Home » Non-US, The Business of Writing » VAT rules to catch Amazon will incidentally crush small businesses

VAT rules to catch Amazon will incidentally crush small businesses

30 November 2014

From author Juliet E. McKenna:

Ah, the law of unintended consequences. You really would have thought legislators would know about that one. Apparently not. New VAT legislation to stop the likes of Amazon sneaking round their tax liabilities has a massive flaw. The turnover threshold is set at £0 which means small online retailers of ebooks and other digital products will have to compile VAT returns including details of the countries where each and every customer is based.

There’s more information at Cheryl Morgan’s website since unsurprisingly, this will make life for Wizard’s Tower Press untenable. Which will make earning any sort of income significantly harder for me and all of her other authors.

Just to give you some idea of how bad this is, Cheryl says –

The implications for any small company selling digital products are so horrendous that the Head of Tax at the Institute of Chartered Accountants (England & Wales) has apparently suggested that small businesses stop selling in Europe to avoid all of this mess. Except, how can you? The digital world is global by nature. The better-written platforms, such as Amazon, will at least allow you to block sales via their EU-based sites. However, there’s nothing to stop someone in, say, Finland, buying one of my books via Amazon US, or Amazon UK. If they did, I may be legally obliged to account for that, and Amazon’s systems don’t give me enough information to do that.

. . . .

No one, not even HMRC, has any idea how this will apply to crowdfunding such as Kickstarter.

Apparently HMRC talked to a ‘small business consultative group’ about all this to satisfy consultation requirements. No one seems to have any details about who was part of that group though.

This notion of sufficient consultation completely misses the point that most small and especially online businesses won’t actually belong to any professional or other organisations who might be expected to represent the reality of their trading models.

And as Cheryl Morgan has pointed out, the HMRC definition of ‘small business’ means an enterprise capable of providing a living for one or more people. This excludes vast numbers of ‘micro-businesses’ which are run from home, predominately online, as sidelines or to fund hobbies. For instance, a lot of people selling their knitting and embroidery patterns reckon they will be shut down by this.

Link to the rest at Juliet E. McKenna

Here’s a link to Juliet E. McKenna’s books

PG says these are the same kinds of problems that would tie up similar businesses in the US if laws are passed permitting the collection of sales taxes from out-of-state sellers.

Non-US, The Business of Writing

76 Comments to “VAT rules to catch Amazon will incidentally crush small businesses”

  1. Small businesses can usually rely on ignorance to get around these annoying laws. Most of them will be ignorant of the law, mostly law enforcement will be ignorant of them, and they will be ignorant of where their customers are.

    • I would like to have your tax and law enforcement representatives, who seem quite laxe to accept ‘ignorance’ as an excuse. That is not an accepted excuse in my country, as it is your duty to get all the regulations relevant for you.
      What makes me shut down my online download options is that I need to declare the VAT according to the country of the customer before (!) he even makes the final buying decision.
      You would get the country and address with the payment details of your customers and could declare then, but that is too late.

    • I must admit, this issue is new to me. But I run a limited company in the UK and I don’t charge any VAT on my services because my earnings as a freelance writer are (surprise!) below the VAT threshold which I think is around £60,000. I could voluntarily register for VAT if I wanted and it does make sense for some business (they can reclaim VAT paid out for stuff they buy). I’m not sure how this change will affect me – but I suspect it won’t. I’ll just ignore it, and if the taxman wants to work out what I owe him, then he’s welcome to do that.

  2. Uh… Amazon deals with VAT, as do all the other retailers.

    It only affects you if you’re selling books from your own web site.

    If you’re selling via a retailer, it’s a business to business transaction.

    • It also applies to folks teaching online classes and the like. From what I’ve read, a US-based person teaching online classes can no longer work with EU students without being caught up in the law.

      I’ve yet to figure out what it means for crowdfunding like Indiegogo and Kickstarter.

    • I sell all my books from my site, in every format, for the convenience of my readers looking for that option. With this rule it looks like I’m either going to have to remove on-site sales or figure out how to redirect EU users to a page explaining why I can’t sell to them. If I never planned to travel to the EU I wouldn’t care, but I do so I guess I know what I’m doing today instead of writing.

  3. Speaking from a totally uninformed platform – this can hardly apply to sales from sellers in non-EC countries e.g., US or Australia, to customers in countries in the EC.

