If you're an author, you can use Leanpub (https://leanpub.com/). We added #VATMOSS support, so you don't have to. We did this since we looked at the situation and decided it was the correct thing to do for our authors, even though we're based in Canada with our servers in the USA, and with no physical presence in the EU whatsoever. We also added "bring your own book" support, so you can just upload your own PDF, EPUB and/or MOBI files instead of needing to use our (awesome, Markdown-based) book creation workflow.
Would you be willing to share approximately what it costs you? I saw your post here and deleted-before-posting speculation that Patreon simply can't make the numbers sensibly work out (bearing in mind they have to grow by offering an attractive package to both those who donate and create; if, for instance, 50% of the "donations" go into tax compliance there simply won't be any donations anyhow), but if we can get real numbers that would be even better.
Of course, that's assuming you have a similar problem to Patreon, where the author claims that every patron would be involved in the VATMOSS transaction, which I can't speak to at all. If it's just a line-item per book for you but a line item per EU patron for Patreon that's not comparable.
In terms of detecting whether the transaction is EU or not, there's a complicated workflow with 3 pieces of evidence etc, but (a) that's what Taxamo helps with and (b) if a bootstrapped Canadian startup can deal with this, presumably so could anyone else.
This is the real story, its buried at the end of the article.
> The UK government is also in the process of introducing the Diverted Profit Tax, announced by the chancellor, George Osborne in the Autumn Statement.
> The tax aims to counter the use of "aggressive tax planning techniques" to divert profits from the UK to low tax jurisdictions.
> Profits made after 1 April 2015, and diverted to other countries, will be taxed at 25%.
This is a pretty watershed moment for world wide business tax strategies. It will be interesting to see how it plays out.
I would hate to be one of the big accounting firms, or an employee of one, right now. Inter-country tax laws are about to get alot more complex and my guess is that at least of of the big accounting firms get bankrupted in the next few years due to this.
Current tax law is kind of like trying to follow the bible, or quran, to the letter of the law. There are so many inconsistencies and just plain old conflicting rules that you just can't do it.
EDIT To clarify, I'm pretty convinced, mostly from analysts I've talked to, that sooner or later a PWC or ther accounting firm will give a company tax advice that a country doesn't care for and they will get taken to the woodshed by that country. I'm not even referring to outright illegal activity like Arthur Anderson and Enron.
So yes, more money in the future due to increased tax regulation but a heck of alot more risk due to it as well.
You have to realize that Arthur Anderson was taken down because a relatively small team of auditors was corrupt.
PWC has 10,000 partners and almost 200,000 employees. It just takes a team of 50 to mess up and the firm can be gone.
The Diverted Profit Tax won't stand. It overrides double taxation treaties and breaks EU law. Not to mention it's extremely fuzzy and filled with subjective judgments on whether profits are "diverted" or not.
> Inter-country tax laws are about to get alot more complex and my guess is that at least of of the big accounting firms get bankrupted in the next few years due to this.
could you expand? My feeling would be that with increasing complexity, big accounting firms stand only to make more money.
So basically .. we have the freedom of the internet ... buut we can't do business on the internet unless we hire 20 accountants 5 accounting managers, 2 layers and we will still be limited to just working within europe?
If only there were some kind of service, to whom one would pay a service fee perhaps, and who in return could promote your work, then collect and aggregate small, recurring payments from international payers while properly computing the tax liability.
Some kind of intermediary which enabled people to patronize artists, such that millions of artists around the world can simply pick up a check and focus on their work.
Heh. Seriously, this is (at least for me, and presumably for every other tiny indie developer) one of the huge attractions of storefronts like Steam and the iOS App Store: I'll just give you a license to sell my works, and you send me the royalties. I'll gladly give them a 30% cut to avoid all that bullshit.
Incidentally, the Google Play store does not do this. Each developer is the merchant of record. I can only imagine that nearly every smaller business selling through Google has neglected to pay at least some sales taxes that they owe.
just keep a table of the vat rates and pay the relevant one.
It isn't even close to that simple. It should be, but because of the record-keeping and reporting requirements, tax thresholds (or lack of them), general overheads of being as familiar with 28 states' tax systems rather than just one, and failure to provide sensible systems and advice by governments on a scale that would bring most businesses to failure, it just isn't.
