

EU VAT rules make EU startups uncompetitive in a global market - rachelandrew
http://rachelandrew.co.uk/archives/2014/11/30/how-the-eu-vat-rules-make-eu-startups-and-digital-businesses-uncompetitive-in-a-global-market/

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moomin
This is hugely important. The rules themselves are designed to stop people
like Amazon abusing the system (and believe me, they abuse it), but there's no
provision for smaller companies, no one stop shop for dealing with the VAT
authorities. It's going to be a disaster for SaaS startups.

~~~
yc1010
Amazon do not abuse it, they just run shop from an EU country with low VAT
rate (Luxembourg) last I checked.

And yes the VAT rules really do add alot of overheads on a business and bloat,
which companies elsewhere are not subjected to.

I have raised this with Revenue in Ireland (pointing at competitors in US,
China etc not held back by paperwork) they ignored it and clarified (I wanted
it in writing, I recommend every business has a clarification in writing if
they are not sure about the VAT position, to cover their asses) that YES we
have to charge 23% VAT to ANYONE from EU29 countries, and 0% VAT for outside.

Tho' nothing was said about how this is to be measured, So I am keeping
timestamps, ip addresses and billing addresses when accepting payment for our
hosting products.

All in all its just a pain in the rear having to jump thru' this loops with no
benefit to my company and plenty of downside :(

~~~
derickr
"Amazon do not abuse it, they just run shop from an EU country with low VAT
rate (Luxembourg) last I checked."

They "abuse" it from the point of view from the countries where they don't pay
the VAT.... f.e. the UK would like Amazon to pay VAT in the UK, and not in
Luxembourg. So this new law is meant to prevent that, but at the same time
waltz over small companies.

~~~
yc1010
UK politicians (judging by recent headlines) also want to leave the EU, or at
least threatening to do so if they don't get their way.

They might like/want X but they will have to negotiate and endup with X-Y or
nothing, since negotiating something as important as VAT while threatening to
leave the club is politically counterproductive.

~~~
derickr
I don't think this law was actually pushed for by the UK. And countries like
Hungary where VAT is 27% have much more to gain by it.

------
pdknsk
Google Cloud has found a creative (stupid IMO) solution to this. They no
longer allow non-business in the EU to use their services as of recently.

[https://support.google.com/cloudbilling/answer/6090602?hl=en](https://support.google.com/cloudbilling/answer/6090602?hl=en)

------
vegancap
Why am I not surprised? The people who run the european commissions are career
politicians. Involved in politics from day 1 and rarely have had real jobs.
Let alone ran a business of their own. It figures...

~~~
amirmc
Your comment doesn't add very much to the discussion. I could argue that most
software engineers have never had a 'real' job either.

Tax across the EU is an important concern, given how large companies can
position themselves to take full advantage of differences. People should be
thinking about this. Unfortunately, the law is a rather blunt instrument and
there's a valid argument that current changes hurt small companies
disproportionately more.

~~~
vixen99
I disagree; there is a very fundamental problem around when unelected
(unsackable) comfortably situated people with golden pensions who do not
create wealth, sit in rooms devising intricate schemes for taxing wealth
creators and moreover are completely isolated from the effects of their
actions. And the problem is exacerbated by the absence of a signed-off
auditors' account for the EU over something like fifteen years. Business
leaders in this situation would be in prison by now. It is simply a scandal.

I'll leave software engineers to say whether or not they've ever had a 'real'
job.

~~~
amirmc
I'm not sure what you're disagreeing with. I never made any claims that
supported (or opposed) the current EU set up. I merely pointed out that the
comment I replied to added nothing constructive to the conversation and that
Tax is an important issue.

I'm not even sure what argument you're trying to make as it simply comes
across as a rant. Wealth creators should decide tax policy? Career politicians
are career politicians? Do you actually _know_ how such policies are put
together and the processes/consultation they go through? I have no idea so I'm
not going to form a strong opinion either way.

------
danmaz74
I'm a big fan of EU integration, but sometimes the EU Parliament shows a
complete lack of understanding about the needs of small online companies
(including startups). I understand pretty well that the goal is to stop Amaon
et al to game our VAT system, but you can't impose the same kind of
complication to small businesses.

~~~
tonyedgecombe
I think they do understand but the pressure to increase revenue outweighs
those concerns.

~~~
vixen99
Indeed - they have to cover this for instance.
[http://www.telegraph.co.uk/news/worldnews/europe/eu/11255493...](http://www.telegraph.co.uk/news/worldnews/europe/eu/11255493/UK-
faces-34bn-bill-for-blackhole-in-EU-budget.html)

However I understand that some feel that drawing attention to the processes
and construction of the EU is irrelevant and is a rant - the latter retort
being an effective conversation stopper.