    Just imagine the VAT auditor traveling from London to North Dakota to check a possible ebook sale to a UK customer of five pounds value in order to collect the one pound VAT. [There is no threshold applicable to the new rules]. Although I daresay the IRS would offer to sub-contract the audit and then lose all the emails.

    However, I do have sympathy for sellers in the EC – what a total bog.

    • I bet a lot of EC authors will explore ways to set up a non-EU website and sell through it and non-EC Amazon websites. 🙂

    • This is what I’m thinking, John. The law will cost more to enforce than any revenue it will bring in. For small businesses from all over, selling all over– how on earth do they expect to account for it? Another case of gov’t trying to look “tough” on X and ending up with an unenforceable monstrosity. This is a good example of a law that deserves to be ignored because of its stupidity.

    • The law doesn’t apply to businesses or individuals residing outside the EU.

      • Actually, it does. It applies the moment they sell to someone in the EU, because VAT is due in the state of the buyer.

        This new law is a major pain, it will definitely impede commerce, and I expect it to be changed or – hopefully – pulled completely eventually.

  4. In theory, non-EU sellers have to collect VAT and send it to the appropriate country. How the heck they plan to enforce that I can’t imagine. And can you just issue a law in your own country obliging people in every other country in the world to collect tax for you?

    I think the end result with be to make it difficult for anyone in the EU to buy from small businesses in other countries because no one will want the hassle of selling to them. Which will give a huge boost for the huge multi-nationals.

    • They could always flag you as a tax delinquent, which most certainly could land you a visit, or get you pulled aside, if you ever visit an EU country. Seeing as I plan to do so in here future I think that, after I research this some more, I’ll be taking steps to make sure I don’t have the stress of wondering when the collectors will show up when I visit.

  5. We’ve been talking about this a lot over here. Even HM Revenue and Customs (and they are massively overstretched as it is) seem confused. It is an utterly crazy and essentially unworkable ruling – and I’m more or less pro EU but beginning to wonder why … The really stupid thing is that something that was, I suspect, designed to get more tax out of Amazon and other big distributors will only drive more small businesses to distribute digital content exclusively through – you’ve guessed it – big distributors like Amazon. Nobody will be able to distribute digital content via their own websites with any kind of reassurance that they won’t be hit by a tax investigation. The only effect on eBooks sold in the UK will be a 20% hike in prices to take account of UK VAT. (Paper books are VAT free.) This won’t bother Amazon either – it will just push the price of our books up quite a bit. But since most indie published eBooks are reasonably cheap anyway, we won’t suffer as much as bigger publishers. It will be a nightmare for small to medium sized publishers that want to sell eBooks from their own sites. And there is actually some evidence that the kind of data they theoretically ‘should’ be collecting is in conflict with our data protection laws! For instance, if you are having a short holiday in France and decide to download en eBook while you are there, that should be nobody’s business but yours! The whole thing it essentially the kind of madness that affects the EU from time to time. I reckon in due course changes will have to be made …

  6. Tangential to the european VAT but applicable to intra-US online sales being taxed: other than not taxing them (best option), the ONLY proposal i have seen that would not be a nightmare for businesses is from Veronique de Rugy (sp???) – tax at point of sale not point of purchase. Basically like someone from CA bought something in OR physically, except without the drive. That way a business only needs local tax codes, not the tax code for everydtate and municipal body in the USA

    • This is a good, rational, workable idea. Here in New Mexico, we have gross receipts tax (everything gets taxed, not just goods), and you have to charge tax depending on where the transaction takes place. So if you provide a service, say, like any kind of construction, you have to charge tax for where the job site is located. It’s a pain, but since it’s all in-state, it’s at least manageable.

      I can’t imagine having to deal with taxes in other states. That’s why I never have any intention of selling my books from my own website. Not to mention the fraud liability if a customer’s credit card information is ever compromised.

    • That is, of course, the rational thing to do. Unfortunately that’s not how the States that are “losing” tax revenue see things. They tend to see that you didn’t leave your living room to purchase something as license to tax you for it as if you bought from a business in their jurisdiction.

      • From what I can gather, the new VAT laws are a backlash to the point-of-sale system that saw companies (Apple, Amazon) set their businesses in Luxembourg, which apparently has a low VAT rate. Other EU countries looked at it as lost revenue, and other businesses saw it as an unfair sales advantage.

    • The best idea would simply be to have the same sales tax/VAT rate throughout the US instead of every state setting their own rate.

