Monday, December 1, 2014

VATMOSS

I was planning on writing a nice cheery blog post about Star Wars today. Or a review of a book I read recently.

Those are being put off. Very quietly, with pretty much no mention in the media, the EU has been implementing plans to really mess up the lives and livelihoods of a large number of people.

The tagline is "VATMOSS." It's planned to prevent Amazon and Google from sitting in Luxembourg with its 3% VAT rate and selling to the rest of Europe.

In fact, it's pretty much entirely aimed at Amazon.

It classes certain things as digital services. On those products, the VAT threshold is suddenly zero if you're selling to an EU country you are not resident in. (Norway and Switzerland have also bought into this).

It applies to digital products sold to customers in the EU. This means ebooks, software, logo templates, anything that a customer buys that is pre-made. Physical products aren't affected, only electronic ones.

It also applies to browser games with subscription options or freemium.

So, what's the big deal?

In order to comply with the legislation, all businesses, regardless of their size or profit level, that sell digital products to a country in the EU other than the one they are in must:

1. Collect VAT and remit it to the country their customer is resident in.
2. Store at least two "non-contradictory" proofs of which country that customer is in for ten years, and abide by privacy rules (there's some indication this means the data has to be stored in the EU, but that's only from one source).
3. File a VAT return and/or prove they have no customers in the EU.

They are providing a system that allows companies to file only one VAT return for the entire EU. (This is the MOSS part).

So, here's the problem:

1. US companies are now required to collect and store information US payment processors are legally forbidden to provide them. It is nearly impossible to comply with the reporting aspect of the law if you are not in the EU.
2. In order to be sure they can cover the VAT for any possible EU customer, companies will have to raise prices by somewhere between 20 and 30 percent for all customers. So, people who are not in the EU, have never been to the EU, and are buying from a company not in the EU will have to pay more to cover VAT rates. The alternative is to use a full e-commerce suite - prohibitively expensive for most very small businesses.

The only way to avoid the law is to 100% guarantee nobody in the EU can buy from your site. This is, by the way, impossible. If one customer gets through an IP block or geolocation system, then no matter what you did, or what lies they told, they can come after you with "potentially unlimited" fines. (Although realistically, it appears the only thing they can actually do to a US company is prevent them from selling to the EU).

And you're supposed to be able to prove nobody in the EU has bought from you that year if they decide to come after you.

So, this mess is impossible to fully comply with without ceasing direct sales of digital products. For some people - writers, musicians for example - that means going through a marketplace that handles all of this for them. That means, you know, Amazon, Google, Apple...the very companies this is actually supposed to be hitting. Amazon is going to make bank off of this.

For others, it means going out of business - or attempting to comply and hoping they don't get caught.

This is particularly bad for games companies that do in-browser "freemium" games outside of Facebook (another company the EU doesn't like). I'm also told it's going to stifle the sales of digital knitting patterns. And it's also going to hit the maker community hard (3D printing stuff will be hurt by this).

There are small business people all through Europe planning on shutting up shop on January 1, because that's their only option. These people are generally not eligible for welfare (at least not in the UK). People aren't just going to be inconvenienced by this. People are going to be really hurt.

A law designed to make sure huge corporations pay their fair share of sales tax is going to have the unintended consequence of destroying small businesses and possibly even wrecking the economic recovery.

And they kept this so quiet that nobody knew about it until the comments and complaint period was not weeks, not months, but years in the past.

It cannot possibly be right or ethical for a country, any country, to ask foreign citizens to act as tax collectors.

How this affects me is that I will now be unable, ever, to sell ebooks direct through my website until and unless this is fixed to allow reasonable compliance. I wasn't planning on doing it any time soon.

But it's not about how it affects me. It's about how it affects others. This is a blunder of epic proportions and no matter how desperate countries are for tax revenue, 20% of zero is still zero...and can any country afford to suddenly lose several hundred thousand jobs? That's the scale we're looking at. HMRC has predicted 30,000 businesses will need to register for MOSS. The real number is closer to half a million. Many of those will evade by switching to selling through a marketplace...if they can afford to do so. For those for whom that is not currently an option, shuttering may be the only way...and then what do they do? There aren't exactly an amazing number of jobs out there right now.