~~~
tonyedgecombe
Except VAT isn't paid to the EU so it won't cover that hole (if it exists).
The pressure is from nation states that want the VAT revenue.

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justincormack
We need a flat VAT rate for digital services over the whole EU. Or indeed all
services. The whole process of converging VAT rates has been too slow, which
for physical goods was kind of ok, but for cross border services it matters.
If they did this, then I would not care about VAT registration being
compulsory.

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kdeldycke
I'm trying to compile a list of applicable rates and exceptions at
[https://github.com/kdeldycke/vat-rates](https://github.com/kdeldycke/vat-
rates) . Feel free to contribute ! :)

------
duckingtest
Customer location vat seems to be really easy to abuse. Luxembourg VPN + Post
Forwarding = 15% rate on everything that can be ordered online. Compared to
maximum vat in EU (Hungary, 27%) that's an enormous difference.

~~~
Taxamo
One of the key elements of the new rules is that merchants must collect two
pieces of non-conflicting evidence. And the onus of proof is on the merchants'
shoulders. They must keep searching until they have two pieces of evidence
that do not conflict. If IP address, for example, conflicts with cc billing
address then more evidence will be required from the customer.

~~~
derickr
And on top of that, you can be audited by each EU country's tax authority as
well... something I have not seen too many people worried about. I think it's
an important thing that is being overlooked.

~~~
Taxamo
Potential audits will be co-ordinated between EU member states. For example,
if an audit of a UK merchant is sought then the relevant EU tax authority (for
argument's sake Spain) will have to go through HMRC first. Check out the
answer to Q10 here: [http://www.taxamo.com/new-eu-vat-rules-
q-a/](http://www.taxamo.com/new-eu-vat-rules-q-a/)

------
NicoJuicy
Why not just use a European VAT in case a product isn't bound to a specific
country, although the VAT should be "donated" to the country.

VISA, Mastercard, Paypal and etc should have systems in order to donate it to
the right country (they know the owner of the card). Don't have a solution yet
for Bitcoin though...

~~~
nraynaud
That's what we should do, but there is no common economic policy in Europe,
and this is collected for the national budgets, not for the European budget.
We are talking about shitload of money, half of the French State tax revenue
for example.

We are also talking about shitload of fraud.

------
amirmc
Slightly off topic, but for some reason, reading this post and the comments
made me think of PG's essay on startup hubs, where he mentions startupicide.
These VAT rules seem to (inadvertently) act that way.

[http://paulgraham.com/hubs.html](http://paulgraham.com/hubs.html)

------
vixen99
'If the customers IP address and billing address conflict you are going to
have to halt the purchase unless ...'.

So how do I, as a customer, go about buying something online while not at
home? The 'unless' doesn't appear to unravel the mystery.

~~~
derickr
You can buy from a non-EU company just fine.

But other than that, there are other allowed bits of information to proof
country of consumption, it's just going to be a pain to implement in your
check-out process :-/

~~~
wbond
Well, only if they are breaking EU member state laws. As of 2003 non-EU
companies need to charge VAT also.

~~~
derickr
Certainly, but I doubt it's very enforcable.

------
acd
The problem is that some countries are within the European union but are tax
havens. Luxemburg is such a country with 15% VAT but most other countries have
20%+ VAT. The solution should be to have one VAT level which is higher than
15% and the same in the whole union.

~~~
yc1010
Won't happen

1\. Countries like UK where the EU is constantly demonized in the tabloids
(and hence in the mind of average person who reads this trash) would have
their populations screaming murder, hell there already strong calls to leave
the EU

2\. Countries like Ireland have increased VAT to insane levels as a revenue
raising measure to pay for huge deficits run up by banking fiascos and huge
welfare/healthcare commitments

Anyways even the US has individual states setting their own sales taxes (or
none) albeit at a quite lower average level than anywhere in EU

What is needed is clear exemption EU wide for online businesses selling
service (And maybe even goods) for lets say 10 years, to encourage competition
There is a reason the likes of Amazon, Ebay etc have appeared in the US first

~~~
NicoJuicy
Let them leave the EU, without such a big nation they are nothing (being
financial capital of the world won't change much for the EU, but a lot for the
UK).

UK needs EU, weither they like it or not.

------
doctorfoo
Roll on crypto-anarchy.

------
chrisdew
The worst part is that non-VAT registered (because of turnover of less than
£70K/~$100K in UK) businesses will have to register for VAT in each of the 28
EU countries they sell to individually (and probably in 15+ non-English
languages).

I intend to stop selling to (non-UK) EU countries in 2015, but I am worried
about that decision as it may open me up to discrimination laws. If that's the
case, I'll have to close my business entirely.

