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The elephant in the room (VAT Rules Jan 2015) - Page 4
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The elephant in the room (VAT Rules Jan 2015)

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Comments

  • AnthonySmithAnthonySmith Member, Patron Provider

    perennate said: What I was saying earlier is about business to customer or whatever, for US business to EU business the EU regulations say EU business would be responsible for paying the VAT AFAIK.

    Edit: also most places are pretty clear that as of 2006, non-EU businesses are required to collect VAT for EU customers. Everywhere I see says the only change is for EU businesses, not non-EU ones.

    Yes but as of 2015 the location of sale rules come in to effect for B2C, as far as B2B is concerned absolutely nothing changes.

    While this has been the case since 2006 the location of sale rules were/are not in effect.

    aglodek said: EU laws on you in your own country! Let your EU custmers worry about compliance with EU laws and paying their taxes, as they should.

    however when your country of operation adopts and accepts that law then you do have to comply if you want to avoid being fined/arrested.

    aglodek said: ignore this crap for what it is.

    all 28 member states have agreed and adopted the policy as law, ignoring it would be insane if your business operates within the EU anyway.

  • perennateperennate Member, Host Rep
    edited September 2014

    AnthonySmith said: Yes but as of 2015 the location of sale rules come in to effect for B2C, as far as B2B is concerned absolutely nothing changes.

    As far as non-EU companies are concerned: prior to 2015 (and since 2003, not 2006 that I said earlier) they are required to pay VAT for any EU customers, but they could get around some of it by registering in EU countries with the lowest VAT rates (Luxembourg). After 2015, this loophole is no longer an option. So clearly, if you weren't paying VAT before, then the 2015 rules don't make your tax evasion any more serious.

    From http://www.accordancevat.com/the-wider-implications-of-2015-vat-changes/ :

    In reaction to this distortion of competition, the EU introduced Council Directive 2002/38/EC which required that from 1 July 2003, all non-EU businesses providing B2C supplies of e-services had to collect VAT at the rate of the country in which their customer was resident. Although this levelled the playing field to some extent, businesses soon realised the benefit of establishing (or re-establishing) themselves in an EU country with a low rate of VAT (since under the rules, EU established business only had to charge VAT based on where they were established, and not where their customer was resident). Luxembourg was one of the most popular choices due to its low rate of VAT (15%).

    Also see the journal article http://www.jiclt.com/index.php/jiclt/article/download/19/18 I posted earlier.

    The 2015 changes AFAIK say nothing about increased enforcement or penalties. There is widespread consensus that EU VAT on non-EU business with no assets in EU is non-enforceable.


    Also, according to http://www.internetnews.com/ec-news/article.php/2194111/EU+VAT+a+New+Tax+Headache+for+ECommerce.htm

    The U.S. Department of the Treasury has voiced "serious concerns" over the issue and said that it "may potentially be inconsistent with international trade obligations in the World Trade Organization, in particular the commitment to accord national treatment to foreign goods and services."

    Can't find source for that but yeah -- don't see anything mentioning that U.S. was at all willing to extradite U.S. citizens to the E.U. for tax evasion, or let E.U. tax authorities come into the country to kidnap citizens.

    Edit: more legit source: http://www.egov.ufsc.br/portal/sites/default/files/anexos/27137-27147-1-PB.pdf and http://fpc.state.gov/documents/organization/17336.pdf (the second one references Bush administration saying "grave concerns that additional barriers are being imposed on electronic commerce", at the time of 2003 rules)

  • aglodekaglodek Member
    edited September 2014

    @AnthonySmith said: all 28 member states have agreed and adopted the policy as law, ignoring it would be insane if your business operates within the EU anyway.

    Last time I checked, neither Hong Kong nor China (just for example), were memebrs of the EU-28. Have to check if there are any bilateral agreements signed with the EU stipulating compliance by HK residents (e.g. limited companies) with this EU law. Failing such an agreement, and not operating within EU, only selling to buyers in the EU, I will happily ignore all this foreign legislation as not applicable to HK businesses without a presence in EU. This said, I am very grateful to you, Anthony, for raising this issue here - even if we seem to disagree on said regulations application. Thank you all for a thought provoking thread and discussion ;)

  • I guess we will have to wait and see developments over the coming months. From the face of it, every business which wants to sell to EU whether or not its an EU company, has to comply with VAT. But the Law is new and we should see more clarity in a few months.

