New EU VAT rules change the game for digital businesses

[wraith808]

The short version

From 1 January 2015 new rules on VAT (value added tax) come into force across the European Union (EU). These will affect you if:

• you sell ‘digital services’ – explored in a minute, but yes, it does include ebooks, PDF products, training materials, software and music files
• you sell business to consumer (B2C) to EU citizens, wherever you are based (B2B, business to business selling, is not covered by these rules).

The essence of the change is that the ‘place of supply’ for VAT purposes will now be the location of the purchaser, not the location of the seller. Sellers will have to add VAT to the purchase price at the rate for the customer’s country, and ensure that the appropriate payment goes to that country.

Due to the effects of harmonising countries’ rules and the way the admin will work, if you fall under the new rules you will have to register for VAT. All your digital sales will be liable for VAT, and once you’ve registered you’ll have to account for it on all your other activities too.

Am I just ... looking at this wrong?  Or am I seeing that even if I sell software to someone in the EU from the US, I have to pay taxes under this new regulation?

(more at link)

[40hz]

Citation?  

UPDATE: Never mind. Found it. All 92 pages of "explanatory" notes. Download link here.

[TaoPhoenix]

Citation? 

Advanced Search, We luv ya! *

http://wordsthatchangetheworld.com/2014/eudigitalvat/




* When my standby Startpage Advanced missed this, I was forced to go to the Evil G. So per some of my other posts, I don't know what database they are pulling from, but this is yet another hole.

[40hz]

Citation? 

Advanced Search, We luv ya! *

http://wordsthatchangetheworld.com/2014/eudigitalvat/




* When my standby Startpage Advanced missed this, I was forced to go to the Evil G. So per some of my other posts, I don't know what database they are pulling from, but this is yet another hole.

Yeah, read that one. Short version: this is serious but nobody knows precisely how it's gonna work or who/what is covered yet.

Typical for new tax legislation. Which is unfortunate. Because the devil is always in the detail when it comes to tax law.

[wraith808]

^ I don't even see *how* it will work.  If I sell a digital download to someone in the EU... how would they even go after me?

[dr_andus]

^ I don't even see *how* it will work.  If I sell a digital download to someone in the EU... how would they even go after me?

From my perspective, as a consumer based in the EU, things have already worked like this for some time. Most payment-processing services have already been charging me for my local VAT (when I purchased a piece of software outside the EU).

So this is probably more of an issue for the less-informed or less compliant payment services that haven't been doing that yet, rather than for individual vendors. For non-EU vendors this just means that you better check with your payment processing service to make sure they do this.

[wraith808]

^ I don't even see *how* it will work.  If I sell a digital download to someone in the EU... how would they even go after me?

From my perspective, as a consumer based in the EU, things have already worked like this for some time. Most payment-processing services have already been charging me for my local VAT.

So this is probably more of an issue for the less-informed or less compliant payment services that haven't been doing that yet, rather than for individual vendors. For non-EU vendors this just means that you better check with your payment processing service to make sure they do this.

Most that are not part of an aggregation type service for payment have decidedly *not* been doing it.  And that onus should not be placed on someone that is in a different country doing business *just because* their place of receipt is in the EU, IMO.

[dr_andus]

re not part of an aggregation type service for payment have decidedly *not* been doing it.

I didn't say they were. I said *most that I've bought from in recent years.* In the early years of the Internet I could happily pay in USD and get the same deal with no taxes as the US customer. But in recent times many payment services would identify me as an EU shopper and would automatically apply the VAT—I can only presume it was due to pressure to comply with the local EU country legislation.

as for

how would they even go after me?

there would be an electronic payment trail linking the seller and the buyer, so it's just a question of access to the payment data + plus the right software and processing power to figure that out that an export/import transaction had taken place across the EU's borders.

[tomos]

re not part of an aggregation type service for payment have decidedly *not* been doing it.

I didn't say they were. I said *most that I've bought from in recent years.* In the early years of the Internet I could happily pay in USD and get the same deal with no taxes as the US customer. But in recent times many payment services would identify me as an EU shopper and would automatically apply the VAT—I can only presume it was due to pressure to comply with the local EU country legislation.

yeah, that's been my experience as well for a good few years now.

as for

how would they even go after me?

there would be an electronic payment trail linking the seller and the buyer, so it's just a question of access to the payment data + plus the right software and processing power to figure that out that an export/import transaction had taken place across the EU's borders.

not sure what exactly wraith meant, but the big question is how the EU would stop (or punish) a supplier from outside the EU selling without VAT (?)

