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

http://www.happybootstrapper.com/2014/im-us-whatll-happen-just-ignore-eu-vat-changes/

by jkulmala • 12 years ago

171 175 12 years ago

mastef3• 12 years 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.

toyg12• 12 years 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_user3• 12 years 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.

fulafel• 12 years 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.

tormeh5• 12 years ago

VAT is pretty dumb, but at least now it's applied fairly.

humanrebar7• 12 years 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.

joosters2• 12 years 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...

zo1• 12 years 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.

mastef3• 12 years 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• 12 years ago

What does the "Reverse Charge" refer to?

pja5• 12 years ago

This: 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• 12 years 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.

jkulmala5• 12 years ago

I explain that in this other post for EU guys: 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.

jmnicolas2• 12 years 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.

hackerboos2• 12 years ago

Yet it's forced to implement most of the EUs rulings whilst having no say on said rulings. Same for Norway and Iceland.

nagrom5• 12 years 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/out...

_delirium2• 12 years ago

If a company does not sell to EU citizens, then yes, being based outside in the EU will let you avoid these rules. But if your goal is to sell to EU consumers, basing the company in Switzerland as your European base doesn't help, because for non-EU sellers (and from 1 January, for all sellers), VAT is charged based on the location of the customer; the location of the company is irrelevant. And Switzerland will generally enforce tax judgments of EU member states, so if you violate German law in your dealings with German citizens, being based in Switzerland isn't going to shelter you. If you sell services to a German, you'll be required to charge German VAT rates, regardless of whether the company is based in Germany or Switzerland.

Some larger Swiss-based companies were actually in favor of this change, because in some cases they have been at a VAT disadvantage relative to some EU-based companies, who were previously allowed to charge "source country" rates rather than "destination country" rates for digital services. Therefore Swiss providers selling to Germans were at a disadvantage to Luxembourg-based providers selling to Germans, because the Swiss provider had to charge German VAT, while the Luxembourg provider could charge the lower Luxembourg VAT. With the new "destination location" rules being applied across the board, including to EU-based companies, Luxembourg will lose its advantage vis-a-vis Switzerland there.

See: http://www.kpmg.com/global/en/issuesandinsights/articlespubl...

throwaway78393• 12 years ago

I run a small software development shop, registered in Switzerland. We sell installable software in productized form. We also employ a local accounting firm to handle our accounting and advise on taxation matters. At the moment the state of affairs is such that we do NOT need to charge or to report VAT on any sales unless it's a sale to a Swiss customer. I had them double-check this and I also got a second opinion from another company. Not Swiss = No VAT, period. So, this -

   a Swiss supplier must charge the VAT rate of the EU 
   Member State where EU consumers are domiciled or the
   services are used and enjoyed

doesn't correlate with reality on my end. I can only guess that the discrepancy is due to this being specific to -

  Telecommunications and broadcasting companies, as 
  well as providers of electronic services to consumers

and not to installable software vendors.

bad_user3• 12 years 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.

smackfu3• 12 years ago

True, it should say: "EU wants to get more money from transaction for American companies."

jkulmala5• 12 years ago

Thanks for the correction, I updated the blog post.

lultimouomo• 12 years 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.

pja5• 12 years ago

The point of the changes is to prevent large non-EU companies from going "VAT-shopping": like a certain well known advertising company claiming to sell all their services from a low VAT country when in fact all the business dealings are done in a tower block in the centre of London.

Now they have to charge whatever VAT rate each country within the EU thinks is appropriate for their citizens & there's no "race to the bottom" effect where Google, Apple, Amazon et al try to play different countries off against each other to get the lowest possible VAT rate.

The next stage is going to be tax changes to try and eliminate the profit shifting that all the non-EU companies do by setting up subsidiaries in different EU countries and "licensing" their IP to them at prices that just happen to match the profits made in that country.

Unfortunately, small online businesses are collateral damage in this particular fight.

tormeh5• 12 years ago

This. It was about time they got started.

oh_sigh• 12 years ago

Does placing advertising on web property count as a digital good?

humanrebar7• 12 years ago

it's an astronomical 24%

That's lower than the income tax rate for a middle class American. Why is this rate astronomical? Are there also high property and income taxes?

EDIT: It's an honest question. I know what a VAT is, but I have no frame of reference for how the overall tax scheme is especially egregious for the individual taxpayer. Some other tax rates (income, property, etc.) are surely relevant. A 24% VAT with absolutely no other taxes sounds nice, for example.

goodJobWalrus• 12 years ago

because it's much bigger than sales tax in any of the us states?

pja5• 12 years ago

That will be in addition to income and property taxes.

By way of example, UK taxes look like:

* ~40% income tax, first £10k untaxed.

