9 ms·

“I’m in the US – what if I just ignore the EU VAT changes?”

171 points by jkulmala 12y ago

mastef 12y ago
It seems like this is actually a step in the proper direction. The removal of 'VAT based on seller country' from the system, standardizes now everything towards 'VAT in buyers country' Now after talking with other SaaS owners it seems we're one of the 'few' non-EU companies that actually complies with this - however that choice is rather due to the provider we use. We comply with the rules by using a payment reseller ( fastspring / saasy ) which allows us to reduce accounting ( only major payments are being sent from reseller ), and at a comparable rate to stripe ( 1-2% higher ) Since they specialise in regulations and payments, it's really a big headache off our shoulders - plus you reduce the invoices you have to handle. Also it removed that whole merchant account setup process etc, which was a bigger pain for a Hong Kong based company.
- toyg 12y ago
  > It seems like this is actually a step in the proper direction. No. A step in the proper direction would be admitting that VAT is a regressive hidden tax on employees, and abolish it or replace it with more transparent taxation of real wealth. Until that happens, we're all just jumping through hoops so that European politicians can tax the working man while hiding behind meaningless "consumption" codewords.
  - bad_user 12y ago
    Also, the higher the VAT, the higher the tax evasion in those countries. One reason this happens is because many businesses are at the limit of survival and cannot afford to pay. One would think that somebody would get a clue that reducing the VAT would make it more affordable to more companies, but unfortunately law makers are clueless.
    - Luc 12y ago
      Companies don't pay VAT.
      - tormeh 12y ago
        They can take the customer's VAT payment and stuff it in their pocket, though. A win-win for everyone except everyone who's not that business.
      - toyg 12y ago
        I think parent is referring to the classic "VAT advance": in most countries, after a business registers for VAT, after 12 to 24 months the State will calculate your "expected VAT turnout" for the following 1 or 2 years, and demand advance payment. This is because some 80% of businesses don't survive the first 24 months anyway, so the State tries to collect every penny before they go bust. Ironically, that advance payment (which is invariably too high) is often a nail in the coffin...
        laurencerowe 12y ago
        That sounds nuts, but it's nothing like how the system works in the UK. As a small business you complete your VAT return and pay your balance at the end of each quarter. A large business (turnover > £2M) will make payments on account more frequently so they don't get to keep hold of the VAT that has been paid to them as long.
        toyg 12y ago
        I believe it often happens here in the UK as well, although it does not involve 100% of businesses like in some other countries. It's also a one-off, whereas elsewhere it can, in some circumstances, become a recurring request.
        laurencerowe 12y ago
        Can you point me to any examples? I ran a small business in the UK for several years and never heard of anything like it. The closest would be the Windfall Tax, but that targeted a small number of privatised utilities that were sold off on the cheap by a previous government. http://en.wikipedia.org/wiki/Windfall_Tax_%28United_Kingdom%29 http://en.wikipedia.org/wiki/Windfall_Tax_%28United_Kingdom%...
  - fulafel 12y ago
    Many essentials like food and bus tickets have lowered (or zero) tax rates, and it's printed on every receipt you get. Not really regressive or hidden. Taxing wealth has big problems with transparency and evasion. Progressive taxation is not a means to an end, just one mechanism to implement income redistribution. See eg basic income proposals with flat income tax. But a worrying trend in EU lately has been to cut payroll taxes and raise VAT and other consumption taxes without compensating them in transfers, a combination which does hurt income equality.
    - toyg 12y ago
      > Many essentials like food and bus tickets have lowered (or zero) tax rates That's charity, not progressive taxation. Besides, VAT is fixed-rate, which makes it regressive in practice. > it's printed on every receipt you get But nobody is taught how it works, in school or elsewhere, and unless you run your own business you'll never find out. Also, because it's segmented, atomic changes to different segments are usually reported under "business news" (unless it's for stuff like petrol and tobacco), the sort of thing most readers will skip. Honestly, the more you look into VAT, the more you see how it's always been used to raise taxes on employees without making them aware. > Taxing wealth has big problems with transparency and evasion Preying on the weak is obviously easier, that's always been the case. It doesn't make it right. > a combination which does hurt income equality. Amen.
      - iopq 12y ago
        It's not possible to tax wealth. Unless you want to tell me how many Bitcoins I own.
        toyg 12y ago
        I'm a State actor. I can hire detectives that will go through the blockchain and monitor your traffic, and I'll likely get a fair approximation of how many bitcoins you have. Or you can just tell me when asked, as a good law-obeying citizen should do. This is how all tax works, btw. Income tax is nothing but a wealth tax limited to wealth accumulated over a certain period. There is nothing impossible about it.
  - tormeh 12y ago
    VAT is pretty dumb, but at least now it's applied fairly.
  - humanrebar 12y ago
    If you're worried about regressive taxation, offset it with standard deductions, minimum income, or earned income tax credits. Distorting tax codes to accommodate social goals creates information disparities and, indirectly, justice issues. It's like the discussions people have around here about how keeping salaries secret only helps employers. Keeping tax codes byzantine is good for corrupt politicians and special interest groups.
  - joosters 12y ago
    How is VAT regressive or hidden? For a start, I'd say that just about every EU citizen is aware of it. Plus, prices in shops have to show VAT-inclusive prices to end customers, unlike some states in the USA where sales taxes can get magically added on to the final bill. Secondly, it's not regressive because the more goods and services you buy, the more you get taxed. If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat. Same tax rate despite the increased bill. Now, rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT...
    - djrogers 12y ago
      I'd argue that showing pre-tax prices and charging tax at checkout makes the tax burden much more obvious to most consumers. Showing only the post-tax price on the tag hides the proportions of the tax vs item cost.
      - mbesto 12y ago
        At the end of the year why does it matter what my VAT burden is anyway? As long as I have enough cash in the bank to pay for the things I need, and my bank account isn't negative at the end of the year, then I'm fine right? What behaviors are you trying to support?
      - reitanqild 12y ago
        Obviously. It also means you can't just sum together the prices of the stuff to get the total. It annoys me seriously every time.
      - mastef 12y ago