      • Others would say the best idea is to eliminate state sales tax. Then there is no problem to solve. Some states have done that. Others states have eliminated income tax. If we look at the principle of subsidiarity, this lets each state manage its own affairs.

        The US is set up on the notion that the best ideas come from trying various ideas and seeing how they work. States are free to be different from one another. So states have resisted anyone who thinks they are so smart they have a single best idea that works for everyone. (Note the states’ different reactions to ObamaCare.)

        There is little reason to presume both Texas and Vermont are best served by the same tax system.

      • Which is precisely the kind of thing the US Constitution was set up to prevent. But I’m guessing that the EU’s solution to this mess they’ve created will be to demand every country set the same VAT rate, because EU nations have no such protection.

  7. That would be a good idea in the US. My expectation is that we’ll see companies setup (if they don’t already exist) to act as intermediaries (actually selling the product through these companies) with them taking a cut to insulate the seller from having to comply with the tax code. Really much like Amazon’s third party seller setup, but probably with a few twists to it (more integrated with your own website than just a link to Amazon).

    • That would be a huge waste of resources.

      We should note states want to get the money from the selling party because the people in their own states refuse to comply with the existing laws mandating they pay sales tax on their online purchases.

    • If I’m understanding you correctly, there’s at least one that exists already: Ganxy. When I looked into this, it appeared that you set up a storefront on your own site, but Ganxy is the actual seller. They specifically say they handle sales tax. I did not see anything in a quick search addressing the new VAT requirements, but I’m sure you could contact them to verify.

  8. PG: it seems to me that American businesses have constitutional protection against the greedy hand of government inasmuch as Article 1, Section nine mandates that “…no tax or duty shall be laid on Articles exported from any State.”

    I once thought this had to be the basis for Amazon’s resistance to state sales tax collection efforts, but latterday knuckling under to extortionate demands by state governments make me wonder.

    Or… Am I reading the Constitution wrong, given the history of that clause and its reason for being?


    • The Constitution is just a piece of paper.
      – George Bush

      • For the record, I do not believe President George W. Bush ever called the U.S. Constitution a “god damned piece of paper.

        There was a time when I did believe it and published a story saying so. The story went viral on the ‘Net but no other news source could verify it. I published the story based on emails from political operatives who had passed on information in the past.
        Doug Thompson
        Capitol Hill Blue
        March 2,2011

  9. “Ah, the law of unintended consequences.”

    Summed up pretty well right there. A growing government shrinks all else.

    • Except I don’t think this is actually an unintended consequence.

      • I’m pretty sure it is unintended. EU member states who felt they were losing tax revenue wanted to hit big businesses like Amazon which are operating from Luxembourg. What they have actually done is hurt small businesses. Because no one even considered freelance translators or editors, Etsy sellers, owners of small online shops, indie authors selling books via their own website, etc… I guess they’re not even aware that such businesses exist and that they are supporting whole families.

        It’s similar to a German tax law from the 1990s termed the “foreigners, get out” law. The law levied extra high tax rates on artists and performers who lived outside Germany, when they performed here. The reason was a few high-profile cases of popular German entertainers who lived in low tax countries like Monaco or Luxembourg, even though the majority of their audience was in Germany. So the law was supposed to ensure that these few people would pay an adequate amount of taxes in Germany.

        However, no one considered that there were plenty of international artists performing in Germany, too. So the result was that international top acts stopped coming to German on their tours, because they weren’t keen on paying exorbitant taxes. Even worse hit were indie bands and musicians from outside Germany who barely broken even on their performances and couldn’t pay the tax load at all. So all the law did was impoverish the cultural life for all Germans just to hit a few tax-evading talkshow hosts, one of whom had specifically pissed off the then-secretary of finances by doing an interview with his estranged wife.

        This is a similar case of a thoughtless law designed to hit a few companies, which will end up causing a lot of harm.

        • The consequences may not have been intended, but they were hardly unknown or unanticipated. One of the striking things about the EU is how much its economic moves are analyzed all over the world. The reason is that they are doing new things, and everyone is interested.

          Same in the US. Nobody can claim surprise if some future internet sales taxes caused huge disruption to online sales. That doesn’t mean they won’t do it. It just means they can’t claim they didn’t know what it would do.

