User upgrades and new EU VAT regulation re: digital services

[Mr Lucky]

I would like to know if you sell user upgrades, does this count as a digital service? According to my accountant, a user upgrade that is charged for will count as a digital service (more forum features) is offered.

If so then there would be serious repercussions under the new EU VAT laws, whereby VAT is applicable in the country of the customer, not the seller.

So even if you are below the UK threshold of £81,000 you still have to charge and account for VAT in countries such as France and Greece for any digital download or service provided.

http://www.theguardian.com/small-business-network/2014/dec/08/new-vat-regulations-affect-smes

My understanding is this will affect people and companies in all countries selling digital services, not just the EU, so US companies such as EastWestSound are offering last minute big discounts before they, as a US company, have to start charging VAT for EU customers.

https://www.facebook.com/eastwestsound

 

[Paul B]

It's a mess, completely unnecessary and potentially damaging to a lot of small traders/businesses.

Selling an add-on and emailing the files manually is OK.
Selling an add-on and using an automated service such as FetchApp, isn't.

User upgrades are more than likely covered by the changes, which means a lot of forum owners have to make a decision within the next 24 hours or so.

Personally I'm going to stop them on my site - for the amount of money they generate, it's not worth the extra work and hassle.

This means that SMEs in the UK will have to charge and account for VAT in the member state where the digital services are sold – that is 75 different VAT rates in 28 different countries. For example, if a business sells a music streaming service to customers all over Europe, one of whom is in France and the other in the Netherlands, it will have to charge and account for VAT at the relevant rate for each country.

Insanity!

https://www.gov.uk/government/uploa...ment_data/file/390300/VAT_MOSS_Flow_chart.pdf

 

[Mike]

It's actually a total mess to handle from the cart side, even when you do take various bits of info on your site which is totally different from how user upgrades work. (Everything is passed off to PayPal/the payment processor; we don't ask for any personal information.) Some of the data that is needed is really only available to the payment processor.

I would note that we haven't handled VAT/tax in anyway when it comes to user upgrades up until now. We've passed that off to the payment processor to add.

From what I understand, PayPal is looking into working on something though I don't believe it will be ready for January 1st. It would be "simple" for them to add a system to do the VAT calculation dynamically (they support adding VAT/tax as is).

 

[Mr Lucky]

Selling an add-on and emailing the files manually is OK.

I didn't know that, do you have a link to an official site which says that.

However for me that may not be an option. In addition to the xenforo user upgrades I am selling downloads that are up to 450 MB so automated links are my only option.

User upgrades are more than likely covered by the changes,

But presumably any existing recurring subscriptions will now be covered by the ruling.

It's a complete mess. On my main sales site which is WP using Woocommerce I have the Woocommerce Taxamo plugin installed, and signed up for taxamo - but it isn't working properly. Full of bugs and tech support there can only tell me "please rest assured our developers are working hard to resolve these issues." Huh, they have just over 24 hours to fix it!

 

[Paul B]

I didn't know that, do you have a link to an official site which says that.

See the link to the flowchart, which I added to the bottom of the post.

But presumably any existing recurring subscriptions will now be covered by the ruling.

I will be cancelling them all.

 

[Mr Lucky]

From what I understand, PayPal is looking into working on something though I don't believe it will be ready for January 1st. It would be "simple" for them to add a system to do the VAT calculation dynamically (they support adding VAT/tax as is).

I'm just hoping everyone is going to get some kind of amnesty while companies such as Paypal and Taxamo get it together.

BTW, petition here:

https://www.change.org/p/vince-cabl...old-for-businesses-supplying-digital-products

 

[Paul B]

I'm just hoping everyone is going to get some kind of amnesty

Only big businesses/famous people get any sort of special deals from HMRC.

Don't assume that they will look on your case favourably if you continue to trade after tomorrow without complying with the changes.

 

[HWS]

It's actually a total mess to handle from the cart side, even when you do take various bits of info on your site which is totally different from how user upgrades work. (Everything is passed off to PayPal/the payment processor; we don't ask for any personal information.) Some of the data that is needed is really only available to the payment processor.

PayPal does not need to care about this, since it is just a payment processor. You need to add VAT before you handle the transaction to Paypal.

And you also do not have to ask the buyer anything, you can add tay according to his ip address location (if he is located within the european union).