        I was super-annoyed when first time in USA to find out I had to pay more at the cashier. Also it makes products seem cheaper than they really are - it's a cop-out to display pre-tax prices if you're billing more at the counter. Are people shopping with a calculator?
    - toyg 12y ago
      > For a start, I'd say that just about every EU citizen is aware of it. They know it exists, they don't know how it works or why (unless they run a business). > Plus, prices in shops have to show VAT-inclusive prices to end customers ... which is exactly what I mean by "hiding it". You'll hardly ever see "€ 4.00 + € 1.00 vat" when going through shelves; you'll always see "€ 5.00". You have no idea how that price is calculated, what is tax and what is not, until after you've paid -- and even then you'll see an aggregated total, so if your basket included stuff that was taxed in different ways, you'll likely never know. Which nobody cares about, because we don't know how VAT works, for us it's just a random pricing element like the cost of materials. Except it's not: when it's said and done, it's a tax on fixed-income employees who can't justify a VAT return. The american approach to sales tax, which seems complicated and "magic" at first, is actually much more transparent. > Secondly, it's not regressive because the more goods and services you buy, the more you get taxed. Nope. It's regressive because it's flat rate. A millionaire buying a dishwasher will pay the same amount of tax as a regular joe buying the same dishwasher, in practice penalising the poorest of the two. That's the definition of regressive taxation. The theoretical notion that this is evened out by millionaires buying dozens of dishwashers versus joe's single one, is just that: theoretical. In practice, it does not happen: consumption levels are basically the same across most of the population. > If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat. If you buy a luxury yacht, it's likely not owned by you; it's owned by You™ Ltd, and filed as asset for this or that reason. You™ Ltd will diligently file its VAT forms, of course, and in the end it will get that VAT money back. Of course there are rules and enforcement etc etc, but in practice that's how it works for everything but the most outrageous items. > rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT No, but VAT makes it trivial to game the system in practice, which is why businesses are fine with it. Note how there are constant attempts at abolishing "pesky" laws like inheritance tax or stamp duty, which touch very few individuals but are hard to game; whereas VAT involves everything and everyone but it's just accepted as part and parcel of doing business, because in the end it's paid only by fixed-income n00b employees who can't justify a VAT return.
  - zo1 12y ago
    >"[...] would be admitting that VAT is a regressive hidden tax on employees" Could you elaborate a little more on that? I'm curious of your reasoning.
  - mastef 12y ago
    With 'step in the proper direction' I was referring to the table showcasing how calculations from 2014 to 2015 are now even further simplified. VAT in itself is another debate. However, as many others have commented on this in this thread already, I don't have to go into specifics too much.
raldi 12y ago
What does the "Reverse Charge" refer to?
- pja 12y ago
  This: http://www.hmrc.gov.uk/manuals/vatpossmanual/vatposs14100.htm http://www.hmrc.gov.uk/manuals/vatpossmanual/vatposs14100.ht... I think. Essentially you can push the responsibility for paying the VAT from the vendor to the consumer in B2B transactions if I understand things correctly.
- petercooper 12y ago
  Some basic examples. My British corporation pays an American company for Web hosting. However, the US company does not charge us VAT, so we have to charge ourselves ("reverse charge") the VAT at UK rates and then immediately claim back the VAT as it is used in our VATable supplies. The net result is zero but reverse charging means they get VAT revenue for situations where VAT is not reclaimable (many exist). Another example is that my British corporation sells services to a, say, French corporation. We charge no VAT on this sale but the French corporation has to then "reverse charge" French VAT on the sale within France (and then claim it back, if valid). We then also have to file this transaction on an "EC Sales List" so that the various authorities can check that the reverse charge did occur.
- jkulmala 12y ago
  I explain that in this other post for EU guys: http://www.happybootstrapper.com/2014/eu-vat-changes-online-businesses-act-jan-1st/ http://www.happybootstrapper.com/2014/eu-vat-changes-online-... Reverse charge moves the VAT-paying responsibility from you to your customer in another EU country. The responsibility can only be moved from business to business. You’ll write an invoice/receipt without VAT (or 0% VAT) and include a text “Reverse charge, VAT directive art. 44” and you are done. In practice the text is often missing, as people re-use the same invoice format they use for non-EU sales.
jmnicolas 12y ago
If you are concerned with this, you may want to investigate if basing your company in Switzerland offers more advantage than in EU : its at the center of Europe but doesn't belong to EU.
- hackerboos 12y ago
  Yet it's forced to implement most of the EUs rulings whilst having no say on said rulings. Same for Norway and Iceland.
  - nagrom 12y ago
    That's said rather often, but I'm not at all certain that it's true. http://blogs.telegraph.co.uk/news/danielhannan/100194407/outside-the-eu-we-should-aim-to-copy-switzerland-not-norway/ http://blogs.telegraph.co.uk/news/danielhannan/100194407/out...
    - hackerboos 12y ago
      > Switzerland signed up to the EU’s customs union in 1972, which abolished subsidy and tariff barriers. Since then, it has also decided to sign up to the majority of the single market: it is a full member of the single market for goods, a signatory to the Schengen agreement, and it has signed up to most of the single market for capital. In many areas, therefore, Switzerland is effectively a member of the single market. But like Norway, it does not have the ability to affect the rules that govern it. [1] Just because the Swiss are not in the EEA doesn't mean they aren't force to adopt EU policy. Their exports depend on it. [1] - http://centreforeuropeanreform.blogspot.co.uk/2012/07/britain-should-not-go-swiss.html http://centreforeuropeanreform.blogspot.co.uk/2012/07/britai...
      - nagrom 12y ago
        Same as Norway, indeed. But Norway has implemented just 5,000 pieces of EU legislation in the last 22 years, whereas the UK has, on average, implemented 3,000 pieces per year. [I'm sticking to Norway, because it is the region that I have facts and figures for - I don't know the figures for Switzerland.] The claim the Norway and Switzerland are governed remotely by the EU is therefore not true - either that, or the Norwegian law somehow pre-empts EU law, and thus complies with it before it is passed? (Which makes it sound like Norway governs the EU, and not the other way around :p). I'm not claiming that Norway is de-coupled from the EU, just that the claim that it is governed remotely by a body in which it has no say is false.
bad_user 12y ago
"The change was made because EU wants to get more money from American companies" That is not true - VAT is and has always been a tax for the buyer, not the seller. Of course, having VAT is awful for us - in my country it's an astronomical 24%. But that's besides the point.