* 20% VAT on most goods (food, books, children's clothes are untaxed, heating fuel is taxed at 5%)

* Annual property tax of around £1000 on the typical dwelling.

* 28% capital gains tax, first £10k untaxed in any 1 year. Dividends are effectively taxed as additional income.

In reality UK taxes are of course much, much more complicated than the rough outline above :)

smackfu3• 12 years ago

So Finland is one country that has 24% VAT (most are lower.) They have very low property taxes but very high income taxes (up to 30% federal + 20% local.)

Sharlin• 12 years ago

You can't compare VAT to income tax, they are very different beasts. And yes, although I can't speak for the GP, in Finland (and other Nordic countries) other taxes are high as well. Not that I'm necessarily complaining, although VAT as a concept certainly has its problems.

moonchrome• 12 years ago

Are there also high property and income taxes?

Yes - this is on top of (high) income tax/capital gains tax, etc.

nagrom5• 12 years ago

You're comparing income tax with sales tax.

In the UK, on a salary of £40k (i.e. professional mid-career engineer), before you touch the money, the government takes about 25% for income tax and national insurance. Then, they take 20% of everything else that you spend unless it's non-luxurious foodstuffs, children's clothes or paper books. And, of course, if what you're buying is fuel, they actually take 85% of the price.

In addition, you'll pay approximately 2% of the purchase price of a house to the government, and you'll pay approx. one day a month in after-tax income to the local council as a property tax.

US has a 30% tax burden, UK has a 40% tax burden. France and Germany have >50% tax burdens. The last three have some form of nationalised healthcare though, which the US does not.

TheCoelacanth• 12 years ago

VAT is essentially a sales tax. Sales taxes in the US are usually 5-10%.

aragot• 12 years ago

VAT varies from 10% to 25% in most countries of the world [1]. There is an income tax in _addition_ to it. I've calculated a total of net income/turnover rate as low as 34% in my country (France), albeit including all mandatory spending and not only taxes, and the detail is in my blog post [2].

[1] http://en.m.wikipedia.org/wiki/Value-added_tax

[2] http://adrien-ragot.me/why-i-say-70-percent-tax-in-france/

Kiro• 12 years ago

Are there also high property and income taxes?

Isn't that usually the case? High VAT, high income taxes.

Nitramp• 12 years ago

That's the VAT tax, comparable to the sales tax in the US, so this compares as 24% vs ~6% or so in most of the US. Income tax is separate from that, and depends on country to, but seems to work out to quite similar percentages, at least between Germany and the US.

mcguire• 12 years ago

"[24% is] lower than the income tax rate for a middle class American."

Do you have a source for that?

(I ask because I'm definitely upper middle class or possibly lower upper class and I'm only paying ~25% (and I'm in no way tax efficient). Everything I've seen puts the middle class income tax rate below 15%.)

pietro• 12 years ago

All taxes are astronomical in most of the EU, but with national differences.

In Denmark, in addition to a 25% VAT, there's an 8% payroll tax and a 40%-56% income tax, property taxes, huge environmental taxes, etc.

chris_va• 12 years ago

"VAT is and has always been a tax for the buyer, not the seller"

Does this distinction actually mean anything material?

Buyers start with all of the money, and it ends up split between the seller and the government. From the buyer's perspective, it doesn't really doesn't matter if this is an income tax on the seller, or a VAT tax on the transaction.

chris-at• 12 years ago

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

Major_Grooves3• 12 years 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/

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• 12 years ago

It's going to force people to use marketplaces/providers. Probably a startup opportunity.

Major_Grooves3• 12 years 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...

k-mcgrady• 12 years 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)?

Major_Grooves3• 12 years ago

Yes - if you sell these digital goods.

Omniusaspirer• 12 years ago

This is effectively impossible to enforce though, at least for foreign sellers; is that a fair assessment? I'm really not seeing any mechanism whereby the EU could actually force them to pay their taxes when they're selling goods that don't physically exist. Small arts and crafts need to be shipped, software does not.

I guess they could pressure payment services (Paypal, Dwolla), but Bitcoin could always be used as a fallback- it's also VAT exempt or at least appears to be from my quick searches on the subject.

sailfast• 12 years ago

I could see tax authorities going after consumers that are not paying VAT - they reside in the EU and are easier to prosecute than foreign companies.

In the past in the United States, the providers (such as Amazon) have placed the burden of paying state taxes on the consumer - I wonder if they could, somehow, also make the consumer responsible in this case and thereby continue to operate in the same manner?

santacluster• 12 years ago

The really major f-up is that of online sellers (it's a major pain for sellers of physical goods as well, it's just easier for them to at least know which country they're selling to) who did absolutely nothing during the entire process of creating and implementing this change, and only now start to whine when it's way, way too late.

