A few thoughts on EUVAT – a right VAT Mess

Posted By on May 21, 2015

So today I am writing about #EUVAT, a daft and damaging law written by a government so disconnected from its electorate that it didn’t remember small businesses exist. I’m not kidding, they’ve admitted it. (“Only 7% of businesses sell overseas” – Actually its 96%, ‘cos they forgot Paypal).

For anyone not familiar – most of the UK, as HMRC hasn’t exactly been telling people – from 1st Jan 2015 if you sell something online – an ebook, an app, an MP3, the seller has to work out and pay VAT to the government of the country where the buyer is located. For ebooks, this is 81-odd VAT rates, for 28 countries. You also have to capture two pieces of ID, which match, to confirm the country and hold them for ten years. Small businesses can’t do this, heck, even Paypal can’t do this…
The EU have said they will look at it again in 2016, when they will also make it cover physical goods. 200 firms have closed so far, others are geoblocking EU customers, and some have had to switch to third parties who take a massive cut of earnings. One author quotes losing 80% of earnings to tax and fees. Many US SMEs will no longer sell to the UK. There’s a full breakdown of the damage here: 2015 EU Digital VAT (PDF)

So rather than detailing what you can do, which has been covered in detail by EUVATACTION, I thought I’d write about easy ways the EU could fix this legislation:

1) Add a Rider
Where the company or artist cannot locate the purchaser VAT on a purchase is paid as if purchased in the seller’s country of origin.
– Amazon, Google, and companies holding user accounts cannot say they don’t know the purchaser’s location.
– Small businesses using Paypal definitely don’t.
Shipping addresses don’t count for location as the person it is shipped to may not be the purchaser. If a large company deliberately stops holding user data to avoid this, that’s tax avoidance and can be fined.

2) Add a Threshold
Microbusinesses by the EU classification pay VAT as if all sales are in country of origin
– Easily catches Amazon, Google and the large players
– As the minimum turnover is 2M euros, any firm of this size has the resources to implement a fix (est. cost £5,000/7,500 euros)
This is euvataction’s preferred option.

3) Refund Collection Costs
Allow companies to recover the cost of collecting VAT from the tax departments in question.
e.g. if a person owes 1.67 euros to Spain and it costs them £180 to work out, £50 in lost business for calculation time*, and £40 in international transfers, The Spanish government owes them £270 – 1.67 euros. Cost of collection to be remitted first, so that the transfer fees can be paid.
Alternatively let it accrue, and when the debt owed reachs £500 (yes, the joy of working out currency conversion also falls on the tax dept) the government pays out. Turns EUVAT into a tax on large businesses and a subsidy for smaller ones worldwide.

* Set a base rate of minimum wage for collection time, and then allow the business to use its chargeable hourly rate if that is higher.

4) Centralise Accountability
Turn VATMOSS into a pool that companies pay into at a flat rate, which then distributes payment Europe-wide.
Each VATMOSS receives payment at a flat average VAT rate (say 20%). It is then up to the VATMOSS group to work out percentages of how much was purchased from each EU country and remit a percentage of the pool to each.

Note: They don’t get to ask for purchase data, or go back to companies who have paid the flat rate and ask for more. After all, companies can’t go back to consumers to ask for more, and giving out client data like that breaches PCI DSS and data protection law. The company’s obligation to digital tax ends with paying the Europe-wide MOSS rate. From there on, liability rests with the MOSS teams, and they are the ones taken to court if it goes wrong. After all, these are people trained and paid specifically to deal with tax. (They can use web traffic levels, etc.)

Alright, option 3 and 4 could be termed making EU VAT a nightmare for the tax departments. I view it more as shifting the burden back where it belongs, onto the people who created the problem in the first place and civil servants who are paid specifically to deal with tax. Small businesses don’t have tax specialists or finance departments, so why does this law assume they do?

On a closing note, there are things you can do:
  • Lobby your MP and MEP for a country-wide exemption until the legislation is fixed. In the US, lobby your senator: no taxation without representation.
  • Approach industry and consumer bodies to see if they will take action
  • Tweet, twitter and get the word out. #EUVAT and #VATMESS are in use. I’ve put some banners on this page if you want to add one to your site.
Finally visit EuVatAction or join their facebook page for updates

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2 Responses to “A few thoughts on EUVAT – a right VAT Mess”

  1. Mike Scott says:

    Options 1 & 4 don’t work, because they make EU countries unattractive places in which to base an international business, since you have to pay VAT on all of your non-EU sales, and your international competitors do not. I’d suggest that instead the EU should be required to publish an official list of all IP prefixes that are considered to be of EU origin, and your flat rate 20% VAT is payable on all transactions from any matching IP address. Savvy buyers will be able to get round it with proxies and VPNs, but that’s just life.

    Actually, the best option of all is to give up, and zero-rate for VAT any goods or services which do not require a physical delivery address.

    • tirial says:

      I could get behind a zero rate on goods that don’t require physical addresses. I’ll explain why in a hypothetical which I’ll post shortly.

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