New VAT rules in the EU: how a digital sea could have become an ocean

Even the Commissioner would have a very tough time going through the pile of paperwork on the new digital VAT in Europe. Pierre Moscovici, Member of the EC in charge of Economic and Financial Affairs, Taxation and Customs, in this picture embarked on a visit to Athens where he met with Antonis Samaras, Greek Prime Minister, and other Greek officials. (EC Audiovisual Services, 15/12/2014)

Even the Commissioner himself would have a very tough time going through the pile of paperwork on the new digital VAT in Europe. Pierre Moscovici, Member of the EC in charge of Economic and Financial Affairs, Taxation and Customs, in this picture embarked on a visit to Athens where he met with Antonis Samaras, Greek Prime Minister, and other Greek officials. (EC Audiovisual Services, 15/12/2014)

From 1 January 2015, a major change to the European Union VAT rules occurred affecting the digital world, which is destined to be discussed widely for a long time. A new regulation has come into place where VAT on digital products sold in the EU will be chargeable in the place of purchase rather than the place of supply.

What happens is that the advantage for a company to make transactions in the EU-country with the lowest VAT rate for their B2C business in the field of telecommunication, broadcasting or electronic services, will be eliminated from now on. The new regulation has been introduced to basically stop big multinational corporations diverting sales through low-VAT countries such as Luxembourg.

Although all of this sounds like a happy ending for those who think that the big multinational companies are never paying enough, the new VAT regulation is receiving fierce critics from everywhere, especially – and surprisingly, you would probably say – by small firms.

Firstly, this is mainly due to the complexity and wording of the new rules, as many say. The regulation states that the changes will only apply to those supplying digital services. This might be confusing, because actually the rules not only cover digital services like broadcasting and telecoms services but also goods, products such as ebooks, games, images or other downloads. According to the United Kingdom HM Revenue & Customs, goods as images, text, photos, screensavers, e-books and other digitised documents, PDF documents automatically emailed to customers, online courses with downloadable videos are covered by the new rules.

Also, determining the location in which services are supplied, in order to be able to pay the right amount of taxes, might be difficult. This would happen especially with customers using payment channels and services such as PayPal, which is indeed more than popular. In this case there would be just a few info available, maybe only an email address. This would mean that the company will have to get in contact with the customer, ask for more details and complete the payment, with the potential risk of making the sale (much) more difficult.

Moreover, businesses will need to take actions about pricing. If they don’t change their prices in countries where VAT is higher, they’ll have to absorb the additional costs themselves. Considering that VAT rates across the European Union currently vary from 15 per cent to 27 per cent, this could be a challenge.

Many businesses have raised the above and many other concern about the new rules, with some saying it could force them to close. The companies say they have been forced to abandon trading because the rules have proved too complex. Critics say even the smallest businesses may have to hire experienced accountants, forcing many to close. As reported by most of media outlets based in the UK, where the debate is actually much more intense than in other countries of the EU, as always, critics say even the smallest businesses may have to hire accountants and spend hours on paperwork. Entrepreneurs and campaigners say they are going to struggle with the new regulations, and that the administrative burden would be too onerous for small firms.

On the other hand there are a number of options for businesses working out how to comply with the changes. The new VAT rules provides the possibility for the EU service provider to apply for the VAT Mini One Stop Shop scheme. The so-called MOSS scheme has been introduced to allow companies to pay tax locally, which is then passed on to the right country, rather than to register locally with the VAT authorities in each and every country where they do business. This would certainly be a big advantage.

The new rules are potentially a good thing, but the main knot could be that the rules have been implemented with no threshold, meaning that even a small business, with a limited turnover, will still be affected. It might be safe to say that the impact the new rules will have on micro businesses has not been entirely considered.
And also some other consequences for end-consumers. One of the giants of the digital industry, which were due to be hit by the new regulations, have apparently took actions already.

Apple has increased the price of apps for users in Canada and the European Union. According to a report by AppleInsider, a notification sent by the Cupertino, California-based giant to iTunes Connect members last week, prices app prices have increased due to new adjustments in value-added tax (VAT) and exchange rates pegged to the dollar in the EU, Canada and Norway. The change has already hit the EU, where apps now start at €0.99, while the minimum price of an app in the UK’s Apple’s store has risen from £0.69 to £0.79. Other big companies and retailers like Amazon are likely to apply changes in their pricing strategies.

So, although it’s completely true that the new rules will produce a net benefit for the countries’ treasury, and that they will standardise a market in which too many escapes were conceded to big multinational firms, it’s likely that the extra costs will be passed on to consumers and publishers. And that many micro businesses will have to work on tax returns in a time in which the priority should be doing business concisely to recover from the economic crisis.