  10. Any fool can make a rule and any fool can follow it. Thoreau

  11. Well, duh. We’ve been pointing this out for months.

    The real question is how ‘incidental’ this is, and how much is actually intended to force small businesses to sell through larger ones. I’m sure the big businesses must be really upset that the government has made life harder for their small competitors.

    • I honestly think it’s a case of thoughtlessness, as explained above. Because most European governments and politicians don’t like Amazon or other international mega-businesses, so local competition should actually be something they encourage. Instead, they made it worse for small sellers.

      • I think you are absolutely right, Cora. That’s the consensus over here as well. They don’t know about small businesses like ours. Actually, some of my friends seem to have no idea just how many small and medium tax paying businesses exist largely thanks to Amazon and other platforms, so whenever they call for a boycott of Amazon in favour of those ‘small high street businesses’ and feel very worthy and self satisfied about doing it, they are actually calling for a boycott of the same small businesses that – in many cases – can only pay their exorbitant rent and rates because of additional sales through Amazon and other online distribution platforms. I get very cross about it, but they won’t be persuaded otherwise. I think many of our politicians simply don’t live in the same world as the rest of us, sadly. I’m about to write to my MP about this and we’re currently considering a bigger protest. To be honest, I don’t sell downloads from my own website, but for the small businesses that do it will be a nightmare.

  12. :looks at maps of the Northern hemisphere:

    :locates self in the mid-latitude eastern half of North America:

    :looks at map of the European Union:

    :fails to find the mid-latitude eastern half of North America in Europe:

    :finds it instead in the territory of some other country a few people may have heard of:

    :repairs to a search engine, but fails to find any respectable news source asserting that said country has become a member of the European Union, geography notwithstanding:

    :wonders if any Brussels bureaucrats are likely to explain which treaty obligates U.S. citizens located in the U.S. to collect such taxes for Brussels bureaucrats:

    :failing an explanation in law … wonders, as a matter of equity, which benefits of membership in the European Union will be granted to citizens of sovereign states that are not EU members:

    :failing any such benefits … quotes standard hourly charge for contract work:

    • This law applies only to commerce conducted inside the EU. Businesses and individuals residing outside the EU remain unaffected, unless they have a subsidiary in the EU. There are a few special cases like Switzerland or Liechtenstein, countries that are part of the European free trade zone, but not the EU.

      But if you’re in the US, this doesn’t affect you.

      • Could you provide a link for that? All the information I’m looking at make it clear it applies to anyone selling in the EU regardless of the seller’s location.

        • According to my accountant, I don’t have to charge VAT if the customer is outside the EU. I imagine it’s similar when selling into the EU.

          • Under the new law, VAT is based on where the buyer, not the seller, is located for all business-to-customer digital sales.

          • If Amazon moves its EU eBook servers to Delaware (US state with no sales tax), can they avoid EU vat? Amazon’s eBook business would be located outside of the EU.

          • Nope. Go to this page and scroll down below the “New Rules from 2015” header about halfway down the page. In the second chart, where it talks about non-EU businesses, it says that if they’re selling to EU businesses, they don’t have to charge VAT, b/c the EU business is expected to account for that. But if they’re selling to EU consumers, they “Must charge VAT in the EU country where the customer belongs.”

  13. Unless they’re changing the meaning of VAT, then this will only apply to limited companies; companies that are registered at Companies House. You need an annual profit over 40k (or is it 50k now?) before you are required to pay VAT or be a limited company. If you’re making 40k profit a year, you can afford to hire an accountant to sort out your taxes. If you’re not, you’re still classed as self-assessed, and you don’t need to worry about VAT.

    At least, that’s my understanding of UK VAT. It’s only applied to products you sell online if you are limited, and you don’t need to be limited until you hit a certain profit margin.

    I don’t think authors selling their books on their website need to worry about it unless they’re raking in profits. It’s only going to hit businesses with higher profits, but they have to pay VAT anyway.

    I can’t actually see how the law changes anything for small businesses. The £0 is moot because VAT doesn’t apply to sole traders unless they are limited companies.

    I can’t see the HMRC insisting that thousands of sole traders declare themselves limited with £0 income. They’d have to insist on them submitting Annual Reports and fulfilling all kinds of accounting acrobatics that a sole trader just can’t perform.

    • I believe there is no lower threshold for digital services, and ebooks have been deemed services rather than products.

