If you’re an online seller, you’ve probably already heard some noise around the new EU Vat laws that came into force in January, but, if you’re anything like me (and the majority of North American vendors), you might be left wondering what it has to do with you.
When interior design coach Issy Zinaburg first got in touch with me to share her advice on the these new laws, I felt confused and awfully silly: As an online shopper and seller myself, I didn’t know much about the new laws and what implications they had on me and my favorite online shops, but Issy is all about helping women gain confidence in design and business. So when she heard rumblings about the law in late 2014, she joined forces with eight other business owners and together they founded the EU VAT Action team, campaigning for a unilateral suspension of these laws for micro-businesses. Today, Issy is taking us through the basics of this complex law, what is and isn’t, and breaks down why it’s relevant to you, whether you’re an online business owner or not. –Sabrina
The headlines
The basic premise of the new regulations is that it’s all down to a change in the way Value Added Tax (aka VAT), the EU equivalent of sales tax, is applied to the purchase of digital services sold to customers in the EU.
From January 1, 2015, instead of the tax rate being applied according to where the seller is located, the onus is now on the seller to determine where the buyer is located and apply the relevant local rate of tax to the purchase — similar to the US “Use Tax” concept. I.e. if someone buys your product from Germany, you need to add German VAT to the sale — then you need remit that to the relevant authorities.
What’s the reason behind the change?
In essence, this has been brought to stop billions of dollars of sales tax being lost due to multinationals locating in low tax jurisdictions and undercutting local businesses — an aim which few would argue with.
So why the fuss?
Although the European Commission argues that this will create a “level playing field” — in reality, this is easy for the large multinationals to comply with, but it is virtually impossible for sole-traders and micro-businesses to comply, making many businesses no longer economically viable.
How does this affect North American business owners?
Technically, similar rules that apply to North American business owners have been in place since 2003. Now, what has become clear is that very few small business owners were even aware of this legislation until it started hitting the headlines just a couple of months ago — which obviously raises questions about how and to what it extent this is enforced outside of the EU.
However, despite many people claiming that EU has no jurisdiction to “inflict these laws on other countries,” in actual fact, in law it is the other way around. The EU can enforce laws on you if choose to trade within their countries because this brings you within its jurisdiction.
The wider context
In the background to this are agreements made by the US, Canada, EU etc. as part of the OECD, which agree to mutual cooperation in enforcement of tax laws across borders — and whilst they might not be enforced yet, you can be fairly sure that they will be soon.
The principle of this legislation has been agreed internationally, and it seems that both US and Canada (as well as many other countries such as Australia, Singapore, Norway and Japan) are looking at introducing similar legislation soon — at which point there will be a commonality of interest in enforcement.
So, the way things are going, I may need to collect taxes for many other countries soon, too?!
Without wanting to scare anyone, that is the way global taxation appears to be headed, which is why I and my colleagues in the EU VAT Action Team are campaigning so hard for a global threshold. Although this is currently only EU legislation, we see it as a global problem — creating such an unworkable administrative burden for micro-businesses that they become unable to trade outside of their home country.
We believe it is just isn’t reasonable to apply the same level of red-tape to kitchen table businesses as it is to huge multinationals. So, as business owners, we cannot allow the mistakes in the current EU legislation to be replicated internationally.
How was this allowed to happen?
The problem, as we have seen in the UK, is that sole-traders and micro-businesses were way below the radar of the authorities when they were researching the impact of these laws — we estimate that the UK authorities only considered the impact on 0.04% of the affected businesses!
We are concerned that other countries will make the same mistake, which is why we are urging everyone to raise this with their local politicians/campaigning bodies to make the case for micro-businesses before the legislation is passed, rather than having to try to do it retrospectively like here in the EU.
How to know if the rules apply to you:
- Currently the rules cover only “digital services” (for now).
Digital services have been defined to include pretty much any goods bought online and delivered digitally, such as: e-books, e-guides, PDF downloads, stock images, fonts, screensavers, mp3s, films, apps, games, online magazines, knitting patterns, digital scrapbooks, meditation downloads, etc.
- If you sell through a marketplace (such as Amazon, The App Store, etc.), where you sell your product to them for resale, they control the Terms & Conditions, payment, etc., so you may not need to worry about this.
Under the legislation it is the marketplaces that are liable to handle this, not you — but please do check with your relevant marketplace. Even if you are covered, depending on the platform (such as Amazon) you may still need to adjust your pricing.
Please note that Paypal is a payment provider, NOT a marketplace, and therefore does not do this for you — nor is it currently possible to collect the customer data required to comply using basic Paypal buttons.
- What if I don’t sell direct from my website?
Then technically it is your responsibility to ensure your website is programmed to comply with this legislation.
A large number of plug-ins are coming to the market to handle this for you. I cannot personally endorse any specific solution, but there are a range of options available at varying costs — a list of these is being currently compiled can be accessed in the EU VAT Action Campaign Facebook Group.
- What if you just don’t have the time/inclination to deal with this?
As much as those of us living in the EU hate to see those of you outside the EU blocking us, we are seeing MANY examples of USA companies now refusing to sell to EU consumers. At least in the short-term and if you are below a certain size, this unfortunately might be your easiest option — although, we hope you’ll use this as a last resort, and will try find a solution that means we can continue to buy from you!
To leave you on a positive note: led by the tireless efforts of Clare Josa and Juliet McKenna, the message of the campaign is being heard at the highest levels within the EU. It has become apparently clear that politicians are genuinely horrified at the unintended impact this law is having, so if globally we can all come together and make enough noise about this, we are hopeful that we can ensure that this (and future) legislation is redrafted fairly!
For up-to-date information and inspired actions you can take to support the campaign to introduce a global threshold for small businesses, please visit our website, join our dedicated Facebook Group, or follow us on Twitter.
via Design*Sponge http://ift.tt/1Dxksbq From Sabrina Smelko
No comments:
Post a Comment