  • perennateperennate Member, Host Rep

    virtualizor said: I guess we will have to wait and see developments over the coming months. From the face of it, every business which wants to sell to EU whether or not its an EU company, has to comply with VAT. But the Law is new and we should see more clarity in a few months.

    The law is not new. It is over a decade old...

    Sources: http://www.jiclt.com/index.php/jiclt/article/download/19/18 http://www.accordancevat.com/the-wider-implications-of-2015-vat-changes/ etc.

  • AnthonySmithAnthonySmith Member, Patron Provider
    edited September 2014

    well ok some people have different opinions and interpretations of this law, and you probably have valid points from the stand point of not operating a company registered within the EU.

    I have spoken to professional bodies and the tax office to confirm my findings and it is not up to me to convince anyone otherwise, just keep in mind that regardless of your stance they do have ways to affect you if you don't comply regardless of where you are.

    moving on, those of us that do have to comply this means at least 100% extra work for accounting, quarterly returns, personally I will just have to suck up the VAT and pay it myself on Norway and Switzerland rather than charging it at sale, the extra work would in maintaining 2 extra sets of accounts is not worth the hassle.

    It does mean that anyone selling from the EU within the EU B2C wise will have to be VAT registered as of January without exception, it also means that individuals within the EU will be paying at least 20% extra from now on which is going to be a bitter pill to swallow for a lot of customers.

    I suspect a hell of a lot of USA based re-sellers will be popping up to allow people to avoid this :)

    Thanked by 1mpkossen
  • hostnoobhostnoob Member
    edited September 2014

    @AnthonySmith said:
    yes

    So a couple weeks before this goes into effect, it would be nice if the reliable LET providers did some 3 year offers :)

  • AnthonySmithAnthonySmith Member, Patron Provider

    perennate said: The law is not new. It is over a decade old...

    But the truth is it has not been well publicized and it is 2015 when it comes in to full effect.

  • perennateperennate Member, Host Rep
    edited September 2014

    AnthonySmith said: right.... however your missing the point, as of 2015 the rule is mandatory in terms of collection for selling to the EU B2C base.

    The reason it says no change is because previously none EU companies were not required to have a VAT number to sell within the EU, now they are as of Jan 2015 meaning you are responsible for collecting and paying that tax.

    The non-EU seller has always been responsible for paying the VAT for non-business customers (since 2003 for digital goods).

    The point is the only change is that non-EU sellers cannot get around VAT rates by registering in the EU country with lowest VAT. Now they cannot do that. However for companies that haven't cared about VAT before 2015, after 2015 there's no reason why they should suddenly care.

  • AnthonySmithAnthonySmith Member, Patron Provider

    hostnoob said: So a couple weeks before this goes into effect, it would be nice if the reliable LET providers did some 3 year offers :)

    Actually that is a great idea, might even be worth the attacks/abuse and DDOS you get from putting an offer out here :)

  • hostnoob said: So a couple weeks before this goes into effect, it would be nice if the reliable LET providers did some 3 year offers :)

    Technicly if part of the invoice period is in 2015 and later you have to charge VAT according to the old rules for the days of 2014 and VAT according to the new rules for the days after 1st of January 2015. However i doubt many will be that anal.

    I don't know what to do with the customers from Norway and Switzerland though. I am not sure what is the legal situation there - if we indeed have to register for VAT numbers in these two countries and file tax reports internatinally, we will probably just stop working with customers from these two countries.

  • perennate said: The non-EU seller has always been responsible for paying the VAT for non-business customers (since 2003 for digital goods).

    Guys you're really confusing me! So all the companies outside the EU have been doing things illegaly since 2003?

  • @rds100 said: Technicly if part of the invoice period is in 2015 and later you have to charge VAT according to the old rules for the days of 2014 and VAT according to the new rules for the days after 1st of January 2015.