- smackfu 12y ago
  True, it should say: "EU wants to get more money from transaction for American companies."
  - jkulmala 12y ago
    Thanks for the correction, I updated the blog post.
    - mrb 12y ago
      jkulmala, the other part of your claim is wrong: "The change was made [...] to force them to move more operations to EU to get VAT reductions". After Jan 1, 2015, there will be zero VAT-related incentive to move to the EU, because any company (EU or non-EU) will get the same VAT reductions: the VAT in the customer's country. Edit: yes, I meant VAT "reductions" not "payments". My point holds though: there won't be any more VAT incentives to move.
      - jkulmala 12y ago
        It's not what they pay, it's what they get to reduce. If you purchase supplies etc. you get to reduce the VAT you've paid. So if you have $0 VAT from EU purchases, but $40 VAT from sales, you pay $40. But if you paid $40 VAT from EU purchases, and have $40 VAT from sales, you pay out $0.
  - lultimouomo 12y ago
    I would say it's something different yet: EU wants to hinder rascal states that make money at the expense of the rest of the union taking advantage of their small size: they won't be able to collect VAT for business made in the whole EU just because they offer a lower rate. (I mention the size because the deal is convenient for the state only if its economy would be otherwise very small). It does not matter if the company is American or European, I could have made a Luxembourg subsidiary of an Italian company and paid Luxembourg VAT rates. Of course, this is a very stupid way of doing it: it works only for VAT, while the countries can still be fiscal havens for any other tax, and moreover it makes life hell for small B2C business. The proper way would just agree on a uniform tax policy. Never going to happen.
chris-at 12y ago
More info here: http://rachelandrew.github.io/eu-vat/ http://rachelandrew.github.io/eu-vat/
Major_Grooves 12y ago
Yes, this has been quite an amazing f-up by the tax authorities in the EU. I wrote a blogpost about it the other day: http://blog.satago.co.uk/2014/11/what-is-this-vatmoss-mess/ http://blog.satago.co.uk/2014/11/what-is-this-vatmoss-mess/ imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now.
- coob 12y ago
  It's going to force people to use marketplaces/providers. Probably a startup opportunity.
  - Major_Grooves 12y ago
    In fact lots of people assumed that the marketplaces would take the heavy lifting here. However most of them are US-based and have said they won't be the ones to take care of this. However, part of the problem is the authorities assuming that everyone sells through marketplaces, and that marketplaces would be the ones to tackle the issue. You'd be surprised how many people this is going to affect who are just selling a few items with PayPal - and PayPal cannot supply the required data to comply. The people that got most vocal about this were mom solo entrepreneurs. I wrote a follow-up blog post about this: http://blog.satago.co.uk/2014/11/when-the-crafting-community-gets-angry/ http://blog.satago.co.uk/2014/11/when-the-crafting-community...
    - deleted 12y ago
      [deleted]
- k-mcgrady 12y ago
  >> "imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now." You mean you have to pay VAT even if you earn under £69,000 (I think that was the threshold last I checked)?
  - 12y ago
gst 12y ago
So how would this enforcement look in practice if a US company does not have any business location within the EU? Up until now I was under the impression that this wouldn't matter as long as you don't violate US law. Also why should the EU be treated differently than any other of the approx. 200 other foreign countries? I'm sure lots of them have similar tax codes that require tax payment at the location of the customer. Are those countries able to enforce any tax payments from US businesses?
- tim333 12y ago
  >Are those countries able to enforce any tax payments from US businesses? Basically no unless the companies has assets where the tax is due.
tim333 12y ago
I'd imagine for small companies in the US, if they ignore VAT nothing will happen. There is no way the US courts will get involved with enforcing EU taxes and EU enforcement is fairly laid back in that they are not going to arrest you if you go on hols. If the company has assets in the EU however the courts can go after them so Google, Amazon etc will have to pay. I fear Digital Ocean are going to start charging me VAT which they have not so far.
deleted 12y ago
[deleted]
BerislavLopac 12y ago
The main problem with these changes is that they require the seller to collect information about the buyer's location. It makes all the sense for physical goods, but it is nigh impossible for digital ones, and pretty much misses the whole point of online economy. In my opinion, the VAT should be charged based on the delivery address; for digital goods, it would be ideal that all purchases are considered local, and the countries could have an option to introduce a separate "digital VAT rate" that would apply to such purchases.
- toyg 12y ago
  This suggestion, in practice, would not stop Amazon and Google siphoning VAT money form around the EU through Luxembourg, Jersey or Ireland. If I settle in a country with low "digital VAT rate", I'll still hold an advantage over EU companies based elsewhere: I can charge lower prices, or I can charge regular prices and pocket the difference. This is exactly what happens today.
  - BerislavLopac 12y ago
    Nope -- what happens today is paying Luxembourg VAT for physical goods delivered from UK to UK, which would be prevented this way. Digital goods have no "location", so the only way to charge VAT is to assume it was a "local" purchase. And what is wrong with countries competing with VAT rates? Alternatively, a pan-EU VAT rate for digital goods only might be a better approach, and probably easier to implement than a universal VAT rate.
    - toyg 12y ago
      > what is wrong with countries competing with VAT rates? it's a race to the bottom that destroys tax revenues. It benefits small "pirate" countries to the disadvantage of large ones that are actually responsible for creating the large markets where real profits are generated. Tax-rate competition has always existed, but globalisation and technology now make it too easy to exploit it in a way that only benefits big business and screws entire populations. > pan-EU VAT rate for digital goods only might be a better approach Pan-EU rates for most things would be a better approach. VAT is just the most egregious example. If we have a single market, we should have a real level playing field, including things like taxation, workers rights and environmental standards. We're getting there in a number of areas, but it's hard to make progress on tax because of political implications (and because of pressure from businesses who benefit from the current state of affairs).
lotsofmangos 12y ago
"If you ask me – YES it is crazy. There are 28 member states and over 75 different VAT rates – which I should all know and create different invoices for." If only we had some sort of programmable calculating device to automate this kind of drudgery.
- Jongseong 12y ago
