UPDATE: How Not To Let EU VAT Ruin Your Christmas – Or Your Business

EU VAT Action Update - December 19th 2014

This is an update on a UK meeting on December 19th, but it is still hugely relevant to those of you outside of the UK. The changes we need will have to happen at an EU-wide level, with each individual country asking Pierre Moscovici for legislative change. All of the questions, issues and actions discussed yesterday apply to each EU member state. The UK’s high VAT threshold makes us unpopular in the EU when we ask for thresholds, so our government urgently needs the support of other Member States, confirming that the issues we are raising are an EU-wide problem. All of the action points are EU-wide, even if yesterday’s discussions were in the UK. So PLEASE read through this update and then take inspired action. Each one of us is making a difference!

Caroline, Rosie and I were able to meet with senior representatives from HMRC and HM Treasury on your behalf on Friday (19th December). Mike Cunningham (Senior Policy Adviser HMT who attends the EU Fiscal Attaches meetings) was asked to meet with us by David Gauke MP, Treasury Secretary, (David wrote to us to confirm this) and Andrew Webb, HMRC, has the remit for the UK implementation of the VAT-MOSS regulations. So these are two of the key decision-makers and action-takers.

It was a positive and constructive meeting and we can assure you that HMRC and HM Treasury DO now understand the specific challenges that implementing the new EU VAT legislation is causing you, where that penny perhaps hadn’t quite dropped before.

We presented to them the technical challenges you are facing, as well as the administrative burdens, along with the initial analysis of the quantitative research survey that so many of you have completed (thank you!).

Please note: these are NOT minutes from the meeting. The points below summarise for affected businesses where we understand that the key issues are up to:

 

We can’t reasonably collect the data for proof of place of supply

Most of the smallest businesses cannot comply with the legislation because they can’t collect the required 3 pieces of location evidence (a third is needed if the first two contradict, so we have to have systems in place to collect 3).
 
Our survey shows that 90%+ of businesses trading below 100,000 Euros are using PayPal, usually the basic ‘Buy Now’ buttons, and the most they will be able to get is the customer’s self-declared account address. Andrew and Mike said they had been told at another meeting recently that a manual work-around would suffice, whereby you get the address and then email the customer to check it is correct, or you use a plugin to get them to declare their country and then manually compare this, after the purchase. We explained that the administrative burden of this would be unreasonable for the sale of, say, a £2.99 PDF, and that it would make the seller look unprofessional – let alone the problems that would be caused by the low numbers of consumers who would actually respond to such an email.

They DO now understand this.

They DO now understand that PayPal only gives most of us ONE piece of data.

HM Treasury explained that the 2 pieces of data are required for audit purposes – you cannot audit one piece of data. We discussed possible ways of changing the purchase process to collect the customer’s self-declared country, in addition to the address held by the payment processor. This would create two pieces of data – to process manually – but it was unclear whether they would both be ‘self-declared’.

UDPATE: Thank you Megan for confirming that self-declared information can only be used as ONE piece of evidence, no matter how often the customer self-declares it, specifically:

“For instance, when the customer gives a billing address and later confirms that same address through self-certification, that can only be taken to constitute a single item of evidence.” EU regulations, 9.5.5, page 71: EU Explanatory notes

Note: However, it has been stated by the EU Commission that the address given to the payment processor is NOT self-declared, therefore the PayPal address could count separately from a self-declared address. We are going to try to find this in writing for you. In the meantime, please see the updated HMRC guidance notes (issued on Friday 19th December) in the section Businesses using payment service providers, which confirms that a self-declared country and the payment-processor-supplied address will suffice.
 
ACTION: PayPal and other payment processors DO collect all of the information needed to fulfil the audit obligation. THEY could do the audit checks on our behalf and still issue just the 2 digit country code to us, but it would be officially verified – the bit we can’t do without the data. This then meets their consumer confidentiality obligations and we meet the proof of place of supply requirements, without creating a data storage nightmare. The EU could agree that this would be sufficient, for small businesses, as evidence of place of supply, for the purpose of audit, because it has been verified. Please ask your MEP to ask Pierre Moscovici’s team to lobby PayPal and other payment processors for this. This is an EU-wide problem and any solution needs to be applied across the Union.

ACTION: Please continue to lobby your MP and MEPs to ask for an immediate, temporary exception that would allow the smallest businesses to use the customer’s self-declared address as sufficient evidence for proof of place of supply, in the absence of reasonable methods to collect 2-3 pieces of data and check it during the transaction.

We don’t know what the price is until after the sale

Unlike big businesses, most of us are running ‘static’ sales pages where the same price is displayed to all visitors.
 
We don’t know where the customer is based until AFTER they have completed the purchase process. So we cannot display the correct VAT-inclusive price to them.
Instead, businesses are going to have to put their prices up by a ‘fudged’ average and hope that they get more customers from Luxembourg (3%) than Hungary (27%), taking the VAT-hit themselves. This is bad enough with digitally-delivered services, where there may be a reasonable margin. But the proposed 2016 implementation for physical goods, where margins are often tight, could cripple businesses.
 