    • No, No, No – VAT applies to businesses, not just limited liability companies – check your accountant’s bill – it will include VAT. There is a sales threshold typically [nothing to do with profit – VAT is a sales or output tax] – however, apparently in this case, it’s been set at zero.

      Realistically, I don’t see how the EC can levy tax on non-EC businesses selling into the EC.

      • Last time I checked, and it was a while ago, selling products didn’t require VAT unless you hit the 40k a year threshold.

        I mean, if they alter that number, every author who earns £0.01 off Amazon will have to pay VAT. Self assessed tax returns will become ridiculous. Essentially, authors are digitally selling products online through Amazon, Google, and their own websites.

        The only way they could apply this is to add VAT to the self-assessed tax return. If they do that, then authors need to charge Amazon VAT, and Amazon need to charge customers VAT. With VAT, it works both ways. You have to charge it and pay it.

        That means that all the websites that sell books would need to completely change their systems to allow for VAT to appear in them.

        I just can’t see how they could implement that. I certainly can’t see them adding it to any company that is under the 40k threshold.

        Although, Parliment do a lot of things that I can’t believe…

        • …authors need to charge Amazon VAT, and Amazon need to charge customers VAT. With VAT, it works both ways. You have to charge it and pay it.

          I don’t know how VAT works, but here in the US, if you’re a reseller you get a resale certificate that excuses you from collecting sales tax– the seller to the ultimate consumer collects and pays the sales tax. Otherwise, you get tax pyramiding, where every addition to the value of a product gets taxed. This tends to make the product exorbitantly expensive, so tax pyramiding is usually avoided.

          • That is probably how they’d have to handle it here. Amazon would be the vendor, so they’d have to charge the customer VAT, and then pay it directly to the tax office.

            On small author websites though, it’ll get really complicated because say I sell a book on my site, and I have to add VAT. No problem, the customer pays me the VAT, and I pay it to the tax office. But, since I’m earning under a certain level, my tax band is as an employee, not a company. I’m a self-employed person, so I pay income tax.

            If I’m collecting VAT, am I now a company? Do I need to pay corporate taxes and to take a ‘wage’ as a seperate employee? Ooh, do I get corporate tax breaks now and access to government funding now as a company? Can I apply for grants? Do I need a company bank account or to submit annual reports now? That’s the bit that’s going to be confusing the HMRC, I reckon.

            Right now, it’s very simple for small businesses. We just pay income tax. But if they lump in VAT, we’re legally acting as companies. I don’t think they’re going to make tiny authors charge VAT because the changes to the current systems will be too extreme, but we’ll see.

            On a side note though, there’s goes the 99 pence book. It’ll be the 99 pence book (excluding VAT) from now on. Customers will get the worst part of this if you ask me.

        • Apparently part of the changes that come with VAT MOSS eliminate that threshold. Which is why so many UK small e-businesses might be closing soon.

          • I don’t see why they’re closing though. VAT is customer tax. The only thing it does is inflate prices for customers. Since all companies will be hit with it, it won’t make it more difficult for small companies to compete against giant corporations because both will have to bump up prices with VAT.

            The only problem I can see is how the government enforces it. They could easily give relief to smaller businesses in terms of removing the need for annual reports and all that stuff under a low income bracket, thus removing the accountant fees. If they keep self-assessed income as it is now, but they just ask small businesses to add VAT, then it won’t be much of a change. Well, depending on their infrastructure. Systems will need changing to add VAT to all the prices.

            UK customers will get shafted though on the price of things going up. Amazon will be charging more for their products because of VAT, but then so will every competitor, so it won’t change the playing field at all.

            The only downside I can see is that customers will be paying more for the same products, and the excess will be going to the government.

            Still, it’s going to be a pain in the ass to add VAT to every website in the universe.

            (I realize I might be contradicting myself lol).

            • LOL, Claire. You answered your own question. Charging the VAT at the correct rate and determining what that rate should be may not be trivial. I’m not sure what the rules are in the EU. If the rate for each country is the same throughout the country, it might not be awful. Only 26 different rates. 🙂

              In the US, where sales tax can potentially be different in every city or town (and possibly even smaller subdivisions), it would be a major undertaking to be able to determine which rate applied to a specific customer address and keep the changing rates updated. Plus, as it stands now it would require licenses in all 50 states plus (potentially) filing quarterly reports with payments to each state.

              • @BigAl lol, I think I was gettng my head around it all in these posts. The UK has a nationwide VAT rate, but I don’t know about the rest of Europe.