  The seller is also supposed to collect evidence of the location of the purchaser (billing addresses, IP addresses, etc.). By the time you're required to collect private data for each transaction, it becomes more than simply the kind of drudgery you can automate away and becomes a burden that is a bit too much for one-person entreprises.
  - lotsofmangos 12y ago
    Purchaser inputs details in online form, tax is applied by location, purchaser buys thing. What am I missing here?
    - pja 12y ago
      Nothing. This really is a storm in a teacup.
    - Jongseong 12y ago
      At least in the UK, you'll be required to keep such private data for 10 years, which also means registering as data processors and controllers with the Information Commissioner's Office. See this: 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#section-5-record-keeping-requirements https://www.gov.uk/government/publications/revenue-and-custo... Also, try explaining how simple all this is to the self-employed women selling crafts online using PayPal.
      - lotsofmangos 12y ago
brador 12y ago
Would it be easier if there was a single EU wide VAT rate?
- laurencerowe 12y ago
  Yes. But at least its not as bad as the US where each city seems to have its own VAT rate...
  - cbd1984 12y ago
    There is no VAT in the US. Even if you mean sales tax, that's set on a state-by-state basis, and you only have to collect sales tax in a state if you have a physical presence there: https://www.sba.gov/content/collecting-sales-tax-over-internet https://www.sba.gov/content/collecting-sales-tax-over-intern...
    - laurencerowe 12y ago
      Sorry, I did mean sales tax. Here in CA it is set per city: http://www.boe.ca.gov/sutax/pam71.htm http://www.boe.ca.gov/sutax/pam71.htm In the US it seems the onus is put on the consumer rather than the business. We should all be declaring our out of state purchases on our tax returns... http://en.wikipedia.org/wiki/Use_tax http://en.wikipedia.org/wiki/Use_tax
- cbd1984 12y ago
  Just so you aren't confused, there is no VAT in the US, and sales tax is set by states, not cities. More information: https://www.sba.gov/content/collecting-sales-tax-over-internet https://www.sba.gov/content/collecting-sales-tax-over-intern...
  - xrange 12y ago
    To further eliminate the possibilities of confusion, at least in Washington state, there is a state-wide retail sales tax, and there are additional sales taxes based upon the city or county where the transaction occurs. There are over 400 different taxing regions in Washington state. http://dor.wa.gov/Content/GetAFormOrPublication/FormBySubject/forms_LSUAlpha.aspx http://dor.wa.gov/Content/GetAFormOrPublication/FormBySubjec...
Ecio78 12y ago
This sentence is wrong "The change was made because EU wants to get more money from transactions for American companies – or to force them to move more operations to EU to get VAT reductions." and it can be understood by just comparing the table right above, where you can see that for an American company based in the US (last three Non-EU rows) nothing will change, so no American company would be forced to move to EU. What's true, on the other hand, is that this law would not allow some companies, including some big American ones (like Amazon) to take advantage of putting their European HQ in countries with lower VAT rate, like Luxembourg (15% til this year[1]), and so selling (invoicing) products to endusers for a lower price. Same can be said for right after about this exact part "a perfectly legal strategy to pay less taxes". VAT is not paid by the company but by the private user that buys the product/service. So they didn't pay less taxes thanks to this, but probably sold more product. If we want to discuss about saving taxes, we can discuss about tax rulings for this companies, though... I am not a fiscal/economic guy but this girl got it all wrong...so I stopped reading at this point. [1] due to this law, Luxembourg will raise its VAT from 15% to 17% trying to compensate the money loss caused by this change (afaik it won't be enough)
zeidrich 12y ago
Without abolishing VAT, what would be a way to ensure that it is properly collected by the buyer's country without putting undue stress on small sellers? One thing I can think of is that you could target the payment processors. They already have personal data about the buyer, so they should know where they are located. Most transactions are going to be done by a credit card processing company, or something like PayPal. In either case, the EU could deal with those sorts of companies directly. In that case, merchants could sell their goods without worrying about tax at all. You buy something at a listed $100, you have 22% local tax, the credit card company charges the buyer $122, seller doesn't have to worry about it. Now, the seller could program some option that could estimate VAT based on geolocation with some disclaimer that the customer will be charged for VAT by the payment processor and are responsible for their own charges. But that would be a courtesy of the seller, the buyer should be aware of their own VAT. Some things are excluded from VAT, but they are the exception, and in that case, the seller could jump through some small hoops to register with the payment processors to allow those goods to exclude VAT. There are still other methods of collecting payment, like bitcoin, like money orders, whatever. In those cases, the law should require the buyer to self-assess. In reality the self-assessment would be rarely followed, and honestly nobody would care if it were small purchases. But the self-assessment rules would mean that anyone seriously gaming the system by avoiding compliant payment processing options could be punished, while still both avoiding an less enforceable situation like trying to punish a foreign company for failure to charge local tax, or limiting the payment options that foreign companies can provide. This could also solve problems with collecting VAT purchases made from foreign entities (instead of just companies from other EU states) and could even be extended further (You are a resident of Luxembourg, you travel and shop in France, you pay with a credit card, you are charged less VAT on the purchase rather than having to claim the difference when you return.) In short, compel large payment processors to verify the home of buyers when the account is created, compel them to have some checks to avoid fraud. Allow sellers to not charge VAT if the buyer is either using an approved payment processor, or if the buyer is from another country. If you are accepting payment by cash or money order from someone local, then you must charge VAT at the local rate. But if you are accepting a credit card through an approved processor, whether the buyer is local or foreign, you charge the rate pre-tax, and the processor is required to A) add the appropriate VAT, and B) verify that the buyer is not lying about their home country. If you accept a money order from a foreign country, you do not charge VAT, and the buyer self-assesses. Alternatively, you could say that all purchases that do not go through an approved processor have the local VAT added to them, and the buyer is compelled to self-asses for the difference, it's just a matter of how much you are willing to inconvenience non-EU foreign countries. But I don't think the seller should be required to ensure that the buyer abides by their local tax rules. I do think that's a task that can be handled by large banks or payment processors.
based2 12y ago
https://news.ycombinator.com/item?id=8766738 https://news.ycombinator.com/item?id=8766738