Even if we could decode an IP address, live, it is easy for a tech-savvy customer to fake or hide their location.
 
Even if businesses could ask the customer for their address before they click the ‘buy now’, most of us don’t have the technical ability to code our web pages to then display the correct VAT rate out of the 75 that the EU uses.
 
Also, with systems like PayPal, they add the VAT at the checkout – AFTER the customer has clicked ‘buy now’ – so you are effectively selling on a VAT-excluded price and adding VAT after the purchase decision has been made. This breaches UK (and possibly other Member State) VAT rules, whereby the consumer has to be told the full VAT-inclusive price before they make the purchase decision, and it will also lead to a massive drop-off in sales completions because consumers will be rightly angry that the price goes up at the checkout and is more than they thought they would have to pay.
 
UPDATE: HMRC issued revised guidance notes on Friday that include information on how to handled ‘bundles’ for place of supply. Please see the section “Bundled or multiple supplies
 
ACTION: Do any of you know of a plugin that may be able to detect (reliably!) which country the customer is in and so display the correct VAT-inclusive price for them?
 
ACTION: Write to your MEPs, explaining this to them and pointing out that, with the current technology you have, the new EU VAT rules will cause you to breach EU consumer law. Ask them to help Pierre Moscovici’s team understand this.

We can’t always apply the correct VAT rate

Some payment processing solutions / plugins allow you to allocate a VAT rate per country – PayPal is one of these. BUT there is a problem:
 
PayPal (and most others) only allow one VAT rate per country. In some cases you might be selling, say, an e-book and a live online programme in the same transaction. The e-book (digitally-delivered therefore VAT is the rate in the buyer’s country) is liable for the new EU VAT rules, but the live online programme isn’t, and if you’re not registered for VAT in your home country, it is zero-rated, so there are two VAT rates in one transaction. Indeed, there are two different places of supply – and hence two different countries’ VAT rates – in one transaction.
 
Even without a live component, with 75 VAT rates EU-wide, there’s a high chance you’ll need two in one transaction at some point.
 
Your payment processor’s system almost definitely won’t be able to handle this. So you cannot apply the correct VAT rate during the transaction and it becomes a manual post-purchase administrative burden.
 
Charging VAT to a consumer on an item that is not liable for VAT is an offence.
 
We don’t get any of the data until after the transaction (unless you’re up all night manually processing your checkout sales!), so it creates a disproportionate administrative burden of manually checking each transaction and then going back to a customer if the data looks incorrect, potentially refunding incorrectly-charged VAT, then analysing and storing the data to complete your VAT-MOSS return.
 
ACTION If this applies to your business, PLEASE tell your MP and MEP. This is a ridiculous consequence of the legislation, the administration of which is well beyond most of the smallest businesses – which will be a barrier to trade.

You can’t please each EU Member State

Our case studies indicate that each EU Member State’s interpretation of what is a ‘digitally-delivered service’ is subtly – or sometimes majorly – different. Even if you comply with your own Member State’s interpretation, you could still be prosecuted by another Member State if the interpretations differ.

Update: HMRC has confirmed, as they hinted in our December 4th meeting, that any objection from a Member State would go through THEM, and NOT direct to you, and it would be HMRC’s decision on whether to pursue a complaint. If you are compliant with the UK interpretation, then you have shown willingness to comply. Please read HMRC’s statement, further down.

The assumptions the EU used to implement the legislation without considering the impact on the smallest businesses and sole traders were fundamentally flawed

Over the past six years, we have been led to understand that the smallest sector of businesses was not considered in the Member State Impact Assessments and we were not included in Member State consultative teams, based on two assumptions:

* That most businesses sell through 3rd party platforms – our survey data indicates that it’s only 40% in the UK and a tiny 5% non-UK EU

* That most are too small to trade with the EU outside of their Member State – our survey data indicates that over 95% DO – in fact, it’s hard not to, with digital products.

ACTION: You can include this fact in your letter to your MEPs – the data shows that we were ignored, with the best of intentions, but that the fundamental assumption on which that decision was based was wrong. Therefore the unintended consequences of this legislation were missed, which is why we need an immediate suspension of the implementation for these businesses, to allow the impact to be evaluated and for reasonable solutions to be found.

The ‘platforms’ can’t fix it for us

We discussed, again, that most of the platforms only heard about the new EU VAT rules in November 2014 and will be unable to comply by January 1st. Indeed, the changes they have to make are enormous and many are not EU-based, so the creating the leverage to get them to take action has been hard.

Action: Again for our legally-minded friends: can any of you find the point in Statute that confirms (EU-level, not HMRC briefing document) that the 3rd party platform is legally responsible if the VAT is not correctly processed – i.e. that the seller is not liable if the platform isn’t ready yet and could therefore simply continue trading and let the platform worry about it?
 
UPDATE: At the moment we cannot find any mention in the 94 page EU explanatory notes that says the 3rd party platform is liable.
 