The EU's own web site about this specific issue -- which is widely cited by everyone up to and including national tax authorities in member states -- didn't even have correct VAT rates listed for all member states on 1 January 2015 when the new rules came in. I don't mean figuring out whether a business's particular digital product or service qualifies for a special rate in some states. I mean just the headline figures for the standard VAT rates in each state.
I guess the difficulty will depend a lot on how helpful the local tax agency are. They should publish that kind of information to help their countries business's.
It would certainly help to have basic things like a standard, reliable place to find all the relevant tax rates in a sensible machine-readable form and a way to get notifications automatically and in good time if any rate is going to change.
That said, a lot of the madness appears to come directly from the EU rules themselves. Here in the UK, after dropping the ball initially, it seems like HMRC (the national tax collection agency) is trying to be helpful for smaller businesses who have been caught in the cross-fire between big businesses and governments. However, it's already clear that HMRC themselves have limited authority to act unilaterally, and ultimately they are required to enforce the tax rules given to them from above. The situation will only be fixed when European level government realises how badly it's screwed up, but right now they're more concerned with things like whether Greece is going to leave the Eurozone and potentially lead to a collapse in the Eurozone itself, so I'm not sure anyone is really listening as, ironically, they systematically undermine the very free trade that the predecessors of the EU were originally supposed to encourage.
I forgot to include the part where every EU creator will also be obliged to register as a data controller with their national data protection authority, to ensure proper reportage and archiving of the VAT invoices which must be kept in a retrievable format for 10 years.
Compliant marketplaces take care of that for you so that the individual seller/creator does not have to register as a data controller.
It may be a bit of hyperbole, but they are basically abandoning their EU users. It's a lot more arduous for individual content creators to track down and store VAT information for hundreds of $5 purchases than it is for the marketplace enabling those purchases to do so.
The rule is about place of supply, so any Patreon user receiving donations from people in the EU is presumably also supposed to register with VATMOSS and collect and pay VAT. Arguably Patreon aren't only abandoning users based in the EU, but users everywhere in the world with patrons there.
I say "arguably" because of course I've no idea how that borderline-crazy rule is supposed to be enforced. (And I may be misunderstanding it too.)
I'm based in the EU (in London) and I recently registered my business for VAT because of this regulation. Now I get to raise an eyebrow, metaphorical or literal, every time I account for a digital purchase I make from a US company and mark it down as "zero-rated" for VAT. It's not zero-rated as far as my government is concerned; the seller just didn't bother to charge the VAT and as the buyer it's not my problem.
(Edit: I hope.)
(Further edit: Thinking about it again, if a Patreon patron really doesn't receive a digital good in return, surely they don't have a case to answer after all?)
every time I account for a digital purchase I make from a US company and mark it down as "zero-rated" for VAT. It's not zero-rated as far as my government is concerned; the seller just didn't bother to charge the VAT and as the buyer it's not my problem.
Except that as soon as you became a VAT registered business it legally became your problem ;-) You have to "reverse charge" the VAT for those non-EU supplies and include them on your VAT return: https://www.gov.uk/vat-imports-acquisitions-and-purchases-fr...
Nearly all of my own purchases are subject to this and it's a bit of a pain in terms of admin overhead, but the good news is in many - but not all - cases the net financial position is the same as if you hadn't paid, since you can reclaim the reverse charged VAT.
The reverse charge as described there is for services rather than goods, though. How does it work with goods, and specifically digital goods like downloads of the sort that VATMOSS applies to? I'm quite sure sellers of such goods from outside the EU to within it are expected to use VATMOSS, does that mean there is no corresponding expectation to reverse charge?
VATMOSS has no relevance to B2B transactions (luckily!) but international businesses providing digital services to EU customers above a certain amount have been technically required to register since around 2003 - see http://www.taxamo.com/european-vat-on-e-services/ - this is why some US Web hosting providers will charge you VAT, but most (about 1% allegedly!) don't (and, I personally feel, they shouldn't).