171 points by jkulmala 12y ago

It seems like this is actually a step in the proper direction. The removal of 'VAT based on seller country' from the system, standardizes now everything towards 'VAT in buyers country' Now after talking with other SaaS owners it seems we're one of the 'few' non-EU companies that actually complies with this - however that choice is rather due to the provider we use. We comply with the rules by using a payment reseller ( fastspring / saasy ) which allows us to reduce accounting ( only major payments are being sent from reseller ), and at a comparable rate to stripe ( 1-2% higher ) Since they specialise in regulations and payments, it's really a big headache off our shoulders - plus you reduce the invoices you have to handle. Also it removed that whole merchant account setup process etc, which was a bigger pain for a Hong Kong based company.

toyg 12y ago
> It seems like this is actually a step in the proper direction. No. A step in the proper direction would be admitting that VAT is a regressive hidden tax on employees, and abolish it or replace it with more transparent taxation of real wealth. Until that happens, we're all just jumping through hoops so that European politicians can tax the working man while hiding behind meaningless "consumption" codewords.
- bad_user 12y ago
  Also, the higher the VAT, the higher the tax evasion in those countries. One reason this happens is because many businesses are at the limit of survival and cannot afford to pay. One would think that somebody would get a clue that reducing the VAT would make it more affordable to more companies, but unfortunately law makers are clueless.
  - Luc 12y ago
    Companies don't pay VAT.
    - tormeh 12y ago
      They can take the customer's VAT payment and stuff it in their pocket, though. A win-win for everyone except everyone who's not that business.
    - toyg 12y ago
      I think parent is referring to the classic "VAT advance": in most countries, after a business registers for VAT, after 12 to 24 months the State will calculate your "expected VAT turnout" for the following 1 or 2 years, and demand advance payment. This is because some 80% of businesses don't survive the first 24 months anyway, so the State tries to collect every penny before they go bust. Ironically, that advance payment (which is invariably too high) is often a nail in the coffin...
      - laurencerowe 12y ago
        That sounds nuts, but it's nothing like how the system works in the UK. As a small business you complete your VAT return and pay your balance at the end of each quarter. A large business (turnover > £2M) will make payments on account more frequently so they don't get to keep hold of the VAT that has been paid to them as long.
        toyg 12y ago
        I believe it often happens here in the UK as well, although it does not involve 100% of businesses like in some other countries. It's also a one-off, whereas elsewhere it can, in some circumstances, become a recurring request.
        laurencerowe 12y ago
        Can you point me to any examples? I ran a small business in the UK for several years and never heard of anything like it. The closest would be the Windfall Tax, but that targeted a small number of privatised utilities that were sold off on the cheap by a previous government. http://en.wikipedia.org/wiki/Windfall_Tax_%28United_Kingdom%29 http://en.wikipedia.org/wiki/Windfall_Tax_%28United_Kingdom%...
- fulafel 12y ago
  Many essentials like food and bus tickets have lowered (or zero) tax rates, and it's printed on every receipt you get. Not really regressive or hidden. Taxing wealth has big problems with transparency and evasion. Progressive taxation is not a means to an end, just one mechanism to implement income redistribution. See eg basic income proposals with flat income tax. But a worrying trend in EU lately has been to cut payroll taxes and raise VAT and other consumption taxes without compensating them in transfers, a combination which does hurt income equality.
  - toyg 12y ago
    > Many essentials like food and bus tickets have lowered (or zero) tax rates That's charity, not progressive taxation. Besides, VAT is fixed-rate, which makes it regressive in practice. > it's printed on every receipt you get But nobody is taught how it works, in school or elsewhere, and unless you run your own business you'll never find out. Also, because it's segmented, atomic changes to different segments are usually reported under "business news" (unless it's for stuff like petrol and tobacco), the sort of thing most readers will skip. Honestly, the more you look into VAT, the more you see how it's always been used to raise taxes on employees without making them aware. > Taxing wealth has big problems with transparency and evasion Preying on the weak is obviously easier, that's always been the case. It doesn't make it right. > a combination which does hurt income equality. Amen.
    - iopq 12y ago
      It's not possible to tax wealth. Unless you want to tell me how many Bitcoins I own.
      - toyg 12y ago
        I'm a State actor. I can hire detectives that will go through the blockchain and monitor your traffic, and I'll likely get a fair approximation of how many bitcoins you have. Or you can just tell me when asked, as a good law-obeying citizen should do. This is how all tax works, btw. Income tax is nothing but a wealth tax limited to wealth accumulated over a certain period. There is nothing impossible about it.
- tormeh 12y ago
  VAT is pretty dumb, but at least now it's applied fairly.
- humanrebar 12y ago
  If you're worried about regressive taxation, offset it with standard deductions, minimum income, or earned income tax credits. Distorting tax codes to accommodate social goals creates information disparities and, indirectly, justice issues. It's like the discussions people have around here about how keeping salaries secret only helps employers. Keeping tax codes byzantine is good for corrupt politicians and special interest groups.
- joosters 12y ago
  How is VAT regressive or hidden? For a start, I'd say that just about every EU citizen is aware of it. Plus, prices in shops have to show VAT-inclusive prices to end customers, unlike some states in the USA where sales taxes can get magically added on to the final bill. Secondly, it's not regressive because the more goods and services you buy, the more you get taxed. If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat. Same tax rate despite the increased bill. Now, rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT...
  - djrogers 12y ago
    I'd argue that showing pre-tax prices and charging tax at checkout makes the tax burden much more obvious to most consumers. Showing only the post-tax price on the tag hides the proportions of the tax vs item cost.
    - mbesto 12y ago
      At the end of the year why does it matter what my VAT burden is anyway? As long as I have enough cash in the bank to pay for the things I need, and my bank account isn't negative at the end of the year, then I'm fine right? What behaviors are you trying to support?
    - reitanqild 12y ago
      Obviously. It also means you can't just sum together the prices of the stuff to get the total. It annoys me seriously every time.
    - mastef 12y ago
      I was super-annoyed when first time in USA to find out I had to pay more at the cashier. Also it makes products seem cheaper than they really are - it's a cop-out to display pre-tax prices if you're billing more at the counter. Are people shopping with a calculator?
  - toyg 12y ago
    > For a start, I'd say that just about every EU citizen is aware of it. They know it exists, they don't know how it works or why (unless they run a business). > Plus, prices in shops have to show VAT-inclusive prices to end customers ... which is exactly what I mean by "hiding it". You'll hardly ever see "€ 4.00 + € 1.00 vat" when going through shelves; you'll always see "€ 5.00". You have no idea how that price is calculated, what is tax and what is not, until after you've paid -- and even then you'll see an aggregated total, so if your basket included stuff that was taxed in different ways, you'll likely never know. Which nobody cares about, because we don't know how VAT works, for us it's just a random pricing element like the cost of materials. Except it's not: when it's said and done, it's a tax on fixed-income employees who can't justify a VAT return. The american approach to sales tax, which seems complicated and "magic" at first, is actually much more transparent. > Secondly, it's not regressive because the more goods and services you buy, the more you get taxed. Nope. It's regressive because it's flat rate. A millionaire buying a dishwasher will pay the same amount of tax as a regular joe buying the same dishwasher, in practice penalising the poorest of the two. That's the definition of regressive taxation. The theoretical notion that this is evened out by millionaires buying dozens of dishwashers versus joe's single one, is just that: theoretical. In practice, it does not happen: consumption levels are basically the same across most of the population. > If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat. If you buy a luxury yacht, it's likely not owned by you; it's owned by You™ Ltd, and filed as asset for this or that reason. You™ Ltd will diligently file its VAT forms, of course, and in the end it will get that VAT money back. Of course there are rules and enforcement etc etc, but in practice that's how it works for everything but the most outrageous items. > rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT No, but VAT makes it trivial to game the system in practice, which is why businesses are fine with it. Note how there are constant attempts at abolishing "pesky" laws like inheritance tax or stamp duty, which touch very few individuals but are hard to game; whereas VAT involves everything and everyone but it's just accepted as part and parcel of doing business, because in the end it's paid only by fixed-income n00b employees who can't justify a VAT return.
- zo1 12y ago
  >"[...] would be admitting that VAT is a regressive hidden tax on employees" Could you elaborate a little more on that? I'm curious of your reasoning.
- mastef 12y ago
  With 'step in the proper direction' I was referring to the table showcasing how calculations from 2014 to 2015 are now even further simplified. VAT in itself is another debate. However, as many others have commented on this in this thread already, I don't have to go into specifics too much.