HMRC and HMT DO now understand the technical and administrative challenges you are facing. Those pennies have now dropped. This is a massive achievement.

But that doesn’t change the challenges you are facing.

The data protection issues are huge

With major companies being hacked, the risks of ‘kitchen table’ businesses and micro businesses storing this level of customer data, for ten years, are huge.

Europe risks becoming a ‘digital desert’

We are hearing DAILY of e-publishers and other businesses located outside of the EU officially stating that they will no longer trade digitally with the EU, as a result of this legislation. Even Google is banning those in the EU from charging for the ‘help-out’ services.

We are hearing of companies already relocating to be outside of the EU, to avoid what they see as the crippling impractical consequences of this legislation.

For EU consumers, this means massively reduced choice and higher prices.

Question: Why were ‘Digital Services’ excluded from the existing EU Distance Selling Thresholds?

The EU has it within its power to pass emergency legislation that would allow the existing, agreed, long-standing EU Distance Selling Thresholds to be applied to the digital services under this legislation – from January 1st 2015.

This would allow tens of thousands of the smallest businesses to keep trading.

At the moment they face a stark choice. Most cannot possibly comply, for the reasons given above. They either trade illegally or close down. Far too many are already choosing to close – we receive emails every day, confirming this.

ACTION: Please write to your MEPs and implore them to get Pierre Moscovici to include digital services in the Distance Selling Thresholds, so that businesses don’t have to close.
Please ask them NOT to flood HMRC’s inbox. This is an EU decision.

You Now Have An Official Voice

As a result of the meeting and all of everyone’s efforts over the last weeks (thank you!), you will now have a voice, going forwards, on the relevant UK-based EU-wide consultation groups, which is brilliant.

We will be meeting at least monthly with HMRC and HMT, on your behalf, raising your concerns and standing up for your needs, over the coming implementation phase problems – as well as continuing to lobby hard and provide evidence to support the need for exemptions and thresholds.

This is a huge achievement, for a group of hundreds of thousands of businesses that was previously unrepresented, and it is in no small part due to the effort that each of you has put in with all of the awareness-raising activities, letter writing, petition signing and survey completing. It is also testament to the positive attitude of this campaign. Had it degenerated into a change-fearing-whinge-fest, then these agencies would not be agreeing to listen to us. Thank you!

None of the concessions so far would have been achieved without your efforts. We have it from senior sources in various organisations that the shifts that have already been created are at a near-unheard-of level, even if it might not feel that way for you, right now.
 

HMRC Official Statement

We have HMRC’s permission to publish the following statement on their behalf, as a result of the meeting. Please read it in the spirit with which it is intended, bearing in mind that they are required by Statute to implement the legislation.

“It is clear that the EU-wide VAT changes will go ahead on 1st January 2015. However, HMRC does recognise the difficulties that these changes will cause for many small businesses. They are listening.

Following discussions, HMRC assures us that during the first few months they will be applying a light touch on implementation, whilst actively supporting businesses who want to comply.

HMRC will be working with us (and you) to help small businesses to find workable solutions over the coming months:
– To enable the collection of the required two pieces of data for proof of place of supply, by clarifying and confirming types and sources of data; and
– The application of the correct EU VAT rate, to enable small businesses to meet tax accounting obligations, as well as consumer rights legislation.

They will also continue to work with other EU Member States to find solutions for the issues that have been raised.”

 

There is scope for urgent review and negotiation of thresholds as part of the OECD review in December / January / February, so your voice will be more important than ever then – and we are hearing clear support for change at an EU Commission level.
 
There is also scope under Juncker’s Digital Economy Plans over the next few months, to create the climate for change that is so urgently needed.

There is clear hope.

 

Update From An Unofficial Insider

We also met, separately, with a senior government insider who we are not able to name. He asked us to pass on the following – off-the-record:

  • There are high level ‘behind-closed-doors’ meetings happening about the new EU VAT rules and the challenges you are facing. You won’t see them being reported in the press until after the changes have been made. Just because progress is not visible to us on the outside, it doesn’t mean it isn’t happening. This is being seen as urgent, at the highest level.
  • Don’t be put off by a ‘fob off’. We all know how it feels to be told, “There, there, dear, go and have a cup of tea and it will all be fine.” If you get a fob off letter, it’s actually a great sign – it means the person you wrote to has read your letter and taken action – and each time that happens, the door for the changes we need opens a chink wider. In the meantime, write back to them and explain why their fob off doesn’t fix anything.
  • If you ask your MP to lobby someone on your behalf, they have to do it – or explain why they won’t. You may never hear the outcome of that lobbying, but things happen behind closed doors that create the possibility for change. This is essential work – please keep writing.
  • Don’t expect any politician in any country to come out publicly criticising the legislation that their Member State is legally required to implement. It’s not how it works. The changes happen quietly, whilst the party line continues to be broadcast.
  • It often looks – to the outside – as though nothing is happening, as though you are being fobbed off, until one day you wake up and the newspapers are reporting that change has happened.
  • Each and every letter tips the balance in the favour of the changes that are needed. Please keep writing and visiting your representatives, EU-wide.
  • A letter explaining specifically how the legislation disadvantages or negatively impacts your business makes an impact. It gives your representatives evidence with which to lobby on your behalf.