                I’ve seen the States tax system when I helped a friend setup a store on their site, and it was mind-boggling. The good thing is that there are a few great WordPress plugins that will auto update them for you. Hopefully if VAT does become a thing on European sites, someone will pop up with a plugin to automatically update the tax rates. That’ll save on a lot system changes.

                • VAT tax rates are the same per country, but vary from country to country in the EU.

                  And yes, as a European doing international business (or hoping to do so as coach), as well as buying international services, this is hitting me hard.

                  I hope that there will be portals that deal with all the administrative hassle (changing prices according to the buyer’s address, e.g., plus documenting the tax amount per purchase automatically), so small businesses can actually keep selling.

                  I believe the big ones, Amazon, ebay, PayPal, etsy etc. will all set up software to deal with this. Like someone else said, this will stop small businesses and drive service offers to the big guys.

                  It’s a bad, bad law.

                • Actually Claire, the limit is now £81,000 a year turnover which is a lot of cash! I know that they really don’t like (or even allow) you to register if you are anywhere under that because it causes them a huge amount of extra work for very small or no return. The VAT rate in the UK is 20% but it varies across the EU. It’s zero for paper books.I know if you run any kind of small business with a turnover of less than £20,000 in any quarter (which I suspect is most of us!) you don’t need to register for VAT and certainly don’t need to do any VAT returns no matter what the sales. But I don’t know how this works in relation to the new laws.

                • Thanks Catherine. This is really useful. I didn’t know it was up to 80k. I’m nowhere near earning that, so I’ll be safe for a while. It’ll be interesting to see what happens next though. Amazon just emailed me about adding VAT to my book prices, so it looks as if they’re going ahead with it.

                  I guess now we have to wait to see what the HMRC send us. I suspect that if there are going to be major changes for self-assessed businesses, they’ll send out some information, and we’ll get fair warning before any changes kick in. I’m used to the HMRC telling me what I need to do a year before I need to do it.

                  I haven’t heard a peep from the tax office yet, so fingers crossed they’ll be amending the law with some kind of threshold or self-employed ruling on it.

                • I know a bit more now. The VAT threshold is immaterial because theoretically, from January, if you sell a single eBook from your own website in the UK to somebody in France, you have to register for VAT, submit VAT returns and send the few pennies to the French authorities! You have to find out all kinds of data about your ‘customer’ and keep it for ten years. It is crazy, but there is a petition doing the rounds. It will really hit micro-businesses that sell small quantities of digital downloads like knitting patterns and training manuals from their own websites. The only solution is to sell via Amazon or similar, because they will handle the VAT (I’ve had the email from Amazon too – very helpful) but otherwise not sell to other EU countries at all. Small digital businesses selling from their own websites are going to have to state clearly that they won’t sell within the EU. This, of course, makes a complete mockery of the reason for the EU’s existence and makes it much more likely that people will vote to leave the EU in any future referendum. Thousands of people have already signed the petition and it’s clear that a bunch of over paid politicians in Brussels have no idea at all how the internet works, and no regard for the tiny businesses to which they pay constant lip service. Madness.

                • Will Macmillan Jones

                  Can’t reply to your post direct Catherine, but I still think that you are entirely incorrect in saying that the registration threshold does not apply. None of the statements over the directive I have seen over ride the principle that taxation is the direct prerogative of each state, and wherever you are based you therefore follow the legislation in that state. Please note the word legislation: a Brussels directive is NOT legislation until it has been adopted by the government of each member country, as in this instance would be adopted as a partial amendment to the VAT Act (as amended) for the UK and the registration thresholds take precedence over these things.

                  I’d like to see a contrary argument that can quote actual, passed, legislation rather than hysterical rumour.

            • Multiple taxing authorities means a huge increase in record keeping, payment of taxes, avoidance of penalties, and compliance expenses. The larger companies already have the software and expertise to deal with this kind of complexity.It would certainly cost them more, but the disruption would not be anywhere near what a small firm would face when it has never dealt with the issue before.

              This is a huge downside for small operations.

              We can dream up ways it could be simplified. But we aren’t the ones writing the regulations. The track records of those who do isn’t encouraging.

              For digital goods, this might be the thing that puts a rocket under Bitcoin.