raldi 12y ago

What does the "Reverse Charge" refer to?

pja 12y ago
This: http://www.hmrc.gov.uk/manuals/vatpossmanual/vatposs14100.htm http://www.hmrc.gov.uk/manuals/vatpossmanual/vatposs14100.ht... I think. Essentially you can push the responsibility for paying the VAT from the vendor to the consumer in B2B transactions if I understand things correctly.
petercooper 12y ago
Some basic examples. My British corporation pays an American company for Web hosting. However, the US company does not charge us VAT, so we have to charge ourselves ("reverse charge") the VAT at UK rates and then immediately claim back the VAT as it is used in our VATable supplies. The net result is zero but reverse charging means they get VAT revenue for situations where VAT is not reclaimable (many exist). Another example is that my British corporation sells services to a, say, French corporation. We charge no VAT on this sale but the French corporation has to then "reverse charge" French VAT on the sale within France (and then claim it back, if valid). We then also have to file this transaction on an "EC Sales List" so that the various authorities can check that the reverse charge did occur.
jkulmala 12y ago
I explain that in this other post for EU guys: http://www.happybootstrapper.com/2014/eu-vat-changes-online-businesses-act-jan-1st/ http://www.happybootstrapper.com/2014/eu-vat-changes-online-... Reverse charge moves the VAT-paying responsibility from you to your customer in another EU country. The responsibility can only be moved from business to business. You’ll write an invoice/receipt without VAT (or 0% VAT) and include a text “Reverse charge, VAT directive art. 44” and you are done. In practice the text is often missing, as people re-use the same invoice format they use for non-EU sales.

jmnicolas 12y ago

If you are concerned with this, you may want to investigate if basing your company in Switzerland offers more advantage than in EU : its at the center of Europe but doesn't belong to EU.

hackerboos 12y ago
Yet it's forced to implement most of the EUs rulings whilst having no say on said rulings. Same for Norway and Iceland.
- nagrom 12y ago
  That's said rather often, but I'm not at all certain that it's true. http://blogs.telegraph.co.uk/news/danielhannan/100194407/outside-the-eu-we-should-aim-to-copy-switzerland-not-norway/ http://blogs.telegraph.co.uk/news/danielhannan/100194407/out...
  - hackerboos 12y ago
    > Switzerland signed up to the EU’s customs union in 1972, which abolished subsidy and tariff barriers. Since then, it has also decided to sign up to the majority of the single market: it is a full member of the single market for goods, a signatory to the Schengen agreement, and it has signed up to most of the single market for capital. In many areas, therefore, Switzerland is effectively a member of the single market. But like Norway, it does not have the ability to affect the rules that govern it. [1] Just because the Swiss are not in the EEA doesn't mean they aren't force to adopt EU policy. Their exports depend on it. [1] - http://centreforeuropeanreform.blogspot.co.uk/2012/07/britain-should-not-go-swiss.html http://centreforeuropeanreform.blogspot.co.uk/2012/07/britai...
    - nagrom 12y ago
      Same as Norway, indeed. But Norway has implemented just 5,000 pieces of EU legislation in the last 22 years, whereas the UK has, on average, implemented 3,000 pieces per year. [I'm sticking to Norway, because it is the region that I have facts and figures for - I don't know the figures for Switzerland.] The claim the Norway and Switzerland are governed remotely by the EU is therefore not true - either that, or the Norwegian law somehow pre-empts EU law, and thus complies with it before it is passed? (Which makes it sound like Norway governs the EU, and not the other way around :p). I'm not claiming that Norway is de-coupled from the EU, just that the claim that it is governed remotely by a body in which it has no say is false.