What Can You Do?

We are all creating a climate for change, with each letter, each phone call, each email, each press article that is published. The next step is figuring out how you could to keep trading while we ALL keep the pressure on to get a threshold and other changes.

For now, please go through the suggested actions in this update and see how many you could take. We need people writing to the MP & MEPs on a weekly basis, if possible, updating them on the challenges you are facing due to the unintended consequences of this legislation – today and as we do our best to keep trading during the implementation phase.

Ask your MP in the UK to lobby Matt Hancock, David Gauke and Vince Cable to get them to lobby Pierre Moscovici and the other key decision-makers in the EU.

Persistence is the key to convincing the decision-makers that this is a genuine issue, rather than a change-resistant-pity-party.

And, urgently, please look at what you could reasonably do to allow yourself to keep trading, within the spirit of the HMRC statement.

We all need to do what we can to keep trading, to buy time for the changes we so desperately need.

 

Reminder of the campaign aims:

  1. An immediate suspension of the legislation, even if just for one year, for micro businesses and sole traders, while proper impact assessments are carried out and reasonable, workable solutions are found, including a sensible threshold below which the new EU VAT rules would not apply, worldwide.
  2. Immediate application of the already-agreed EU Distance Selling Thresholds to also cover ‘digitally-delivered services’

And A Final Word…

HMRC and HM Treasury in the UK really DO understand how this is impacting you now. They are on your side, working really hard to help you keep trading, whilst we all find short- and medium-term solutions. Unfortunately, they are currently flooded with letters from MPs and MEPs asking about the situation, which is slowing down their efforts.

PLEASE ask your MP and MEP to write to and lobby the decision-makers in the EU, rather than hassling the teams in HMRC and HMT – that would be a real help.
 

That’s all for now – thank you for your patience with this long update. We hope you found it useful.

Please let us know how you’re going to keep trading – and if you have any great ideas to keep the pressure on the EU decision-makers – via the comments.

Thank you!
Clare & the EU VAT Action Team
P.S. Got questions? Want to connect? We’d love to see you over at the campaign group: https://www.facebook.com/groups/euvataction/

70 thoughts on “UPDATE: How Not To Let EU VAT Ruin Your Christmas – Or Your Business

  1. Amazing Clare, so clear and really well put. Do you want a job as a VAT specialist? This is not the only technically challenging area in VAT!

    Soooo impressed at what you have achieved.

    Wayne

    1. SOOO NOOOO! I’ll stick with inspiring people to get out of their stress-heads and reconnect with their Soul, in my Inner-Engineer-Friendly way, thanks, once all this is sorted! Surprisingly, I’m allergic to accounting.

  2. What I’m doing to keep trading is I’ve taken my books down from third parties except Amazon, until it becomes clear who’s liable if they’re not compliant. After Amazon makes its price adjustment in January I’ll review my prices, to try and avoid taking a massive hit on the tiny profits I make. I’m not going anywhere near direct selling. So I’m not as badly off as some, but I will have to review my business plan next year.

  3. Clare, in regards to this question:

    “Action: Again for our legally-minded friends: can any of you find the point in Statute that confirms (EU-level, not HMRC briefing document) that the 3rd party platform is legally responsible if the VAT is not correctly processed – i.e. that the seller is not liable if the platform isn’t ready yet and could therefore simply continue trading and let the platform worry about it?”

    Believe it or not, third parties, payment processors, and platforms are not mentioned anywhere in 2008/8/EC, 1042/2013, 967/2012, or 815/2012.

    The only thing pertaining to incorrect payments begins with Recital 19 of 967/2012, which reads:
    “In the case of non-payment, underpayment or payment
    in excess made by non-established taxable persons and
    with regard to interest, penalties and other incidental
    charges, it is important to specify the respective
    obligations of the Member State of identification and
    the Member States of consumption so as to facilitate
    the collection of VAT and to ensure that the right
    amount is paid in respect of the services supplied
    under the special schemes.”

    Articles 63, 63a, and 63b of 967/2012continue with similarly vague codification of this, such as
    Article 63b
    Where no VAT return has been submitted, or where the
    VAT return has been submitted late or is incomplete or
    incorrect, or where the payment of VAT is late, any
    interest, penalties or any other charges shall be calculated
    and assessed by the Member State of consumption. The
    taxable person shall pay such interests, penalties or any
    other charges directly to the Member State of consumption.”

    That’s what official legislation has to say.

    The EU’s explanatory notes – remember that lovely 92 page document – has this:

    9.5.9.
    To what extent may the supplier rely on information provided by a third party (in
    particular a payment service provider)?

    In many circumstances, taxpayers rely entirely on verifications undertaken by third party trading partners, such as payment service providers and other intermediaries.
    It is necessary to stress that the correct determination of the place of supply remains with the supplier. Therefore, the fact that verifications are made by third parties does not relieve the supplier of his responsibility in cases of misuse or abuse.

