The Horrible Implications of the EU VAT “Place of Supply” Change

The Horrible Implications of the EU VAT “Place of Supply” Change(rachelandrew.co.uk)

67 points by timcraft 11 years ago | 20 comments

Disclaimer: I don't know much about all this either

So a side effect seems that some companies which used to be exempted from collecting VAT will now kind of have to, thereby either raising prices or taking a cut of about 16.7% [1] in their revenues. Because you'd have to be crazy not to opt into the "mini one-stop shop" (who would want to register in every EU country?), so you register for collecting VAT although your revenue is low enough to qualify for exemption in your own country and the customer's.

That's even harder to swallow for companies delivering electronic services, as having a VAT number is not a huge money saver (paying VAT on web hosting isn't a huge burden).

Which countries lack VAT exemption? If there aren't many, it could be okay not to take customers from them.

[1] 1 - 1/1.2 = 0.167 as the average VAT is 20% in the EU

rachelandrew 11 years ago | |

A commenter on my post notes that it isn't just countries with a low threshold it's ALL other countries. That you are non-resident in. So essentially if you want to sell to the EU you have to register for MOSS and therefore have to be VAT registered.

It's crap. I hope I'm wrong or that something can be done to exempt small enterprises.

throwaway41597 11 years ago | | |

Okay, it makes sense that you would have to register with every country to get an exemption.

The only hope is that this causes so much work to tax offices that they add a procedure to get the exemption in every country.

I'm not holding my breath as it seems VAT has only been increasing in its rate and span of subjected products :(

Doctor_Fegg 11 years ago |

I was interested to see a take on how this affects App Store sales[1]:

"Apple has structured its current agreement so that they act as your agent each time an e-service is downloaded... UK businesses only have one B2B customer, Apple SARL in Luxembourg, so for a vast majority of businesses selling on Apple’s App Store platform, these sales will be continue outside the scope of UK VAT and this change won’t affect them.

"For UK businesses selling e-services on Android/Google Play, the agreement is currently structured in a way that the business sells directly to the EU customer. It will therefore be the businesses responsibility to account for, and collect, the correct amount of VAT based on each customer’s location and pay this over to the local tax authorities."

[1] http://www.jeffreyshenry.com/important-vat-changes-technolog...

hermitcrab 11 years ago |

This looks like a nightmare for small European businesses selling digital products. Thankfully I should be shielded from the worst of it it because: -my business is already registered for VAT -my payment processor (Avangate) take care of all the VAT issues

rachelandrew 11 years ago | |

Have Avangate issued anything to customers about the changes? It would be interesting to know how they are dealing with it on behalf of customers.

Currently does the system allow you to sell to VAT registered businesses in other EU countries ex-VAT and deal with the EC Sales list?

hermitcrab 11 years ago | | |

Avangate told me in an email that they will be compliant.

They handle all the collection of VAT and (presumably) do the EC sales list (that's not my problem). I still have to do my own EC sales list for the payments I get from them (but thats only 1 per month) and any sales I make direct (not many).

turbojerry 11 years ago |

This seems very bad, I'm assuming this applies to all customers whether businesses or not, so here are a few potential gotchas I see-

1. You sell to an individual who is not in the country that their payment information is related to and is not delivered to that country, do you charge VAT based on the payment information alone or do you have to physically verify that they are in the country claiming the VAT?

2. Prepaid CC can have false information, how do you determine is it is true so you can charge the right VAT?

3. Fraud, if you sell something to a fraudster, do you have to find out which country the fraudster was in to determine VAT you owe after the fact?

4. What about Bitcoin transactions where no location information is known?

rachelandrew 11 years ago | |

Yeah the implementation in terms of how we verify that someone lives where they say they live is going to be a royal PITA.

We're already VAT registered and already trade with EU countries so we're pretty much set up to deal with this already, it's an extension to what we already do to not charge VAT to people we can verify a VAT number for (who are EU but not UK). The guidelines say we need two non-conflicting bits of information to verify the location of a person, they mention IP Address! We all know how useless that's going to be to identify in which country someone is.

corford 11 years ago |

Am I correct in thinking that everything carries on as before if you're a UK based Ltd, VAT registered and the only sales you make to EC based clients are to entities with a VAT number? Basically, the place of supply remains the UK and you report EC sales in your quarterly EC sales list as before?

tehwalrus 11 years ago | |

I'm not sure - if you are selling "software as a service" or any other hands-off digital product to (VAT-registered or not) companies in another EU country, then I think you must bill them at their local VAT rate and (possibly) pay that rate to their government's tax collectors (assuming you're above their country's VAT-registered threshold.) I may have read it wrong, though, I'm not an accountant.

hermitcrab 11 years ago | | |

If they are a VAT registered business, the place of supply remains that of the vendor. This hasn't changed. ( So you don't charge them VAT under EU reverse charge.)

hermitcrab 11 years ago | |

I believe that is correct (but I am not an accountant). But you need to consider what might happen if someone without a VAT number wants to buy from you. Are you just going to refuse? Or perhaps direct them to a reseller?

Shivetya 11 years ago |

Is this being done to remove competitive advantage some enjoy by being from lower tax countries or is this more of aligning sales of digital product with physical?

rachelandrew 11 years ago | |

My understanding is it is to remove the loophole of companies being based in a country where VAT is lower then selling to consumers - where they need to charge VAT - and the total cost is lower.

yangmeyer 11 years ago | | |

Ole Begemann recently wrote about the changes in the context of selling apps through the App Store: http://oleb.net/blog/2014/07/eu-vat-changes-2015/

Apple sells all apps through its Luxemburg subsidiary, meaning Luxemburg's low 15% VAT rate applied.

On the buyer side, am I right to assume that as a VAT-registered company/freelancer I will be able to deduct VAT paid on apps purchased through the App Store?

hermitcrab 11 years ago | | |

Also countries want to collect the VAT on digital purchases their citizens make. That is understandable, I suppose. The implications looks like a potential nightmare for small businesses though.

twobits 11 years ago |

The author's solution seems to be "Let’s crowdsource this".

I think this is a bandage. Trying to address one problem, while ignoring the root cause. How about, "thank you very much, please put me in jail, I don't care anymore"? (While you bailout TBTF banks once again?)

"Governments" are the thugs that protect the big economic interests. The big economic interests, pay the protection money, "bribes", "donations". It's symbiotic. You, me, we, are the slaves.

The bribes, are a lot for the few politicians, they are happy and rich, and nothing, compared to be able to go on having slaves, happy and big profits, for the big economic interests.

You, you try to "crowdsource" "solutions" about the fact that your chains got heavier.

rachelandrew 11 years ago | |

Well, good luck with that approach.

I'll continue to try and help out other small indie firms run their businesses and support their families.

It's not a solution, I don't have a solution, I'm just trying to help.

If anyone has any experience in lobbying the government to look into this sort of stuff, I'd love to hear about it. My experience as a business owner since 2001 however has been that they do not care a tiny bit about our kind of business, unless they can find a way to fine us for something. Fines that could cripple a small business but would just be seen as a cost of doing business for a larger one.