[wraith808]

not sure what exactly wraith meant, but the big question is how the EU would stop (or punish) a supplier from outside the EU selling without VAT (?)

I meant, if I as a US citizen sold a digital item, and someone in the EU purchased it and downloaded it- then how would they enforce the strictures of these rules against me as a US citizen?

[tomos]

not sure what exactly wraith meant, but the big question is how the EU would stop (or punish) a supplier from outside the EU selling without VAT (?)

I meant, if I as a US citizen sold a digital item, and someone in the EU purchased it and downloaded it- then how would they enforce the strictures of these rules against me as a US citizen?

that's what I thought -- but dont have the answers either. But as dr_andus says, they're largely making it work already (via the payment processors).

How is it working in the States -- are there any states successfully implementing their own sales tax for suppliers from outside that state?

[40hz]

How is it working in the States -- are there any states successfully implementing their own sales tax for suppliers from outside that state?

Amazon is cooperating. That alone yields a massive amount of tax revenue. Most of the big online merchants are cooperating too.

In the US it's a little more complicated since each state has it's own "sales & use" tax regulations. So there are at least 50 different tax rates and exemptions. Some locales also assess county and local sales taxes on top of the state tax. There isn't a national VAT here. But there are federal excise taxes. States and localities can also assess excise taxes. Excise taxes most commonly get placed on luxury items and commonly used goods and services such as public event tickets, hotel rooms, and gasoline. Cleverly, they're usually built into the price charged to the consumer, so many people aren't aware they exist. Which makes excise taxes very popular with politicians looking for revenue opportunities.

[dr_andus]

not sure what exactly wraith meant, but the big question is how the EU would stop (or punish) a supplier from outside the EU selling without VAT (?)

I meant, if I as a US citizen sold a digital item, and someone in the EU purchased it and downloaded it- then how would they enforce the strictures of these rules against me as a US citizen?

that's what I thought -- but dont have the answers either. But as dr_andus says, they're largely making it work already (via the payment processors).

I wonder if it's even possible these days to make a cross-border electronic payment without 3rd party payment processors (maybe by using some cryptocurrency)?

But don't worry, we can just stop you from boarding your return flight on your next trip to Paris, until you pay up.  Joking aside, I recall Europeans having been arrested or deported from the US under anti-terror legislation because they had an unpaid parking ticket from donkey's years ago...

[wraith808]

I wonder if it's even possible these days to make a cross-border electronic payment without 3rd party payment processors (maybe by using some cryptocurrency)?

It's not 3rd party processors... it has to be an aggregation service.  i.e. if I put a pay me now button on my site that goes to paypal, that VAT is not taken into account on the other end AFAIK.

[Renegade]

There is currently a push to internationalize the reach of taxation. The whole thing flies under the black flag of "catching tax cheats".

Here's one clip:

http://www.euronews.com/2014/11/14/g20-eyes-tax-crackdown/

One of the key topics that heads and governments will discuss is how to crack down on tax avoidance and tax evasion.

Jean-Claude Juncker will represent the European Commission at an awkward moment.

A series of leaked documents show that major multinationals took advantage of Luxembourg’s lax fiscal rules to trim their own tax bills.

Juncker was the prime minister of the Grand Duchy for 18 years until last year.

Speeches he gave during his tenure indicate that he led the charge in tempting the likes of Amazon and Apple to set up shop there.

World leaders are expected to endorse an OECD plan to ensure company profits are taxed where they are generated.

Euronews’ Efi Koutsokosta spoke with Pascal Saint-Amans, the OECD’s director of tax, who is at the summit on Australia’s east coast.

Here's a list of companies doing business in Luxembourg:

http://www.businessinsider.com.au/full-list-every-company-named-in-the-luxembourg-secret-tax-deal-database-2014-11

It's long, so I'm skipping a quote.

The EU is trying to project power beyond it's borders, which is pretty sketchy to say the least.