If you are a small firm of the digital industry and you are still confused about the new VAT rules, the MOSS, and whether or not your business will be affected, here a few links to the European Union’s official web pages showing more about the new legislation, VAT basic rules, taxation and custom union plus a small guide provided by the United Kingdom HM Revenue & Customs.

Good luck…

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Eurozone closer to a deflation – stagnation trap

MWC 2016 Live: Industrial world prepares to reap digital benefits

Extra mild ECB tapering of QE and zero interest rates keep euro low

Progress against torture in Afghan detention centres, but Government needs to do more, says UN report

After Brexit and Grexit, Brussels to deal with Poloust

Capital Markets Union: Making it easier for smaller businesses to get financing through capital markets

These Indian fishermen take plastic out of the sea and use it to build roads

Cities will lead the electric transport revolution. Here’s why

There is a way for Eurozone to reach a sustainable growth path

New EU rules to boost crowdfunding platforms and protect investors

Rehn very reserved about growth in Eurozone

EU Copyright Directive: Will US tech giants comply or ditch the EU market?

Mali: Two peacekeepers dead after dawn attack, several injured – UN Mission

“Will TTIP solve the massive EU-US unemployment? Absolutely not!” A revealing Sting Exclusive with Tim Bennett from the Transatlantic Business Council

Climate activist Greta Thunberg urges MEPs to put words into action

Paris agreed with Berlin over a loose and ineffective banking union

What’s going on in Chernobyl today?

How India is harnessing technology to lead the Fourth Industrial Revolution

Hunger and obesity in Latin America and the Caribbean compounded by inequality: UN report

South Sudan: €48.5 million in additional EU humanitarian aid

Blockchain could boost global trade by $1 trillion

Are e-cigarettes as safe as they claim to be?

Eurozone’s sovereign debt not a problem anymore?

A rapid deterioration of the humanitarian situation in the war-torn Yemen

Commission: Raising the social issues that can make or break the monetary union

A neo-liberal toll free Paradise for the super rich and tax hell for wage earners

Palestinian children’s education deeply impacted by ‘interference’ around West Bank schools, UN warns

Horn of Africa: UN chief welcomes Djibouti agreement between Eritrea, Ethiopia and Somalia

Can big events really go plastic-free? A water capsule made from seaweed may be the answer

Brexit casts a shadow over the LSE – Deutsche Börse merger: a tracer of how or if brexit is to be implemented

Dieselgate: Parliament calls for mandatory retrofits of polluting cars

German banks suffer of nausea amidst rough seas

A Sting Exclusive: “China-Africa Cooperation Sets a Fine Example of South-South Cooperation”, by China’s Ambassador to EU

The Council of Europe adopts Recommendation on young people’s access to rights

Businesses can lead a revolution in disability inclusion

Mental health in medical students: the deciphered quandary

Removing deadly mines means ‘new horizons and hope’, clears a path to SDGs, says UN chief

China Unlimited Special Report: at the heart of Beijing

EU-US trade war? EU calls for logic while Trump’s administration is a loose cannon in a dangerous lose-lose situation for global prosperity

Let Nagasaki remain ‘the last city’ to suffer nuclear devastation says museum director, as UN chief arrives

At Ministerial session, UN regional office in Beirut to focus on technology for sustainable development

Commission celebrates the 30th anniversary of the Jean Monnet Activities promoting European studies worldwide

From rescue animals to electric buses, California is introducing bold new rules

ECB’s first flight in Eurozone’s banking universe will be just a reconnaissance

LED lights could stop turtles and birds from drowning in fishing nets

Innovation for a smarter world: ITU Telecom World 2018

Here’s the secret to financing a greener future

What has changed in the French politico-economic horizon

Unemployment and exclusion brings EU cities to boiling point

Antitrust: Commission imposes binding obligations on Gazprom to enable free flow of gas at competitive prices in Central and Eastern European gas markets

Governments must act to help struggling middle class

‘New tech’ business model threatens decent work conditions, warns UN

Millions more migrant workers, means countries lose ‘most productive part’ of workforce

Impossible Brexit options: WTO or new referendum?

New SDG Advocates sign up for ‘peace, prosperity, people’ and planet, on the road to 2030

Electric vehicles are half the market in Norway

ISIS fighters fleeing Mosul for Syria can topple Assad. Why did the US now decide to uproot them from Iraq?

Nigeria: Armed conflict continues to uproot thousands, driving up humanitarian need

Syrians still living on ‘razor edge’ as UN launches $8.8 billion dollar appeal

COP21 Breaking News_10 December:#ParisAgreement: Points that remain in suspense

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s