The other issue is I don't believe there's any such thing as digital goods - they're considered electronically supplied services. Things like Web hosting are included in this. I'm not sure what purchases you're making from the US, but in my case things like Web hosting, Mailchimp, Pluralsight, videos, etc. all of these are e-services that I have to reverse charge.
Mmm yes, seems even the VATMOSS docs on gov.uk refer to services where I might think of goods. By goods I had in mind things like software licences, rather than hosting etc, but it seems those are services too.
(I am basically a relatively high-functioning example of the sort of idiot HMRC are going to have to deal with now -- clueless and fumbling but determined to do the proper thing thoroughly, and without an accountant because I'm only likely to be filing for a few quid a quarter anyway)
I know how you feel, I've been there :-) Annoyingly, I enjoy reading laws and laundry lists of arcane rules, so have a "reasonable" understanding of VAT law now and, yes, it's HORRIBLE and frequently contradicts itself (as does HMRC generally).
The other annoying thing is many accountants are not familiar with the nuances of Internet based or digital businesses, particularly those that deal with overseas customers, so knowing the basics yourself is essential unless you get lucky (I've realized it's sorta like asking a back-end C developer a front-end JavaScript question - they have the skills to try and look it up, but it's not necessarily going to be the best advice).
I thought patreon was a donation based service, as in "I give you money so you can continue to create" rather than "I give you money in exchange of services or goods".
Is patreon one of them or both, and how do I know when looking at someones patreon page?
They do both. On the left you can see "milestones", which are general project goals. But at the bottom, some of the pledge levels have specific rewards to the backer.
Even their own tax page (linked to below) says that donations are considered earned income. HMRC does not care where it comes from or what it's called. It's income.
I agree it's income, but it's also a tip. Like if I sent $5 to your Paypal account directly. You need to declare that, but does Paypal care whether I owed you $5 or it's income?
Good question actually. What's Paypal doing about VAT?
I can only answer for the UK, but we have to go back to last autumn, when everyone started finding out about VATMOSS at all. HMRC did not communicate anything about EUVAT to anyone but businesses above a certain size which were already VAT registered. Their estimate was that only 34k business would be affected. So part of the outcry was the fact that marketplaces, gateways, and payment processors were not advised or consulted. They found out the same time everyone else did, in the same way everyone else did. One of them was PayPal, who were expected by the EU to be compliant in time for 1/1/15. This was news to them. HMRC were forced to admit they had no idea that gateways like Paypal did not already capture the information required to create the place of supply burden of proof, nor that your average non-technically minded microbusiness knew how to handle the API and the information passing through it.
http://www.clarejosa.com/articles/from-passion-to-purpose/up...
One would hope that by now that it's all been sorted.
Nothing. They're a payment processor, not a marketplace - it's up to the actual vendor to handle tax. Money I make via PayPal is not PayPal's revenue at any point, whereas I believe Patreon takes payment direct and then pays its members through commission.
(HMRC answered the same question that way in an online chat - lost the link to the transcript, but it's out there.)
I imagine Patreon did the calculation of implementing complicated (and in flux) rules for for a portion of their market versus the lost income to Patreon from losing their European customers...
I can understand that it's likely that the equation comes down on the side of the European creators costing them less over the long run.
Do you think is practical to build an internal invoice system that takes care of the whole VATMESS? How long do you think it'd take a single developer to do it?
I know that there are many different services like the ones in this thread, but as a single developer, on a bootstrapping project they'd still be out of budget
If you're using Stripe or Paypal, you can use Quaderno (https://quaderno.io). We're #VATMOSS complaint and help you to calculate VAT rates and track all the customer location evidences. Let me know if you have any questions.
Patreon is the U.S. and not subject to European laws.
Patreon is also really just a distributor of money, they don't provide the person with a service.
Why is a person with a web design business looking to use a site used to help artists who have trouble connecting art and normal business income?
Finally she tweeted about how many people saw that blog post and said she should have included a tip jar. It really seems like she cares more about what she can get out of a situation than anything else.
"Patreon is the U.S. and not subject to European laws."
What makes you think this is true?