    I found useful informations in the Deloitte free commentary called "EU: 2015 Place of Supply Changes". Deloitte is a well respected financial services supplier. They write: "Where supplies are made continuously on an on-going basis, the place of supply in respect of each chargeable event that occurs before 1 January 2015 shall be the place where the supplier is established, regardless of when the supply or continuous supply is completed."

    According to this interpretation, a multi-year offer started this year will indeed circumvent the 2015 regulation change.

  • @sandro said:
    Guys you're really confusing me! So all the companies outside the EU have been doing things illegaly since 2003?

    Pretty much, yes. I doubt many know, though. There's quite some hosts here that don't even know how OpenVZ works, just SolusVM. I wouldn't expect them to have read up to something as complicated as tax rules.

    Anybody that has a registered business, though, should have been or be aware of this.

  • mpkossen said: Pretty much, yes. I doubt many know, though. There's quite some hosts here that don't even know how OpenVZ works, just SolusVM. I wouldn't expect them to have read up to something as complicated as tax rules.

    Anybody that has a registered business, though, should have been or be aware of this.

    I found that weird anyway. Even famous companies here don't charge VAT. How can they all be liable?

  • AnthonySmithAnthonySmith Member, Patron Provider

    sandro said: I found that weird anyway. Even famous companies here don't charge VAT. How can they all be liable?

    the location of sales rules dont come in to effect until January 2015.

  • alessioalessio Member
    edited September 2014

    What I'd be curious about is what the legal basis for such a regulation is.

    First, the EU is not a legislative body per se but usually issues recommendations to its member states. So in this case I'd assume this is going to be implemented by all 28 countries as of 2015, correct?

    Second, any company which does not reside within one of the 28 countries does naturally not fall under their jurisdiction. So how would this work?

    Thanked by 1aglodek
  • Well, there was one probably quite big UK based company that didn't charge me with VAT, but they probably have some sophisticated business structure specially for tax dodging.

  • I finding this is way out of line. If I collect taxes for your contruy because they came to my country to buy the product that does not make sense since my country will also charge me tax for it. Also unless that country is then going to help protect me from fruad and collect unpaid invoices in their contruy they should stfu

  • OliverOliver Member, Host Rep

    FWIW I asked my accountants in Australia and the response was basically this:

    • These changes are part of a wider push to stop major companies avoiding taxes with tricky accounting the way Apple, Google, and so on do because all countries believe they are losing out on tax revenue.
    • These changes are apparently up for debate at the G20 in November (held in Australia).
    • Most countries already have double-taxation treaties so that people who move around or live in different countries aren't paying income taxes twice. These types of sales taxes will likely be covered under similar treaties so sales taxes aren't paid multiple times.
    • Most transactions for entities outside the EU the taxation will still occur at the initial 'point of capture' and as a result be subject in the first instance to the first location where it's occurring and not in the EU in addition to this.

    I am awaiting some further information but I think these changes are unlikely to require businesses outside the EU to do anything differently for/with clients in the EU. As long as you are collecting/paying your sales taxes correctly in your business entities location there isn't really anything to be too concerned about, based on my understanding.

    Thanked by 3jamson trewq SplitIce
  • @sandro said:
    I found that weird anyway. Even famous companies here don't charge VAT. How can they all be liable?

    I didn't make the rules buddy. I just know that when you are doing business in a certain country, you would have to check up on the rules even though that may be tedious.

  • This has been folded into various free trade agreements with the US and Canada and I suspect other countries as well so enforcement is a reality and can happen legally. In Canada it is part of CETA. An agreement that is supposed to open borders for trade effectively closes the borders for many small businesses in their current state. The cost of North American services is about to rise.

    Thanked by 1aglodek
  • AnthonySmithAnthonySmith Member, Patron Provider

    alessio said: What I'd be curious about is what is the legal basis for such a regulation?

    It is just an amedment to the current VAT rules, if you accept VAT is legal then you by default accept this.

    alessio said: First, the EU is not a legislative body per se but usually issues recommendations to its member states. So in this case I'd assume this is going to be implemented by all 28 countries as of 2015, correct?

    Actually it sort of is, and EU LAW's are valid in all 28 EU member staes, that is part of what you accept as part of joining the EU.

    alessio said: Second, any company which does not reside within one of the 28 countries does naturally not fall under their jurisdiction. So how would this work?