  14. EU RULES FROM 2015

    Non-EU supplier to EU Consumer – Taxable in EU country [i.e., VAT is payable by the non-EU Supplier]

    I can just imagine millions of small traders outside the EU with customers in the EU rushing to register under the MOSS scheme.

    Pass the popcorn, please.

  15. I hope we get some leaders who are more interested in supporting and encouraging small business, entrepreneurs, etec, and not make stupid laws that cause everyone to have a harder time. We want folks to MAKE money and grow, not be shackled.

    Make it EASIER, not harder, to be in business! Simplify. Unblock.

    Really, why is this so difficult to understand?

  16. A lot of people in the comments here are misunderstanding the new VAT rules. Can I suggest that you read my post setting out the basics? http://wordsthatchangetheworld.com/2014/eudigitalvat/

  17. From the interwebs:

    “MOSS is an optional scheme which is being introduced to help suppliers of digital services to comply with their obligations to pay VAT in many different member states. Both single companies and groups of companies are eligible to register for MOSS.”


    “It is also worth noting that whereas most member states have a threshold (so, if you make supplies in the UK of less than £81,000, you are not required to register or charge VAT), the benefit of this threshold is lost to businesses that opt to be within MOSS.”

  18. I read quite a lot of vague information in the comments, so I want to state some facts about the changes here:

    The regulation only applies to digital downloads (not sold printed hard copies of books!).

    The tax is relevant for all digital sales made to EU customers (private customers, not businesses and b2b sales). Independent of if the seller is from the EU or not. If the seller is not, he has to apply for a registration number in the EU, to declare the taxes accordingly.

    The tax depends on the country of the non-business customer’s country (while that will be declared most likely in the country of residence, because of the invoicing address he gives, while relevant for e-books would be the country the customer currently downloads the e-book from.
    You can detect that (with a major fail rate) by observing the incoming IP addresses and check them via cookies. (Was there ever an argument regarding data security and the amount of data one was allowed to collect? Nothing about those worries to detect here. They force you to collect data you don’t even want – and save it for ten years, as that is the period the financial services are allowed to check your sales and you have to give proof of the validity of your invoices. Though you are not allowed to safe the IP related data that long, but need to give proof if required later on. Was there ever anything clear and doable in the regulations?)

    At least in my country (Germany), I need to give the correct amount of VAT included in the sale, when the customer makes his buying decision. That means, even before he enters his address details for the purchase.
    If I do not, I can get a legal order and enormous fees, if I don’t have my shop according to regulations.
    This forces me to collect the data of potential customers, even before they are willing to buy and enter their personal data on my store. (That is the reason, why e.g. Amazon has no problem with that, as it automatically logges you into your customer account, whenever you are surfing their shop on a computer you previously used.)

    The problem with the EU-regulation is that the official VAT-rate pages of the EU do not even include the exception VAT rates or when they are applicable. E.g. it is differently handled in countries, if an e-book is declared a book (with sometimes reduced VAT-rates) or which rate would be applicable for them.
    Some EU countries are about to change the handling of e-books as books. So it is not even certain that the current rate for e-books will be applicable for long and you need to follow local administration in the individual EU countries to get updates on the actual rates.

    Tax advisers and lawyers have a field day and that is the only group with a major lobby in the EU, it seems to me.

    I use shop software created outside of Europe on my websites. I am not positive that they will manage to get updates in time to fulfill the EU requirements, so I stop selling my products as downloads by the end of this year. And besides, I fear the data intensity which needs to be collected about my customers on my websites, while currently, a PayPal customer was not necessarily required to leave lots of personal information on seller sites.

  19. The regulations on this change become sillier and sillier the more you read. If someone decides to buy an ebook while travelling on a trans-continental train, the applicable VAT rate is the rate in the country where the train started. How is a website supposed to know the customer is on a train in the first place and, if they actually find that out, how are they supposed to know which train it is and where it started. The rules have been dreamed up by a bunch of bureaucrats who have never sold anything online. It’s also becoming obvious that the problems of very small businesses have been totally ignored.

  20. There’s another negative feature. According to Amazon, prices to customers will, from Jan 1, 2015, reflect the full VAT applicable to that customer’s country of residence.

    Thus, instead of say 3%,. their example, if an author had previously provided a €6.00 VAT-exclusive list price for amazon.de, amazon.fr, amazon.es, and amazon.it Kindle stores, the list prices including VAT will be €7.14 (19% VAT), €6.33 (5.5% VAT), €7.26 (21% VAT), and €7.32 (22% VAT) respectively.