Why can't Americans play poker online? Why does Amazon have to collect state taxes for states they don't have a physical presence in? Google is forced to censor French and German search results. Facebook is forced to follow EU privacy laws. And on, and on. Having customers in a country means you're doing business in that country in this modern world.
"Why does Amazon have to collect state taxes for states they don't have a physical presence in?"
Because those states count things like affiliate programs and subsidiary companies as a sales tax "nexus". Amazon tends to kill those programs to avoid being taxable. They only collect sales tax in 24 states.
"Google is forced to censor French and German search results. Facebook is forced to follow EU privacy laws."
Yeah, because they have operations in those countries, and can thus be sued there. Also, perhaps, because they might be blocked in the relevant countries, and would rather stay in those markets.
The EU simply cannot make me collect VAT (or do any other crazy thing they think up), because I'm not in the EU. They can ban me or my services or products in their jurisdiction, or make life hard for my customers in their jurisdiction, which may be enough.
It's more than that. The U.S. actually prosecuted executives of foreign online gaming companies for providing services to U.S. citizens. The problem is not that American citizens fall under U.S. law, but foreign companies have to follow U.S. law for online only services as well. [1]
Well, so says the EU, but extraterritorial jurisdiction issues are very complicated and ultimately require cooperation between different countries to ever enforce.
Surely, if PwC is wrong, and Patreon is responsible (which seems this way) and HMRC decides to investigate, they will go after Patreon, and not individual users?
Correct, although I'd be very surprised if this actually happened. HMRC has enough trouble staying on top of non-compliance and lost taxes in the UK, let alone chasing people for VAT due in other EU states. I can't imagine HMRC being too quick to rush to become a debt collector for other EU states.
Bear in mind that if people merely keep operating now as they did in 2014, HMRC loses nothing - it's only the tax authorities in other EU states who lose out. While no-one should take this as legal advice, I suspect all we'll see is other EU tax authorities taking action against the biggest non-compliers rather than individuals.
You mean all the unnecessary paperwork for every EU member state affected by the VAT changes?
And it's of course entirely reasonable to expect your users to know that they have to do the paperwork for contributions in the 1-10 dollar range themselves without ever explicitly telling them.
I'm not even sure that level of information is available to the users. If I were being funded on Patreon, would I have to get in touch with every single patron and ask them for their VAT details? And what would I do if someone didn't answer?
This is no different from the borderline criminal behaviour Uber and AirBnB are encouraging.
Not handling someone's legal obligations for them is borderline criminal?
Here in the US, that's very common. For instance, contractors are often paid in full and expected to handle their own taxes. Generally they do. This isn't considered borderline criminal.
Why is it reasonable to expect Patreon to manage compliance and liability for such a law? If the EU wants to destroy commerce, that should be within the province of its citizens to address... oh wait. There's the problem.
Per this law, the third party marketplace/gateway is responsible for compliance and liability. That is how everyone in the EU affected by the law views it, and it is why most marketplaces and platforms are slowly but surely coming into compliance.
This particular marketplace, on the other hand, hired a consultancy firm whose raison d'etre is tax avoidance http://www.bbc.co.uk/news/business-31147276, who proceeded to give them what they paid for. That tax advice was so incredibly wrong it was almost laughable; it misrepresented the "place of supply", the fundamental piece of information behind the entire continental tax change.
https://idea15.wordpress.com/2015/01/20/vatmoss-place-of-ser...
This issue is not a question of extraterritorial sovereignty or individual responsibility. It's about dodgy tax advisors giving dodgy advice to a company which paid good money for it.
> Because that's what EU law, and its member states, have decreed. For example, here is the guidance from HMRC in the UK.
But Patreon is not in the EU's jurisdiction and therefore isn't subject to their laws (with the exception of any treaties that the US has with the EU).
> …hired a consultancy firm whose raison d'etre is tax avoidance…
You keep saying that like it's bad. The whole point of tax accountants is make sure that a business or individual pays the minimum legal amount they have to.
This is where the reciprocity promised to the world by the US over FATCA (the US's extraterritorial tax law) may begin to rear its head. Every bank and financial system in the world has had to comply with US tax law with no choice. Sooner or later the world is going to want to claw back the money it has had to spend on compliance.