    That is correct however your only choice would simply be to not do business with the EU, they are not forcing anyone to sell to them, just saying if you do then you must collect VAT.

    wojons said: I finding this is way out of line. If I collect taxes for your contruy because they came to my country to buy the product that does not make sense since my country will also charge me tax for it. Also unless that country is then going to help protect me from fruad and collect unpaid invoices in their contruy they should stfu

    Yep it is beyond annoying...

    Oliver said: I am awaiting some further information but I think these changes are unlikely to require businesses outside the EU to do anything differently for/with clients in the EU.

    I think you are probably right, in the first instance they will have no way to force anyone outside of the EU to comply, but they do have ways to touch you if you do not, they are saying it is law within the EU if you sell to an EU person, while they perhaps cannot force you to comply that does not make none compliance acceptable to them, I suspect they will just start seizing paypal accounts etc within 18 months.

    I think this whole thing sucks, and frankly I have looked for every possible way not to comply, as some people here know I have been heavily involved in investigating this whole thing for months.

    The following is true like it or not.

    It is LAW is every EU state, it is simply an amendment to the current VAT rules by changing the point of sale for digital goods.

    By changing the point of sale/location of sale rules by selling to someone in the Netherlands you are literally considered to be selling in the Netherlands, no one here is stupid enough to think that just because you are not from a specific country that you do not have to follow its laws and rules while in it.

    Even if you do not agree that you are in the country making the sale and have to abide by its laws the EU certainly does not agree with you, want an example? go and try to sell to North Korea, Libya or Iran from certain countries and see what happens.

    What I fully expect is that 50% of small hosts even in the EU will not comply it will only be when they see the other 50% do comply they will get curious and start asking the right questions, by that time they will be in a huge mess and owe 20% of their revenue for the last 9 months (how long it takes for the VAT people to catch up with you) and then they will close overnight rather than deal with things.

    For those outside of the EU who use paypal and skrill etc I expect that around this time next year if they still insist on none compliance they will be credit card only as they will have had those facilities taken away.

    I also expect a lot of closures by February with a general "fuck this shit, I am out" attitude.

    @jbiloh I assume CC have already been preparing for this, perhaps you can add some insight from a large USA based host's perspective?

  • AnthonySmith said: It is just an amedment to the current VAT rules, if you accept VAT is legal then you by default accept this.

    Can you elaborate on this? Accept VAT?

    AnthonySmith said: Actually it sort of is, and EU LAW's are valid in all 28 EU member staes, that is part of what you accept as part of joining the EU.

    There is no EU law by definition. There are directives and regulations. While one is rather a recommendation which means it has to be implemented "somehow" by the members, the other is a direct call for regulation (such a roaming tariffs).

    But in any case, this only applies to member countries and their citizens.

    AnthonySmith said: That is correct however your only choice would simply be to not do business with the EU, they are not forcing anyone to sell to them, just saying if you do then you must collect VAT.

    This is exactly my question. What is the legal basis to ask this from entities which are not related to the EU at all.

  • OliverOliver Member, Host Rep

    AnthonySmith said: I think you are probably right, in the first instance they will have no way to force anyone outside of the EU to comply, but they do have ways to touch you if you do not, they are saying it is law within the EU if you sell to an EU person, while they perhaps cannot force you to comply that does not make none compliance acceptable to them, I suspect they will just start seizing paypal accounts etc within 18 months.

    Maybe they will attempt to force compliance within the EU by seizing assets (like they would for any tax avoidance) but I don't see how they can do this to foreign entities. We say 'PayPal' here but often forget there are many branches and Australians like me have our PayPal accounts with PayPal Australia which is an Australian financial institution and business. Unless foreign companies are also breaking the law in their own country I don't see how the EU will be able to seize or otherwise touch assets.

    I am not really concerned myself but can see how this would be a headache for any EU based hosts and feel kind of sorry for you having to deal with this.