    Any further discussion of that would hinge on the term “misuse or abuse.” The EU would likely take the position that a third party payment platform which has not been set up to handle VATMOSS, or has been set up incorrectly due to poor guidance provided by the member state, is being “misused.”

    IANAL but I’ve got two legal papers to write over the holiday break so…

  4. Clare and the rest of the people working diligently on this, your efforts are super appreciated. So many businesses will be affected that aren’t even aware and they owe you thanks too.

    I tweeted recently that probably Government website services like the Land Registry and Companies house, won’t comply in January. They provide PDF downloads after purchase and should be affected.

    Going to write to my MEP now.

  5. Reblogged this on Harriet's Hidden Blog and commented:
    The EU VAT rulings coming into force on January the 1st have made me put my plans for digitally delivered products on hold for the time being. When they roll out to physical products (as soon as 2016) it is likely that I will no longer be able to sell goods to my clients in Europe. this saddens me greatly.

    1. Thank you so much for all of your support on this Kaal. I, too, hope that the solution you and your business need will come very, very soon.
      Everyone: if you are in Kaal’s position of having to cease trading because you cannot comply with these rules, it is essential that you write to your national parliamentary representative(s) and your MEPs to tell them – they NEED to know – and to lobby on your behalf so you can resume trading.

  6. Thank you so much for all your hard work. Its so much appreciated! I am suspending the sale of digital products and looking to make my business wholesale only by 2016 as even with any adaptations, cannot envisage engaging in the complicated changes required by this legislation when it is rolled out to physical products.

  7. As a micro-marketplace (very micro) I was initially so stressed out I spent a whole week reading/watching nothing else but #VATMOSS stuff, and had a few sleepless nights thinking I’d have to close up after all the hard work over the years.

    However, as time went on, I adopted a “Don’t let the b*ggers grind you down” attitude; decided to bite the bullet, knuckle down and register for VAT – along with all the extra admin and systems changes that go with it – so that at least those who sell in my store don’t have to deal with it. There are sellers who cannot deal with the prospect of all that’s required and have already shut up shop: but at least this way they can keep selling. I am not looking forward to what’s entailed, and there are still times I think OMG what am I taking on, but onwards and upwards! It might even mean I end up becoming a Ltd company or take on staff, but one thing at a time.

    No doubt though, it’s still pretty scary: I am still a work-at-home mum running the show from her kitchen on a laptop/desktop/iPad at the end of the day!

    So, I am initially going to register for VAT and keep an eye on EU sales: I am hoping my shopping cart is going to have some kind of solution very soon: they are already pretty geared up for restricting/enabling sales and applying individual taxes to certain countries that you can set up yourself, and after a few posts in their forum we finally have people working on code stuff.

    I didn’t want to restrict EU customers, even though that would be the easiest thing to do and I also am resistant to charging everyone a universal, increased price since I don’t think it’s fair everyone should have to pay higher prices ‘in case it’s a VAT customer’. So, hopefully in the short-term I can keep an eye on sales and absorb EU VAT, before applying it dynamically to each EU customer as required. I’m also hopeful that my awesome accounting software will have an update soon to help me report the VAT. While writing this I’m thinking there’s a lot of ‘hope’ here (!) but I do have faith in both my cart and accounting system. Think I will need an Accountant too but can’t afford that just yet. However another positive to come out of this is to bring everyone together who is connected to my store, in a Facebook group, and discuss/delegate to make things a little easier. Should have done it ages ago!

    I also think that as long as we are actively trying to comply, HMRC aren’t going to clamp down on us v.little guys (as your article said) so my initial feeling of panic has turned into a positive one of ‘bring it on’, albeit with one heck of a lot more work to do :-/

    Adapt and Overcome…

  8. Thank you for your efforts on behalf of small and micro businesses everywhere. Many of the latter in the UK make so little profit that they are BELOW the UK tax threshold. At the moment many feel that they have a stark choice between closing down or trading illegally and keeping their heads down in the hope that the tax authorities in their country will concentrate on the “big Boys” until this insanity is sorted out.

  9. Thank you for all your work on this – and especially the reminder that our MPs are there to work for us! They might not always look like it, especially ones who are members of the Government, but that’s what democracy is all about.
    As ever, it’s pretty clear that this was cock-up, not conspiracy; the good part is that cock-ups can usually be repaired.
    Keep up the good work.

    1. Thanks, David.
      Yes, we ALL need to be writing to our MPs & MEPs on this. The past four weeks has shown governments across the EU that the unintended consequences of this legislation are unacceptable. Each and everyone one of us needs to keep the pressure on for change.

  10. Great work on thsi everyone – very much appreciated!

    Only found out about this in the last few weeks and have total shot my business plan down – can’t comply with the new law so can’t launch in January. Major rethink needed and with time running out trying to get a business launched I might just have to pack it all in. Real shame. Writing to MEPs today so will see how that goes.

