
The Horrible Implications of the EU VAT “Place of Supply” Change - timcraft
http://rachelandrew.co.uk/archives/2014/10/13/the-horrible-implications-of-the-eu-vat-place-of-supply-change/
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throwaway41597
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

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rachelandrew
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.

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throwaway41597
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 :(

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Doctor_Fegg
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...](http://www.jeffreyshenry.com/important-vat-changes-technology-
and-digital-businesses)

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hermitcrab
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

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rachelandrew
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
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).

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turbojerry
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?

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rachelandrew
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.

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corford
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
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
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.)

~~~
theallan
Are you sure about that? My understand of it was that the place of supply
depends on what is being sold and not on the VAT registration status of either
party. Digital goods would have the place of supply defined by where the
customer is. Services have it defined by where the seller is.

If both you and the customer are VAT registered, then you can zero rate the
VAT, but the rate (if it were applied) could be different (based on what you
are selling).

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Shivetya
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
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
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/](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?

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twobits
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
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.