bad_user 12y ago

"The change was made because EU wants to get more money from American companies" That is not true - VAT is and has always been a tax for the buyer, not the seller. Of course, having VAT is awful for us - in my country it's an astronomical 24%. But that's besides the point.

smackfu 12y ago
True, it should say: "EU wants to get more money from transaction for American companies."
- jkulmala 12y ago
  Thanks for the correction, I updated the blog post.
  - mrb 12y ago
    jkulmala, the other part of your claim is wrong: "The change was made [...] to force them to move more operations to EU to get VAT reductions". After Jan 1, 2015, there will be zero VAT-related incentive to move to the EU, because any company (EU or non-EU) will get the same VAT reductions: the VAT in the customer's country. Edit: yes, I meant VAT "reductions" not "payments". My point holds though: there won't be any more VAT incentives to move.
    - jkulmala 12y ago
      It's not what they pay, it's what they get to reduce. If you purchase supplies etc. you get to reduce the VAT you've paid. So if you have $0 VAT from EU purchases, but $40 VAT from sales, you pay $40. But if you paid $40 VAT from EU purchases, and have $40 VAT from sales, you pay out $0.
- lultimouomo 12y ago
  I would say it's something different yet: EU wants to hinder rascal states that make money at the expense of the rest of the union taking advantage of their small size: they won't be able to collect VAT for business made in the whole EU just because they offer a lower rate. (I mention the size because the deal is convenient for the state only if its economy would be otherwise very small). It does not matter if the company is American or European, I could have made a Luxembourg subsidiary of an Italian company and paid Luxembourg VAT rates. Of course, this is a very stupid way of doing it: it works only for VAT, while the countries can still be fiscal havens for any other tax, and moreover it makes life hell for small B2C business. The proper way would just agree on a uniform tax policy. Never going to happen.

chris-at 12y ago

More info here: http://rachelandrew.github.io/eu-vat/ http://rachelandrew.github.io/eu-vat/

Major_Grooves 12y ago

Yes, this has been quite an amazing f-up by the tax authorities in the EU. I wrote a blogpost about it the other day: http://blog.satago.co.uk/2014/11/what-is-this-vatmoss-mess/ http://blog.satago.co.uk/2014/11/what-is-this-vatmoss-mess/ imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now.

coob 12y ago
It's going to force people to use marketplaces/providers. Probably a startup opportunity.
- Major_Grooves 12y ago
  In fact lots of people assumed that the marketplaces would take the heavy lifting here. However most of them are US-based and have said they won't be the ones to take care of this. However, part of the problem is the authorities assuming that everyone sells through marketplaces, and that marketplaces would be the ones to tackle the issue. You'd be surprised how many people this is going to affect who are just selling a few items with PayPal - and PayPal cannot supply the required data to comply. The people that got most vocal about this were mom solo entrepreneurs. I wrote a follow-up blog post about this: http://blog.satago.co.uk/2014/11/when-the-crafting-community-gets-angry/ http://blog.satago.co.uk/2014/11/when-the-crafting-community...
  - deleted 12y ago
    [deleted]
k-mcgrady 12y ago
>> "imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now." You mean you have to pay VAT even if you earn under £69,000 (I think that was the threshold last I checked)?
- 12y ago

gst 12y ago

So how would this enforcement look in practice if a US company does not have any business location within the EU? Up until now I was under the impression that this wouldn't matter as long as you don't violate US law. Also why should the EU be treated differently than any other of the approx. 200 other foreign countries? I'm sure lots of them have similar tax codes that require tax payment at the location of the customer. Are those countries able to enforce any tax payments from US businesses?

tim333 12y ago
>Are those countries able to enforce any tax payments from US businesses? Basically no unless the companies has assets where the tax is due.

tim333 12y ago

I'd imagine for small companies in the US, if they ignore VAT nothing will happen. There is no way the US courts will get involved with enforcing EU taxes and EU enforcement is fairly laid back in that they are not going to arrest you if you go on hols. If the company has assets in the EU however the courts can go after them so Google, Amazon etc will have to pay. I fear Digital Ocean are going to start charging me VAT which they have not so far.

deleted 12y ago

[deleted]

BerislavLopac 12y ago

The main problem with these changes is that they require the seller to collect information about the buyer's location. It makes all the sense for physical goods, but it is nigh impossible for digital ones, and pretty much misses the whole point of online economy. In my opinion, the VAT should be charged based on the delivery address; for digital goods, it would be ideal that all purchases are considered local, and the countries could have an option to introduce a separate "digital VAT rate" that would apply to such purchases.

toyg 12y ago
This suggestion, in practice, would not stop Amazon and Google siphoning VAT money form around the EU through Luxembourg, Jersey or Ireland. If I settle in a country with low "digital VAT rate", I'll still hold an advantage over EU companies based elsewhere: I can charge lower prices, or I can charge regular prices and pocket the difference. This is exactly what happens today.
- BerislavLopac 12y ago
  Nope -- what happens today is paying Luxembourg VAT for physical goods delivered from UK to UK, which would be prevented this way. Digital goods have no "location", so the only way to charge VAT is to assume it was a "local" purchase. And what is wrong with countries competing with VAT rates? Alternatively, a pan-EU VAT rate for digital goods only might be a better approach, and probably easier to implement than a universal VAT rate.
  - toyg 12y ago
    > what is wrong with countries competing with VAT rates? it's a race to the bottom that destroys tax revenues. It benefits small "pirate" countries to the disadvantage of large ones that are actually responsible for creating the large markets where real profits are generated. Tax-rate competition has always existed, but globalisation and technology now make it too easy to exploit it in a way that only benefits big business and screws entire populations. > pan-EU VAT rate for digital goods only might be a better approach Pan-EU rates for most things would be a better approach. VAT is just the most egregious example. If we have a single market, we should have a real level playing field, including things like taxation, workers rights and environmental standards. We're getting there in a number of areas, but it's hard to make progress on tax because of political implications (and because of pressure from businesses who benefit from the current state of affairs).

lotsofmangos 12y ago

"If you ask me – YES it is crazy. There are 28 member states and over 75 different VAT rates – which I should all know and create different invoices for." If only we had some sort of programmable calculating device to automate this kind of drudgery.