    1. Thank you for taking the time to comment, Gavin. So sorry to hear about your business plans. Interim results from the survey show that a shocking 35% of people who were planning to launch in January have now cancelled their plans. :-(
      Thank you for writing to your MEPs. Pierre Moscovici needs to have his inbox burning on this one!

  11. First – the above article was fabulous and very helpful. Thank you for all your hard work on behalf of us “little people”. I live in the USA and sell both wholesale and retail, physical product and digital. I am now going to have to suspend all sales to any customer from an EU country. That will, fortunately, affect a relatively small part of my business, but irks me all the same. I find it mind boggling that the new VAT regulations are so confusing, inconsistent and contradictory and that no one considered the ramifications of these reg.s for the thousands of very small businesses such as mine. I look forward to a resolution to this problem, as soon as possible.

  12. I forgot to mention in my previous post that I have taken the survey and signed the petition. I hope that helps. More importantly I forgot to mention that I will be forced to remove all y patterns from a third party platform (Craftsy.com), which sells exlusiveley digital downloads, worldwide This will represent a loss of at least 25% of my business income.

  13. Thanks a LOT Clare, you are completely awesome on this subject!

    I would like to add what could be an important thought:

    The #EUVAT rules create an unfair VAT-advantage to small VAT-exempt domestic companies, compared to small VAT-paying-since-first-€ importing companies. E.g. German small company G sells e-services *tax-exempt* to German consumers, while small UK-company U (tax exempt in UK and would be in Germany under German rules too for their turnover in Germany) has to add German-VAT to its prices.

    Wondering if this unfair advantage is EU constitutional… ?

    Taking or showing the possibility to ask European Court to void the new law as unconstitutional would certainly help adding a LOT of pressure to politicians…

    (IANAL but understand enough of legaleeze to be potentially “dangerous” LOL)

    (I comented that also on Ansip’s latest 2 blogs – he did not approve yet my comments ofc – https://ec.europa.eu/commission/2014-2019/ansip/blog_en – any other highly visible place for this ?)

    1. Great point, Beat.
      Basically, this wasn’t properly understood when the legislation was drawn up.
      Highest visibility place for this? Ask your MEPs to write to Pierre Moscovici asking for an emergency change to apply the Distance Selling Thresholds to EU digital services, whilst we also urgently review the legislation to make it fair and workable. :-)

  14. I’m going to put a temp block on EU sales, it will reduce my profits by about 10% until its sorted. I’ll just say ‘sorry its illegal for me to sell to you right now etc’. I can’t see another way, plus it will raise more awareness, this time from a consumers point of view. I talked to many people about this this weekend and not a sole knew about it. I’ll still be breaching the law thou due to data collection of UK sales but I get some data so I hope I’m within the light touches you mentioned

    1. We are hearing that so often at the moment, Nige.
      And we’re hearing major USA sellers saying they’ll refuse to trade with the EU, too, until the legislation is made reasonable and workable.
      Bottom line: reduced choice and higher prices for EU consumers. That definitely wasn’t the intention behind the laws!

  15. Do any of you know of a plugin that may be able to detect (reliably!) which country the customer is in and so display the correct VAT-inclusive price for them?

    Before the customer has selected a billing country themselves during checkout, I don’t think there is any reliable technology to detect where they are accessing the web page from, let alone where they billing address will be.

    There is, however, a plugin for WordPress+WooCommerce that fixes your prices as you set them and displays the correct VAT for the billing country as soon as the customer has picked one. Before that point it simply says “VAT included” after the price. The solution boils down to what you described as businesses “taking the VAT-hit themselves”, but at least the VAT shown is correct.

  16. Thank you for your work. One comment regarding plugins to identify a buyer’s country. I assume what is meant is identifying the IP address from where the customer buys. But what about customers buying from other countries than their home country or country where their bank is placed? E.g. when they’re traveling?

    1. Exactly Ines – then you’ll get an error between the two, which is when you need the third piece of data to double-check. As long as 2 of the 3 agree, you’re clear to proceed with the sale. But if you’re having to do this manually and the sale has already gone through, then what do you do…?

  17. Awesome work on this. I’m not affected personally but I have worked a lot with small businesses selling online in the past and can see the pain this could have (and hopefully it is a “could have” and not a “will”) caused.

    In answer to your Q about plugins, it’d depend on what platform you’re running. There is some decent, free GeoIP data available from MaxMind – a lot of people base their systems on this: http://dev.maxmind.com/geoip/legacy/geolite/

    There are many plugins which use this or other data e.g. for WordPress:
    https://wordpress.org/plugins/geoip-detect/

    I’d recommend searching google for geoip plugin or perhaps on github.com for the more technical.

    Cheers
    Neil

    1. Thanks Neil – we appreciate your work.
      One question that comes up regularly – how do Geo Location plugins handle customers who know how to fake or hide their IP address?
      Thanks!