    I wonder what the customer reactions will be, to see up to 18% – 19% increases in book prices.

  21. I just can’t help commenting again. This is worse than a train wreck – it’s more like a bureaucratic Titanic.

    Scenario: Entrepreneur in China/India/US/etc., sets up web site to sell ebooks, software, [music?], training courses, perhaps other items, electronically. He sells product to someone in the EC. He doesn’t know the customer’s place of residence [the payment is handled by a separate service].

    He now owes the EC VAT on the sale.

    He is in breach of various rules concerning registration.

    If he doesn’t pay the VAT, he’s subject to penalties.

    So everyone outside the EC who thinks they might sell software, ebooks, music, training courses, and probably other items electronically to customers in the EC, should rush to register with e.g., the UK authorities and completely overload their systems!

    It’s a farce.

    The interesting question might be – how will the EC tax collectors know this has happened? Imagine the necessary data mining to discover these sales.

  22. Will Macmillan Jones

    As a trading accountant, it’s shocking how badly the VAT position is being both misunderstood and significantly misrepresented here.

    So, some background: if you live in the EU, you pay VAT on your purchases: it’s a form of indirect taxation that keeps the level of direct tax on income down: some countries in Scandanavia have opted to collect most of their revenue this way, and have high levels of VAT (it’s a sales tax system, for our US cousins) with low levels of direct tax – it’s a choice, really. Because there’s no standardisation, Luxembourg has chosen a very, very low rate of VAT. Amazon have argued that their sales to the UK, France, Germany etc are actually made from Luxembourg rather than from their operations based in the resident countries, which is clearly a crock of S***, really, and this is the authorities response.

    Now, whilst a customer will pay VAT on the purchase, for the business selling a product, each country has set a level of sales below which the business has no need to get involved in VAT at all (other than as a purchasor from other suppliers). So in the UK, if you sell books from your website and sell less that £ 80,000 a year, you do not have to have any interest in this at all.

    The legislation won’t hurt small businesses, as it mostly won’t affect them at all. Most States in the UE already use the same rate of VAT anyway (except for Luxembourg, where by co incidence Amazon, Starbucks etc seem to be) so it will make no difference to them anyway.

    Big storm in a tea cup time, sponsored by Amazon, whose tax practices are getting hit….

    • Will, I’m afraid you’re wrong – or that’s what HMRC are saying. I only wish you were right! For anyone selling digital downloads from their own website, the £81,000 VAT threshold doesn’t apply. VAT will be payable on digital sales even by a micro business with an annual turnover of £1000 selling digital downloads of, for example, knitting patterns, from a small website provided that they are selling to another EU country. Which is why there’s a petition, and why newspapers in the UK from the Guardian to the Financial Times have been covering it. The rules are very clear. ‘The requirement threshold for registering has been scrapped for businesses selling digital products.’ It isn’t a storm in a teacup and it isn’t down to Amazon, although the EU presumably wanted to have a go at Amazon. In the process they have caught thousands of very small fish in their nets, and will only drive more of them to sell via the big boys. If PG will allow, here’s a link to a fairly illuminating piece on TechCrunch: http://techcrunch.com/2014/11/25/eus-new-vatmoss-rules-could-create-a-vatmess-for-startups/

  23. Late to the party, but I got the Amazon letter this AM. I have to calculate in the various VAT rates for things that sell in the EU. This includes raising the prices of some things so that after the highest VAT is deducted, they still meet the 99 cent minimum. So my options (until further clarifications come down the line) appear to be 1) stop selling through anything but non EU platforms, 2) raise all prices, including on non-EU platforms, to hit the thresholds of the highest VAT (at the moment 22%) or 3) keep tables of the various EU VAT rates and hand calculate everything and price each item on each outlet accordingly.

    If I didn’t have some loyal readers in the UK, Germany, and France, and didn’t go to Europe on other business at times, I’d be inclined to ignore this mess and tell Brussels to go pound sand.

  24. No way in bloody hell is any American sole proprietor selling online from a website is going to collect and send taxes to the EU. Brussels has no jurisdiction here. PayPal and Amazon can sort it out any way they wish, but no European law can make me collect taxes and keep records on behalf of a foreign government.

    This is utterly insane. What are they going to do, arrest me as I step off the plane in Paris? Fine. I just won’t go, as if I could afford to, anyway.

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