There was a case in Canada where a fellow refused to collect taxes at his business. Of course he was taken to court, but he won. He claimed that forcing him to collect taxes on behalf of the government was forced labour, and the judge agreed.

So, in at least 1 common law country there is precedent for refusing to collect taxes.

I tried to find the reference again, but I can't manage to find it after almost a half hour. I remember that the case was near Ottawa, though I forget the name of the town.

[Deozaan]

I still don't understand how or why I should pay taxes to a foreign government, or under what authority they're going to try to force me to do so. This is so confusing. . .

[dr_andus]

I still don't understand how or why I should pay taxes to a foreign government, or under what authority they're going to try to force me to do so. This is so confusing. . .

I'm not an expert and I haven't read through all the documentation, but I can see a logic to it. E.g. if a US based business sells a product to an EU customer online, than that's either a cross-border transaction (the US business is exporting its product to the EU, and then customs duty applies, as it has done for centuries), or the US website when it's available in the EU is like a subsidiary operating in the EU (since it has access to the customers there), and therefore it should collect all the same applicable VAT taxes on the transaction as all the other local businesses and pass them on to the government (otherwise local businesses would be less competitive). In a way the EU is just catching up with a loophole in tax collection, the Internet being the new frontier that it is. So I can see the logic. But as for the implementation, I hope the outcome of this will not just be US websites declining to sell to EU customers. But if your payment gateway service does this for you as part of their service anyway (and many have been doing it for years), then the US business doesn't even need to know that it's happening.

[4wd]

There was a case in Canada where a fellow refused to collect taxes at his business. Of course he was taken to court, but he won. He claimed that forcing him to collect taxes on behalf of the government was forced labour, and the judge agreed.

Jean-Serge_Brisson^w ?

[TaoPhoenix]

This just feels like a mess, I'm too tired to read it in detail right now, but roughly, if I have to look up strange (to me) laws in other countries every time I make a transaction, that would just sink my motivation to do it at all.

Because there would be nothing stopping every country ever deciding to make such a rule. So I presume the seller is operating the tax collection, but it's still rather harder than it is now.

[Renegade]

There was a case in Canada where a fellow refused to collect taxes at his business. Of course he was taken to court, but he won. He claimed that forcing him to collect taxes on behalf of the government was forced labour, and the judge agreed.

Jean-Serge_Brisson^w ?

Ah! THANK YOU! I found out about that fellow a while back here, but couldn't remember the reference. Got it bookmarked now.

I still don't understand how or why I should pay taxes to a foreign government, or under what authority they're going to try to force me to do so. This is so confusing. . .

(Oh man... you just opened up a fantastic opportunity for me to have some fun~! Thanks!  )


The extortionists in your region have their own set of "rules" by which they extort you. Same goes for other extortion territories. In the past, all the extortionists agreed not to extort people on other extortionists turfs, but with the Internet now, they're finding that there's a lot of new commerce that their rules don't cover, and they're drooling over how to extend their extortion rackets.

So, now they're drafting treaties and agreements between themselves on how to extend their extort rackets.

This is in part due to how people feel that their local extortionists are too harsh on them, and how other people get off easy. It is highly visible in the EU extortion turf where any transaction incurs a 25% protection fee.

But if you sell, oh, let's say widgets online from outside the EU to people in the EU, then you're not paying the 25% protection fee. For retailers in the EU that sell widgets, this is a serious problem as they can't really compete with you.

They then complain to their extortionists, and the regional gangs of extortionists then get together to figure out how they can carve up this new turf and make the people they extort happier that other people are getting screwed just as badly as they are. The solution is to have your regional extortionists break your legs on behalf of the extortionists in the EU. Of course your extortionists will be compensated by the EU extortionists in one way or another, so that makes it all "fair".

https://www.youtube.com/watch?v=IO_PnUxTUyg

Because... Who will build the ROADZ!

"The Privatization of Roads and Highways" by Walter Block. (Speaking on the topic.)

Drat... That didn't work...

Because... FIRE FIGHTERS!

The CFA is a volunteer and community based fire and emergency services organisation that is made up of around 61,000 members. Of these members, some 59,000 are volunteers

...

The SACFS is staffed by approximately 15,000 volunteer fire fighters and around 120 paid employees.

In 2011, there were about 1.1 million firefighters in the country. 31% were paid, the remainder volunteer.

