

London’s tech sector is under threat from EU VAT reforms - digitalWestie
http://www.cityam.com/1412620320/london-s-thriving-tech-sector-under-threat-bonkers-eu-vat-reforms

======
bojanz
"There are 28 countries in the EU with 75 different VAT rates, and businesses
are expected to apply the correct one."

This also changes expectations from ecommerce software. It is not feasible to
expect the administrator to research & create 75 VAT rates, then update them
as they change (sometimes yearly). Plus, the actual logic of determining which
rate to apply.

We've been redesigning our ecommerce package (Drupal Commerce) to account for
this. We've extracted our solution into a PHP library that anyone can use:
[https://github.com/commerceguys/tax](https://github.com/commerceguys/tax)
It's been verified and approved by our VAT experts. Even if you're not using
PHP, clone our approach and make your users happy :)

I've also gone through these problems from a developer perspective, in case
anyone is interested:
[https://drupalcommerce.org/blog/31036/commerce-2x-stories-
ta...](https://drupalcommerce.org/blog/31036/commerce-2x-stories-taxes)

------
mike_hearn
This is a very poorly thought out piece of legislation and it could quickly
turn into a huge pain in the ass:

\- People are now incentivised to game the system by trying to seem like they
are coming from low VAT jurisdictions, so they get lower prices. It's the
business that is liable if customers get away with this.

\- The "two pieces of evidence" rule means IP address and ... ? Realistically,
it seems the only other thing that'd work is credit card billing address, do
people even have any other way to prove their location over the internet? Wire
transfer details? So for anything that isn't very expensive, forget about
selling with anything OTHER than a credit card. Great, businesses selling
digital goods just got nailed onto the cross of a 1970s era payment technology
that barely evolves at all; how backwards. Not to mention that many people in
the EU don't even have credit cards and make payments in other ways, which may
or may not give geographic info.

\- More rules that are so absurd they can't be reliably enforced, like the
travelling rule, so they are just setting traps for the politically
unfavoured.

All this to try and undo the effects of the single market the EU worked so
hard to create, by preventing countries competing with each other on tax
rates? Should have thought of that beforehand!

~~~
Sami_Lehtinen
I can see this creating new businesses. I would love to issues credit cards
within EU where there is low VAT and then invoice electronically so there's no
phyisical address required. As well as if IP is used, cheap shop proxy which
comes as bonus when you start using credit cards which I'm issuing. Even
physical "delivery proxy" could be arranged for items. Many businesses are
doing trickery like this all the time.

~~~
mootothemax
_I can see this creating new businesses. I would love to issues credit cards
within EU where there is low VAT and then invoice electronically so there 's
no phyisical address required._

I'm pretty sure what you call a "new business" could quite easily be given the
alternative name of "tax evasion."

This isn't a field I'd recommend startups to look at entering.

------
artumi-richard
HMRC is not going to know if someone travelling from France to the UK was
charged the wrong VAT rate, and if they did, they wouldn't start issuing
fines. They are very kind to our sector, as the government wants to encourage
our sector to grow in the UK.

Also, you can do like Digital Ocean, have premises in the EU, and customers in
the EU, but claim to be only an American company and ignore the VAT question
completely. Still, I'm not sure how long they will get away with that.

------
lucaspiller
The title is rather link-baity as other than a bit of an accounting headache,
this isn't really going to affect anything. B2B can and will still be able to
reclaim or not pay VAT, and B2C prices will most likely be inflated to account
for the changes (if VAT is included in the list price). When selling to EU
customers you are already required to provide HMRC a breakdown per country, so
you should already be doing the hard bit of figuring out where customers are
based.

The main issue with this legislation is that it isn't clear, and what has been
said is contradictory. As an example, this is from the EC guidance notes [0]:

> Where telecommunications, broadcasting or electronic services are supplied
> to a private individual, VAT, as a rule, will be due at the place where the
> private individual has his permanent address or usually resides (as from
> 2015).

This completely contradicts what HMRC said as mentioned in the article :D I
haven't heard any complaints from other countries, so is it just HMRC in the
UK who are messing this up?