      1. IP addresses do not give a reliable location of a person/computer. I don’t have a fake or hidden IP address, but for some reason (technical?) my IP address roams around the world. Often I show up as in Germany, although I am located in the UK. The provider is an upright company and I have nothing to hide. I only discovered this when accessing catch-up TV in the UK, and having messages denying access to non-UK residents, followed by various forms to fill in to convince the system that I was a UK resident. I don’t think those drafting this EU VAT leglislation understand the limitations of IP addresses for reliable information.

  18. I’ve just co-authored an article for January’s Taxation magazine on the VATMOSS. Your work is tremendously useful and sensible. Did anyone in your high-level discussions consider the possibility of applying the “distance selling” rules to digital services? They were introduced years before VATMOSS to deal with exactly the same problem, only in respect of mail-order goods. To stop a business getting an advantage by locating itself in an EU country with a low VAT rate, they impose an obligation to register and account for local VAT – but only when sales of goods to consumers, where the seller is responsible for delivery (i.e. mainly mail order to the public), to a particular member state exceed a threshold, which the state chooses at either 35,000 or 100,000 euro or local equivalent (the UK’s is £70,000). If they made the digital sales rules the same, it would solve the problem for small businesses – remove the nonsense of having to set up a huge system for the possibility of a 1 euro sale once a year – and would also catch the Amazons of the world, which is what the new rules are for. There must be a reason they didn’t use this tried and tested model for digital sales – but that reason may be “we didn’t think of it”.

    1. That’s exactly what we’re campaigning for, Mike, as an ’emergency’ measure.
      The Distance Selling thresholds are already agreed, EU-wide.
      If everyone could help by asking their MEP to send an EMERGENCY request to Pierre Moscovici for this – TODAY – that would have an enormous impact.
      And Mike – we’re grateful to you for your work!
      Even if we get the Distance Selling Thresholds, we still have to fix the total unworkability of this legislation – otherwise we’re just pushing the impossible requirements up to the next tier of businesses. That’s why we need to actively campaign for both the thresholds AND the rewriting of the legislation to actually make it possible to comply.
      Everyone – PLEASE get writing!
      As people keep saying, applying the existing Distance Selling Thresholds makes total sense. And it is do-able.
      Thank you!

  19. Hi, sorry for my English, I am not native English speaker, thank you for everything you are doing here. I run small business with selling software. Mostly I have only end customers without VAT in EU. So for now I need to stop my business and wait if something will change in the future. The funny part is, I started my business one half year ago, I didn’t belive, I can earn some money with my work and yes, I can but until year 2015. I get a lot of small payments (1eur – 2eur) through PayPal and:

    1) I cannot get any proof about user’s residence (like mentioned on your site)
    2) I cannot spend all my time to sort my customers by VAT – there are a lot of them :-( :-(

    Everywhere, you can hear that EU will support EU economics, etc. etc. But it seems that the only one thing EU know is to getting money from EU taxes and distribute them on subsidies. And make law which forces users to end their business.

    I appreciate a lot everything you are doing regarding this issue.

    Thank you very much.

  20. Everything related to payments in e-industry goes through bank accounts. Why EU does not force banks to deduce VAT from payments going from customers to sellers. Handling this automatically by banks would be much easier and efficient than doing this by moving this burden on small bussinesses and bringing unsertainty and risks e.g. involving liabillity to 28 tax offices in particular memver states.

    1. Workable schema for EU VAT is simple as the definition of wheel. All transactions should be taxed during bank transfer. Buyer should deliver to bank where he has account his country of residence (e.g. by declaration where he pays PIT) and seller should register his account as company account. For the direct payment from customer account to seller account the tax is levied on the buyer account by bank at transfer. The seller gets on transfer tag that VAT was levied and in which country what helps him to fill invoice. For indirect transfers via pay-services the customer when refills his virtual money-pocket sends residence country with transfer order. Then when payments is done the tax is levied on account of seller according to sent information about the country of residence from pay-service. If relevant information is not provided then the transaction is rejected. Banks gets payment for such automatic service from tax administrations, what will be by orders of magnitude cheaper than paying for checking compliance by each one tax administration in EU. There is 28 member states and around 0.5 billion of customers and hundreds of thousands companies – calculate product and then effort will appear. Companies will be free from burden. Tax will be efficiently levied by all interested countries according to their individual rates. Everybody happen.

      1. Do you really want to give more #POWER to #BANKS ?? :-(

        Letting them collect VAT means giving them copies of all the invoices…

        Banks already ruined EU, do we really want that solution ?

        We need the right balance of #freedom and #convenience. This would go overboard.

      2. They already collect that data. They log all transactions on accounts with full description. They also have full information about account holder. Running e-business without bank account is impossible. So they could only help in this subject matter. One more advantage – seller will not touch and store sensitive data about customers what simplifies business. Moreover, banks already store all data about transactions for 10 or even more years so seller will not have to collect all this information in his own database and worry about compliance. The solution is in 2 flags sent from buyer account to seller account through intermediates – the first one is the residence country and the second one VAT was levied or not.

  21. I am thinking that there was once a tax introduced in the UK called the Poll Tax which aroused such public anger that it effectively contributed to the fall of Margaret Thatcher. There were riots in the streets and many people refused to pay it.