...

Of these, 28% are career and 72% are volunteer.

Hmm...

Let the tarring & feathering of the heretic Renegade begin~!  

[wraith808]

I just don't get the taxation of digital goods.  Even for *local* US municipalities, taxes aren't collected on such.

Just a few large ones I frequent: Drive-Thru RPG, Manning, Apress, O'reilly...

It's not a physical product... so I don't see why it should be treated as such.

[Renegade]

This is just hilarious, and is more or less on topic:

I just don't get the taxation of digital goods.  Even for *local* US municipalities, taxes aren't collected on such.

Just a few large ones I frequent: Drive-Thru RPG, Manning, Apress, O'reilly...

It's not a physical product... so I don't see why it should be treated as such.

I just don't get the taxation of goods. Full stop.

Oh, and services. And everything else.

The EU is so far gone wonky thinking that they have some sort of authority over anyone outside of the EU (and inside is still debatable).

But yeah... on the more mainstream front, the EU thinking that it can get a cut of the labours of people outside of the EU is an extreme stretch. The US does the same basic thing though - it taxes US citizens cattle on their worldwide earnings.

This EU nonsense is just more proof that we are nothing but cows to be milked. Whether we are free range cattle or not doesn't really matter much... we're getting milked or butchered.

But, for digital goods, this should just help spur the adoption of VPNs. That's a good thing. Y'know... Always look on the bright side of life?

https://www.youtube.com/watch?v=WlBiLNN1NhQ

[Deozaan]

I can understand the argument that taxation is legal plunder, etc., but assuming the acceptance of taxes as the status-quo, why is it MY duty to pay taxes to a foreign government because one of their citizens purchased something from me? Shouldn't it be the buyer's responsibility to report his/her digital purchases on the tax form (as required by law) so he/she can pay the legal taxes to his/her government?

Imagine if my kid went into a store and bought a candy bar and then I went to the store manager and said, "Hey, you owe me 30% of the income you earned from my kid because of the tax rule I made for my kids."

The manager would do at least one of these three things:

• Laugh me out of the store since I have no authority to enforce the tax.
• Refuse to sell candy to me or my children.
• Pay the taxes because I have mafia connections and he's scared of my threats.

But since I'm not a thug, and I don't have mafia connections, and I'm not making threats, it would be one (or both) of the first two.

I'm just one guy who makes small things and sells them on an online marketplace (much like a flea-market). I don't have the time or resources to find out where everyone who buys my digital goods lives, learn their regional tax laws, then charge them extra to cover the taxes.

Which means I charge the same amount of money for the "goods" I'm selling no matter where they live, which means I make even less money since now my income will be taxed not only by my own government, but now also by a government which as far as I can tell has no authority to demand taxes from me, which means I have even less resources to figure out how to comply with their stupid tax laws. Which means I may have to refuse to sell to anyone who lives in the EU, which means I have even less money. Which means I may go "out of business" due to all these silly regulations.

Thanks for helping to build the economy!

[TaoPhoenix]

Sales taxes are such a mess.

In the "meat world" the seller is responsible for sales taxes on all applicable "small items" and there's no requirement for consumers to report anything. You don't report that you bought a soda. The seller is supposed to charge *either* 1.0x as the marked up price, or if they want to use "convenient pricing" aka "it dollar" (dialect included), they're supposed to do the calculation backwards on some "real price" of 0.9x cents plus the tax.

However, if you look closely, you see a lot of the local little stores purposely under-ringing sales to sometimes astonishing degrees. There must be some deal with the cops - in one sense if the cops "really have better things to do", that's kinda a cool philosophy (until next week's facepalm incident shows up!).

Most digital purchases are small. So I'd think it normally is the seller's "responsibility" to ... "try" to collect the taxes. Now that's between an avalanche and a earthquake of pain, but it's not the consumer's duty to do anything fancy.

But with the insane cross-routing of jurisdictions, I'm pretty sure that's one reason the "temporary" reprieves have lasted this long - elsewhere people bitch about 99c being "too much to pay for software" ... ??! It's not. It's a "meme" that you're "not supposed to have to pay anything". And even at minimum wage, it could cost equivalent of $25 in research to figure out the correct sales tax to levy per country not counting extra software dev.