~~~
pja
There's supposed to be a one-stop shop system to avoid this. Whether it's
going to work properly on launch day is another question!

~~~
chrisdew
The MOSS (one stop shop) is only available to VAT-registered entities. Making
it available to all would solve the problem for me.

~~~
honzzz
But you will be WAT-registered entity as soon as you register in a first
country. I still think the law is badly written but I think it does not
require registering in all 28 EU countries.

~~~
chrisdew
Are you sure about this, I thought HMRC needed a UK VAT registration number?

~~~
honzzz
Honestly, I am not sure about anything related to this law. I am also not UK-
based so I don't know haw exactly is the EU directive implemented in UK.

I live in the Czech Republic and here you can become so called "person
identified for VAT" which (if I understand correctly - IANAL) enables you to
use mini one stop shop for selling over the border while internally (selling
inside the country) you remain in non-VAT regime.

Our law is based on the same EU directive as yours so I suggest you check
whether your law also offers something like that.

It is still more complicated than it should be (I think the whole concept of
VAT is bad) but I hope it is not as bad as registering in all EU countries.

I will also consider 3rd party services like
[http://www.taxamo.com](http://www.taxamo.com) \- I am not related to them, I
am just sharing that because you might find it useful.

------
johansch
Sure, looks like there will be some pain and confusion in the short term, but
in the long term, how does this really hurt EU startups in the global market?

Presumably the various payment solutions are going to adapt to this, simply
because it costs a lot less to to implement whatever is necessary than to just
give up the EU market.

~~~
rachelandrew
Creating a smooth path to checkout and removing obstacles is really important
in terms of conversion rates. Having to ask for information that people are
going to see as very intrusive during that checkout flow is highly likely to
cause cart abandonment.

We get people already complaining that we make them create an account to buy
software - and we use the accounts for other things such as support and
license management. How much more will people feel they are being asked for
too much information if all they want to buy is an ebook?

~~~
pja
Yeah, this is really going to entrench the big players (Amazon, Google, Apple
et al) who already _have_ your contact details for a myriad other reasons.

~~~
johansch
Any payment solution that is based on credit cards would have the same contact
details. How does size matter here?

~~~
pja
The problem as reported is that many current payment methods used online
either do not have such information, or the payment system being used (eg
credit card via paypal) hides that data from the vendor, making it very hard
to both provide a seamless checkout and capture the information required to
levy the correct taxes.

That said, I'm really not sure that all this "two pieces of data _must_ be
collected" is as onerous as everybody is saying - the guidance seems _much_
looser than that. For each transaction they want 2 consistent pieces of
evidence of location, but the sources of said data are fairly broad & include
ip address, some form of geolocation and the self reported location by the
end-user, credit card location etc etc. Anything that the vendor believes to
be reasonably reliable according to their data-model really. See guidance
document here:
[http://ec.europa.eu/taxation_customs/resources/documents/tax...](http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/telecom/explanatory_notes_2015_en.pdf)
which amongst other things states that a country located account number (bank
/ credit card) combined with a customer self-reported country location is
enough in many cases. (This is what Steam requests already btw.)

The problem for vendors is that the rules pushes liability onto them when they
want certainty, plus the data storage requirements are fairly stringent (10
years!). The tax authorities are effectively saying: you can either collect
enough information to be absolutely certain of the end-user location or
collect less and carry the risk that an audit will result in big fines if we
decide that you've been attempting to evade VAT by misrepresenting the
location of your customers. This is of course no different from any other tax,
but with a new system there's always some uncertainty to begin with until
things settle down & no one likes uncertainty.

------
leimon
this is only on digital goods, right ? why is this only on digital goods. ?
how is this dealt in US, there are different states, and if saas from new york
sells something to LA, how is that dealt ?.

------
chvatalt
Switzerland is in the middle of Europe but not part of the EU.

Just incorporate there.

~~~
Taxamo
The new rules change how VAT on digital services is to be collected. Existing
(2014) rules demand VAT to be accounted for based on the location of the
supplier, but from Jan 1, 2015, the rules change. After Jan 1 VAT will have to
be applied based on the customer's EU location. All digital service suppliers
(EU and non-EU) will be affected.

