the item cost and the shipping cost.
[+] [-] lukeredpath|11 years ago|reply
Rather than registering in each EU country, they could register in one country and use the VoES system to submit their returns.
It was because of this ruling that big companies like Amazon found a workaround by setting up subsidiaries in countries with low VAT rates like Luxembourg and sold their goods from there. This meant they could charge Lux VAT instead of the customer country's VAT rate.
This obviously gave them an unfair advantage not only over local businesses but also non-EU businesses that used the VoES system.
In effect these new rules change little for non EU businesses. The VoES system is being retired in favour of the new MOSS system which is effectively the same sort of thing, only now, ALL businesses including those in the EU, have to charge local VAT when selling digital services to the EU.
For e big companies like Amazon, this closes a loophole. For those who were correctly charging VAT under the VoES system, nothing much changes. For those non-EU companies who were chose not to comply with the 2002 rules, well I'd imagine they will continue to not bother. And those who were ignorant of them (many I'm sure) might now be a bit more aware.
But of course the businesses it affects the most are small EU businesses who now have to charge different rates of VAT or use MOSS when they didn't before.
[+] [-] masklinn|11 years ago|reply
Customers having to pay import duties and VAT, then being involved in an international tax evasion scheme.
[+] [-] kryptiskt|11 years ago|reply
[+] [-] danmaz74|11 years ago|reply
You got this wrong. US companies need to collect and pay VAT if they want to sell to the EU - edit: for digital goods.
[+] [-] charlesdm|11 years ago|reply
I think the main issue here is enforcement. I don't think it's reasonable to expect the IRS to enforce foreign legislation on US companies. And that's exactly the reason why US companies often don't comply.
Edit: I'm talking about digital downloads and digital services. If you're shipping goods then there might also be import duty liabilities, not sure.