Jongseong 12y ago
The seller is also supposed to collect evidence of the location of the purchaser (billing addresses, IP addresses, etc.). By the time you're required to collect private data for each transaction, it becomes more than simply the kind of drudgery you can automate away and becomes a burden that is a bit too much for one-person entreprises.
- lotsofmangos 12y ago
  Purchaser inputs details in online form, tax is applied by location, purchaser buys thing. What am I missing here?
  - pja 12y ago
    Nothing. This really is a storm in a teacup.
  - Jongseong 12y ago
    At least in the UK, you'll be required to keep such private data for 10 years, which also means registering as data processors and controllers with the Information Commissioner's Office. See this: 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#section-5-record-keeping-requirements https://www.gov.uk/government/publications/revenue-and-custo... Also, try explaining how simple all this is to the self-employed women selling crafts online using PayPal.
    - lotsofmangos 12y ago

brador 12y ago

Would it be easier if there was a single EU wide VAT rate?

laurencerowe 12y ago
Yes. But at least its not as bad as the US where each city seems to have its own VAT rate...
- cbd1984 12y ago
  There is no VAT in the US. Even if you mean sales tax, that's set on a state-by-state basis, and you only have to collect sales tax in a state if you have a physical presence there: https://www.sba.gov/content/collecting-sales-tax-over-internet https://www.sba.gov/content/collecting-sales-tax-over-intern...
  - laurencerowe 12y ago
    Sorry, I did mean sales tax. Here in CA it is set per city: http://www.boe.ca.gov/sutax/pam71.htm http://www.boe.ca.gov/sutax/pam71.htm In the US it seems the onus is put on the consumer rather than the business. We should all be declaring our out of state purchases on our tax returns... http://en.wikipedia.org/wiki/Use_tax http://en.wikipedia.org/wiki/Use_tax
cbd1984 12y ago
Just so you aren't confused, there is no VAT in the US, and sales tax is set by states, not cities. More information: https://www.sba.gov/content/collecting-sales-tax-over-internet https://www.sba.gov/content/collecting-sales-tax-over-intern...
- xrange 12y ago
  To further eliminate the possibilities of confusion, at least in Washington state, there is a state-wide retail sales tax, and there are additional sales taxes based upon the city or county where the transaction occurs. There are over 400 different taxing regions in Washington state. http://dor.wa.gov/Content/GetAFormOrPublication/FormBySubject/forms_LSUAlpha.aspx http://dor.wa.gov/Content/GetAFormOrPublication/FormBySubjec...

Ecio78 12y ago

This sentence is wrong "The change was made because EU wants to get more money from transactions for American companies – or to force them to move more operations to EU to get VAT reductions." and it can be understood by just comparing the table right above, where you can see that for an American company based in the US (last three Non-EU rows) nothing will change, so no American company would be forced to move to EU. What's true, on the other hand, is that this law would not allow some companies, including some big American ones (like Amazon) to take advantage of putting their European HQ in countries with lower VAT rate, like Luxembourg (15% til this year[1]), and so selling (invoicing) products to endusers for a lower price. Same can be said for right after about this exact part "a perfectly legal strategy to pay less taxes". VAT is not paid by the company but by the private user that buys the product/service. So they didn't pay less taxes thanks to this, but probably sold more product. If we want to discuss about saving taxes, we can discuss about tax rulings for this companies, though... I am not a fiscal/economic guy but this girl got it all wrong...so I stopped reading at this point. [1] due to this law, Luxembourg will raise its VAT from 15% to 17% trying to compensate the money loss caused by this change (afaik it won't be enough)

zeidrich 12y ago

Without abolishing VAT, what would be a way to ensure that it is properly collected by the buyer's country without putting undue stress on small sellers? One thing I can think of is that you could target the payment processors. They already have personal data about the buyer, so they should know where they are located. Most transactions are going to be done by a credit card processing company, or something like PayPal. In either case, the EU could deal with those sorts of companies directly. In that case, merchants could sell their goods without worrying about tax at all. You buy something at a listed $100, you have 22% local tax, the credit card company charges the buyer $122, seller doesn't have to worry about it. Now, the seller could program some option that could estimate VAT based on geolocation with some disclaimer that the customer will be charged for VAT by the payment processor and are responsible for their own charges. But that would be a courtesy of the seller, the buyer should be aware of their own VAT. Some things are excluded from VAT, but they are the exception, and in that case, the seller could jump through some small hoops to register with the payment processors to allow those goods to exclude VAT. There are still other methods of collecting payment, like bitcoin, like money orders, whatever. In those cases, the law should require the buyer to self-assess. In reality the self-assessment would be rarely followed, and honestly nobody would care if it were small purchases. But the self-assessment rules would mean that anyone seriously gaming the system by avoiding compliant payment processing options could be punished, while still both avoiding an less enforceable situation like trying to punish a foreign company for failure to charge local tax, or limiting the payment options that foreign companies can provide. This could also solve problems with collecting VAT purchases made from foreign entities (instead of just companies from other EU states) and could even be extended further (You are a resident of Luxembourg, you travel and shop in France, you pay with a credit card, you are charged less VAT on the purchase rather than having to claim the difference when you return.) In short, compel large payment processors to verify the home of buyers when the account is created, compel them to have some checks to avoid fraud. Allow sellers to not charge VAT if the buyer is either using an approved payment processor, or if the buyer is from another country. If you are accepting payment by cash or money order from someone local, then you must charge VAT at the local rate. But if you are accepting a credit card through an approved processor, whether the buyer is local or foreign, you charge the rate pre-tax, and the processor is required to A) add the appropriate VAT, and B) verify that the buyer is not lying about their home country. If you accept a money order from a foreign country, you do not charge VAT, and the buyer self-assesses. Alternatively, you could say that all purchases that do not go through an approved processor have the local VAT added to them, and the buyer is compelled to self-asses for the difference, it's just a matter of how much you are willing to inconvenience non-EU foreign countries. But I don't think the seller should be required to ensure that the buyer abides by their local tax rules. I do think that's a task that can be handled by large banks or payment processors.

based2 12y ago

https://news.ycombinator.com/item?id=8766738 https://news.ycombinator.com/item?id=8766738