[0]
[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)

~~~
mootothemax
_The title is rather link-baity as other than a bit of an accounting headache,
this isn 't really going to affect anything_

The headaches are quite large, to be fair:

\- The VAT rate charged is now the customer's local rate, rather than the
seller's.

\- Verifying the customer's country via IP address or credit card location _in
addition_ to the address provided. No match, no sale.

 _I haven 't heard any complaints from other countries_

Funnily enough, I'm having various arguments with annoyed accountants right
this very second (I'm based in Poland).

I guess it depends on the local language being spoken.

------
simonbarker87
I hardly see this as a threat to just the London tech sector - it's a PITA in
general for everyone but it will first be a problem for business with digital
products. A good piece of accountancy like Xero can go a long way making this
easier and having a decent accountant to help is a must.

------
Spearchucker
From what I understand this affects everyone EU-wide. And by "affects" I mean
that everything will cost a little more. The following is the notice I
received from Microsoft on the 24th (first notice came in October):

\--

SECOND NOTICE – European Union VAT Changes Coming 1/1/2015

Tax laws in the European Union (EU), which govern the Value Added Tax (VAT)
rate applied to business-to-consumer digital goods, are changing on 1/1/2015\.
This affects the VAT rate on content offered in the Windows and Windows Phone
Stores. You may want to start thinking about how this change could impact your
EU pricing decisions.

Beginning on 1/1/2015, the applicable VAT rate for paid business-to-consumer
transactions for digital goods will change from 15% to the country-specific
VAT rate.

All EU countries are Microsoft tax remit, which means the price you select in
Dev Center for your app and/or in-app purchase is the final sale price to the
customer and already includes applicable taxes. Microsoft then subtracts the
taxes from the price prior to payout, and remits them on your behalf.

\--

They then give the VAT rates for each affected EU country. Most go up to just
above or below 20% VAT. Hungary goes as high as 27%, and Luxembourg, the
lowest, goes up by 2% to 17%.

------
jdimov
"Currently, if a UK VAT-registered business sells anything overseas but within
the EU, it must charge VAT at the UK rate of 20 per cent under the 'place of
supply' rules. "

This is simply not true. In fact, the exact opposite is true. A UK VAT-
registered business must NOT charge VAT when selling to customers within the
EU.

Which leads me to believe that the author doesn't know what he's talking
about.

~~~
mootothemax
_A UK VAT-registered business must NOT charge VAT when selling to customers
within the EU._

You've applied the rule too generally.

The rules are:

    
    
      1. Customer is an EU and VAT-registered business: no VAT *if* proof of business provided in the form of a VAT number.
    
      2. Customer is an EU business: no VAT number: charge VAT at your local VAT rate.
    
      3. Customer is an EU consumer: charge VAT at *your* local rate.
    
      4. Customer is based outside the EU: no VAT.
    

The new rules affect the above thus:

    
    
      1. No change.
    
      2. Charge VAT at *customer's* local rate.
    
      3. Charge VAT at *customer's* local rate.
    
      4. No change.
    

The new rules also place a significant burden on proving the customer's
location: you must verify their address using at least two methods, one of
which may be the address the customer provides; and the other may be their
credit card address, or geoip lookup via their IP address.

Whichever proofs you rely on must be recorded with the purchase, and kept for
10 years.

~~~
fulafel
Has UK been enjoying special treatment here? Generally in EU you charge
consumers their home state VAT, unless your sales there falls below some
treshold ("insignificant" sales to that location).

[https://en.wikipedia.org/wiki/European_Union_value_added_tax...](https://en.wikipedia.org/wiki/European_Union_value_added_tax#Intra-
Community_acquisition)

~~~
mootothemax
_Generally in EU you charge consumers their home state VAT_

No. That's what's changing in 2015.

------
pdknsk
I wonder if this is why Google Cloud as of recently doesn't allow non-business
users in the EU to sign up for their services (and changed the status of
current users from personal to business). Seems like a poor response to this
new law IMO.

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

------
chrisdew
Please correct me, if I have misunderstood the new rules.

The new rules are very bad for non-VAT registered UK companies which create
and sell digital goods. If my company continues selling
([http://www.virtsync.com](http://www.virtsync.com)) to EU countries, it would
have to register for VAT in each EU country.

For £2k in sales, I would have to do VAT returns for 27 countries, in several
foreign languages! It is clearly not worth it.

(VAT-registered companies can use HMRC's MOSS:
[https://www.gov.uk/government/publications/vat-supplying-
dig...](https://www.gov.uk/government/publications/vat-supplying-digital-
services-and-the-vat-mini-one-stop-shop))

------
VBprogrammer
Thanks for bringing this up. From what I understand the company I work for
will not have too many issues with collection (we are legally structured as an
agent and don't sell digital goods) but it does mean that paying for Google
Ads will involve paying an extra 20% up front which isn't great for cash flow
management (though it will be reimbursed later).

~~~
DrJokepu
I mean, for B2B services the place of supply was already the place where the
customer belongs so your employer already reverse charges the VAT which means
that VAT is reclaimed at the same time it's charged, effectively cancelling
itself out. If I understand it correctly, this change will only affect B2C
services.

------
givan
The new EU VAT law makes VAT mandatory even for companies outside EU that sell
digital goods to european citizens, also VAT is taxed at customer's residence
country rate instead of company's like in the past, Luxembourg will no longer
be a VAT heaven inside EU.