    Thanked by 1aglodek
  • The sad part js the more small busienes they kill the more things will get bad. For google amazon and all these places its not a big deal they have enough accountants to handle the paper work and cross check the numbers. I guessing small companies outside the EU that don't have assets in the EU will simply not pay. Our laws in America what we as Americans have agreed to is no federal tax.state and local taxes. So why would we allow for another regions federal taxes to affect us. Also the EU can't tell me not to accept money from people that reside with them they will need to tell there citizens not to pay for my services. Again I have no assets there so it makes no difference. The only way the EU can get this to work is if they accept the sales tax if that region. If EU and califoeina agree on 9% sales/vat then that is fine with me

  • AnthonySmithAnthonySmith Member, Patron Provider

    Oliver said: I don't see how the EU will be able to seize or otherwise touch assets.

    Lets say paypal update rules and policies on selling digital goods globally to state you must collect VAT when selling to an EU based customer, paypal Europe sends a report to say this company has made 15,000 sales within the EU between 2015 - 2016 but have no registered VAT number registered for any of the 28 EU member states, do you really think nothing will happen?

    The thing to remember is that paypal as far as we are concerned will be the keystone to all of this how they react will directly decide how things happen going forward, paypal are one of the main targets in all of this by the EU, if they are facilitating tax evasion they would get huge fines, the alternative is..... make the customer responsible, and that is what I expect will happen.

    They may even put measures in place to prevent people in the EU buying from you via paypal until you meat X,Y,Z criteria.

    All speculation but very plausible at the same time.

  • aglodekaglodek Member
    edited September 2014

    @AnthonySmith said: ...All speculation but very plausible at the same time.

    Plausible, yes. Likely - no! Paypal is a business. They will resist pressure to become EU's tax enforcement agent, anticipating loss of credibility and sizeable portion of their key US business base if they cave in.

  • OliverOliver Member, Host Rep

    It's plausible but I agree with @aglodek; unlikely. Paypal like any financial institution will happily report transactions but enforcing things on behalf of governments isn't really in their interest.

    Wait and see I guess. Glad my business is based in Australia though.

    Thanked by 1aglodek
  • 5.12 Paragraph 16(2)(k) of Schedule 4A: Electronically supplied services

    15.12.1 What types of services fall within paragraph 16(2)(k)?

    This paragraph covers a service:

    delivered over the Internet or an electronic network (in other words is reliant on the Internet or similar network for its provision), and
    where the nature of the particular service means it is heavily dependent on information technology for its supply. In other words the service is essentially automated, involving minimal human intervention and in the absence of information technology does not have viability.

    In general the use of the Internet or other electronic networks by parties to communicate with respect to transactions or to facilitate trading does not, any more than the use of a telephone or fax, affect the VAT treatment. For example, where parties simply use the Internet to convey information in the course of a business transaction (for example email), this does not change the nature of that transaction. This differs from a supply that is completely dependent on the Internet in order to be carried out (for example searching and retrieving information from a database with no human intervention).

    15.12.2 Examples of electronically supplied services

    Website supply or web hosting services.

    Distance maintenance of programmes and equipment.

    Supplies of software and updating thereof.

    Supplies of images, text and information and making available of databases.

    Supply of music, films and games, including games of chance and gambling games and of political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts of events.

    Supply of distance teaching.

    15.12.3 Examples of exclusions from electronically supplied services

    Supplies of goods, where the order and processing is done electronically.

    Supplies of CD-Roms, games on a CD-Rom, floppy disks and similar tangible media.

    Supplies of printed matter, such as books, newsletters, newspapers or journals.

    Supplies of CDs, audio cassettes, videos cassettes, DVDs.

    Services of lawyers and financial consultants and so on, who advise clients through email.

    Teaching services, where the course content is delivered by a teacher over the Internet or an electronic network (in other words, via a remote link).

    Offline physical repair services of computer equipment.

    Offline data warehousing services.

    Advertising services, in particular as in newspapers, on posters and on television.

    Telephone helpdesk services.

    Teaching services purely involving correspondence courses, such as postal courses.

    Conventional auctioneers’ services reliant on direct human intervention, irrespective of how bids are made.

    Telephone services with a video component, otherwise known as videophone services.
    Internet and worldwide web access services. See paragraph 15.10.4.

    Telephone services provided through the Internet.

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