    Now I have never been of the mind set that a bad and unjust law has to be obeyed blindly simply because it is “the law”. Rather it is the right – or perhaps even the duty – of right minded people to question, to oppose or even disobey such a law. The very word “compliance” sticks in my throat because it connotes passivity or even weakness. It would be impossible to prosecute every small business which failed to comply. The legal systems would come to a halt.

  22. I am still trying to avoid registering for VAT at all costs. I do not want to start paying this on every aspect of my business when I am still in the very early stages. I sell patterns both digitally and printed, but I note from the HMRC brief 46, that if a PDF file is emailed to the customer, it is ‘not’ classed as being electronically supplied and therefore is not included in this VAT mess. Therefore I am continuing to sell copies of my pattern this way, by changing them to physical items on Etsy and emailing them, but I will have to close the Craftsy shop, which is totally electronic.

    You can see details of the brief here:

    https://www.gov.uk/government/publications/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance/revenue-and-customs-brief-46-2014-vat-rule-change-and-the-vat-mini-one-stop-shop-additional-guidance

    Thanks

  23. Clare & team,
    Similar to others, I greatly appreciate your efforts in all that you’re doing at this crucial time. Thanks to you all.
    Under your heading ‘Europe risks becoming a digital desert’ you say “Even Google is banning those in the EU from charging for the ‘help-out’ services.” Could I ask what this refers to? I’m sure I missed something here so tried searching online but couldn’t find anything. Thanks,

    1. Been a big fuss online this past week about it. If you go to https://helpouts.google.com you’ll see the message across the top of the screen:
      “We’ve updated our Terms of Service. Providers from Ireland or the United Kingdom may only offer free Helpouts. Customers in the EU may only take free Helpouts.”
      Basically Google has done this since the new EU VAT rules were publicised.
      Coincidence?

  24. Hello, does anybody know what my services belongs to:

    I do software, but it is opensource, in fact it cannot be sold – so it is free to download, even not on my own website. But I give advices and make consulting regarding this software – per email or per call.

    So, what I am doing is this:

    Paragraph 1 shall !!!!!!!not!!!!!!!, in particular, cover the following:

    (i) services of professionals such as lawyers and financial consultants, who advise
    clients by e-mail;

    http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/telecom/explanatory_notes_2015_en.pdf (page 85 – there is a list of non electronical services)

    What I am, am I professional like lawyer or financial consultant who advices clients by email?

    I have contacted many offices but nobody answered, if there is anyone who can give any advice to this, I will appreciate it a lot.

    Thank you.

  25. I always knew it … You are a genius, Clare! Thank you so much, to all of you, for getting us heard! And HOW!!!!!!!

    Now I need to get myself fit & ready to put my CV out, in the vain hope I can find a p/t role somewhere: I just don’t see how my biz can continue to grow, so maybe 2015 is time for a big change? xx

  26. From the practical point of view I can’t help wondering how the collection of VAT from non EU countries such as the US would work? There must be thousands, maybe millions of small traders selling electronic downloads in the US alone. Surely this would require systems in place for assessment, collection, and payment of VAT to the appropriate EU country? I wonder if they’ve given any thought to this? If it’s up to the seller alone I would doubt that the majority of US small traders (of the kitchen table variety) will even know about the legislation because it is EU legislation which they will consider doesn’t apply to them. In this case there could be many sales where the VAT is not applied resulting in an uneven playing field for those who are complying.

    1. @Chris, the US has enforced this exact sort of system on every local bank in the world through FATCA. Every bank and national government is now being forced to act as tax collectors for the US IRS, with full rights to invade individual citizens’ bank accounts even if they have no US connection or income. I find the US objections to VATMOSS fairly hypocritical as it’s nowhere near as terrifying as FATCA. That’s not to say anything positive about VATMOSS, mind!

        1. That’s the danger, Chris, in that national tax authorities and banking systems may well begin to demand the reciprocity – which was promised by the US as the carrot for FATCA – in exchange for the massive bureaucratic and technical burden it has caused them.

          In other words – we’re raiding bank accounts for you, time to you to do the same for us.

  27. Please can everyone check copyright, trademark & patent laws which are country by country set. Its quite commonplace for people to geoblock countries because they dont have an agreement on copyright and distribution, or they could be infringing trademarks. Of course if you are already selling into countries then for those products you have given away your rights. However for new sales you might want to consider if you want to check and make arrangements with each country. If not then geoblock them. The EU has plenty on this because they have been doing a lot of consultations on this topic. I wrote a blog on it with links to the EU pages. However you can find it by googling EU Consultation Copyright. Here is the link to my blog https://www.linkedin.com/pulse/more-panic-common-copyright-jill-wigmore-welsh-msc-hcpc-mcsp-cmsuk

  28. There is some talk of this coming in for physical goods as early as 2016. However unlike digital items there are already financial level exemptions in place for small business under the EU Distance Selling Regulations. These do vary from country to country but they do protect the very smallest businesses from having to take on the burden of VAT.

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