The reasoning behind the law is perfectly logical, and the problem they're trying to solve very real. The actual implementation utterly impractical, and a major burden on pretty much everyone.

But the only people who could have told the political dinosaurs and clueless civil servants just how impractical chose to pretend the change would somehow magically just go away.

This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.

Silhouette3• 12 years ago

The really major f-up is that of online sellers ... who did absolutely nothing during the entire process of creating and implementing this change, and only now start to whine when it's way, way too late.

And what exactly do you think an affected seller should have done if they had no reason to know these changes even existed?

Certain government representatives have been claiming that they have provided information and notified businesses. However, right now the Internet seems to have no shortage of small businesses who claim they had never heard of this change until very recently. I can certainly understand that: I personally run two businesses that could potentially be affected by these changes, both already VAT registered, yet I have no indication that our government has made any attempt to notify either company in any way about these changes.

Even some on-line payment services and marketplaces appear to have had no idea, and it looks like some won't be able to support the required taxation and record-keeping in time. These are the very organisations that many people in governments seem to have assumed will fix the problem because according to them almost every micro-business uses one!

This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.

I'm not convinced it would have helped even then. This is the same EU that imposed those mandatory cookie notices. More recently, they pushed through consumer protection regulations that mean if someone wants to buy a digital download and gives you their money today, the default is that you must not actually provide the data to them for two weeks, among other similarly unhelpful-to-anyone measures.

No doubt some of these measures were promoted with genuinely good intentions, but it is clear that the people writing the laws and regulations are completely disconnected from the realities of running a small business. It will be literally impossible for a lot of small businesses to comply with the letter of the law under some of the new rules.

The biggest irony of them all is that the most likely beneficiaries of these changes are... big US businesses, specifically those which function as on-line marketplaces and have the resources no small business does to investigate and comply with all the new taxation and reporting rules and to put up a serious legal fight if they are formally investigated for failing to do the impossible.

adwf• 12 years ago

if those affected had just bothered to try.

How about: If those affected had even known that this change was happening.

I'd certainly heard that they were changing the VAT rules to crack down on the likes of Amazon. That I'd now need to charge VAT based on country of consumer. That's not the crappy part of the legislation as I currently don't need to charge any VAT at all in the UK.

I hadn't heard that my VAT threshold was being invalidated

I hadn't heard that I'd need to keep records for 10 years (currently the longest I need to keep anything is 6 years).

I hadn't heard that I'd need to register as a Data Controller (as I now need to store personal info for 10 years). This leaves me liable for massive fines if anything goes wrong security-wise in the next 10 years.

It's basically a massive cockup that was targeted at Amazon, Google, Apple and the like, but has instead hit small business startups and independent traders the hardest.

rachelandrew• 12 years ago

I run a VAT Registered business and we had one notification of the change of place of supply - despite the fact that we already do cross-border sales and allow our customers in the EU who have a VAT number to deal with VAT under the existing reverse charge rules. So we knew about it, but could have easily missed it.

The people who didn't know about it are those it is the worst for. Small traders who were not VAT Registered. There is no reason why someone below the VAT threshold should be poking around in VAT legislation just in case it will suddenly apply to them. When I wrote this post (http://rachelandrew.co.uk/archives/2014/10/13/the-horrible-i...) in mid-October, there was next to nothing online, other than in a few PDFs from tax experts. Certainly nothing that would have alerted non VAT registered individuals selling a few knitting patterns and so on. To blame those people, and suggest they were sticking their head in the sand is wrong. They didn't know.

jkulmala5• 12 years ago

That's a great blog post, Major_Grooves - Thanks for shouting out!

I totally agree and addressed that in my other blog post which is targeted to EU folks: http://www.happybootstrapper.com/2014/eu-vat-changes-online-...

I hope lots of people read it and sign up the petition to set up a revenue threshold: https://www.change.org/p/pierre-moscovici-a-unilateral-suspe...

gst• 12 years 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?

tim3332• 12 years 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.

tim3332• 12 years 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.

BerislavLopac2• 12 years 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.

toyg12• 12 years 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.

BerislavLopac2• 12 years 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.

lotsofmangos5• 12 years 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.

Jongseong5• 12 years 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.

lotsofmangos5• 12 years ago

Purchaser inputs details in online form, tax is applied by location, purchaser buys thing. What am I missing here?

brador• 12 years ago

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

laurencerowe5• 12 years ago

Yes. But at least its not as bad as the US where each city seems to have its own VAT rate...

cbd19842• 12 years 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-intern...

cbd19842• 12 years 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-intern...

xrange2• 12 years 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/FormBySubjec...

Ecio78• 12 years 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• 12 years 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• 12 years ago

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

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

Related Stories