From the cart view it is also very easy (just not implemented in the carts until now). You do not have to add your own home country VAT, but instead choose one of those rates from the country the buyer is from (again: his ip address).

Austria 20%
Belgium 21%
Bulgaria 20%
Cyprus 19%
Czech Republic 21%
Croatia 25%
Denmark 25%
Estonia 20%
Finland 24%
France 20%
Germany 19%
Greece 23%
Hungary 27%
Ireland 23%
Italy 22%
Latvia 21%
Lithuania 21%
Luxembourg 15%
Malta 18%
Netherlands 21%
Poland 23%
Portugal 23%
Romania 24%
Slovakia 20%
Slovenia 22%
Spain 21%
Sweden 25%
United Kingdom 20%

It is just slightly more complicated like it is now. ;-)

 

[Paul B]

It's not just slightly more complicated.

In the UK you don't have to register for VAT until you meet the threshold.
With this change, everyone selling these 'e-services' has to be VAT registered and submit quarterly returns, regardless of the total sales.

Quite honestly it is an extremely poor piece of legislation, implemented very badly and will actually do more harm than good.

 

[Mike]

Each seller has to make sure he adds VAT according to the rate of the home country (ip geo location would suffice)

Actually this will explicitly not suffice. You need 2 non-conflicting pieces of information to demonstrate why a particular rate was charged. If I'm currently in the US but making a purchase for the UK with a UK billing address and a UK card, I should be charged VAT at the UK rate regardless of what the IP says. The situation with what happens if you can't detect 2 non-conflicting pieces of information is ambiguous.

You also need to keep this information around for 10 years (plus the additional returns, as noted).

 

[HWS]

This is correct. You need to register for VAT in your home country. And you have to forward the collected taxes with a list for which european country what sum was collected.

 

[Daniel Hood]

I'm confused as to how another country can force a tax on me? Are we sure this affects companies and people in the US with assets strictly in the US?

 

[HWS]

Actually this will explicitly not suffice. You need 2 non-conflicting pieces of information to demonstrate why a particular rate was charged. If I'm currently in the US but making a purchase for the UK with a UK billing address and a UK card, I should be charged VAT at the UK rate regardless of what the IP says. The situation with what happens if you can't detect 2 non-conflicting pieces of information is ambiguous.

You also need to keep this information around for 10 years (plus the additional returns, as noted).

This is correct. But if you've only 1 piece of information (the ip address), this will suffice. At least according to our european accountant who asked a tax officer.

 

[HWS]

I'm confused as to how another country can force a tax on me? Are we sure this affects companies and people in the US with assets strictly in the US?

No, only european companies handling european customers are affected.

You still can buy without tax if you are an american guy buying from a UK company. Also vice versa, if you are a european guy buying from a (small) american company. Large US companies serving a lot of european customers are already obliged to collect european taxes.

 

[markku]

No, only european companies handling european customers are affected.

You still can buy without tax if you are an american guy buying from a UK company. Also vice versa, if you are a european guy buying from a (small) american company. Large US companies serving a lot of european customers are already obliged to collect european taxes.

Wrong.

http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm

 

[Paul B]

No, only european companies handling european customers are affected.

Incorrect.

https://www.gov.uk/government/uploa...ment_data/file/390300/VAT_MOSS_Flow_chart.pdf

Businesses outside of the EU are also affected by these rules. They will either have to
register for MOSS in a Member State, or register in each Member State where they
have customers

You may want to consider getting another accountant who actually understands the implications of the change.

 

[HWS]

Wrong.

As I said. Large US companies already charge taxes from european customes. Small companies don't. There is simply no way the EU tax authorities can force small US companies to collect taxes for them. Even if they would like them to do.

 

[markku]

As I said. Large US companies already charge taxes from european customes. Small companies don't.

This affects small companies as well. Where does it say it doesn't?

 

[Mike]

This is correct. But if you've only 1 piece of information (the ip address), this will suffice. At least according to our european accountant who asked a tax officer.

You are required to obtain 2 pieces of information: https://www.gov.uk/government/publi...etermining-the-place-of-supply-and-taxation-1

 

[HWS]

Incorrect.

This is no new law. EU tax authorities already want foreign companies to collect taxes for them. However they have only small chances to force them to do so.

The only thing that changes now is that they would like the foreign companies to charge different tax percentages. I doubt that many foreign companies will charge taxes to european customers.