4 ms·

VAT just sounds like a huge, overcomplicated mistake by the EU. Why do you guys continue to live with it instead of repealing or fixing it?

thecopy 10y ago
What do you think the EU is? A democracy? ;)
stdbrouw 10y ago
It's not easy by any means but neither would I call it a huge, overcomplicated mistake. Even the new rules for digital services are overdramatized – it's really just as simple as charging a different VAT rate per country and submitting a single quarterly VAT return for the entire EU. For most people, if their web store and accounting software doesn't already take care of this, it will soon enough. Also, every EU member state already had VAT and already had differing rates and rules before joining the EU, so the complexity was already there.
- blibble 10y ago
  the UK did not have VAT prior to joining the EU VATmoss has been disastrous for small online UK businesses. UK businesses do not have to register for VAT until their turnover exceeds a figure (£80,000 odd). with VATmoss: if they have any EU customers they must either VAT register in the UK (which adds 20% to their UK prices), OR register and fill out VAT returns for each member state they have customers in, which is not really feasible I have simply stopped selling to EU customers... "single market", yeah right. The EU commission's answer to this has been "we know this is a problem for small businesses. we'll sort it out when we discuss it in 2019"... not good enough. all this bureaucracy was an attempt to try and get Amazon to pay their fair share of VAT... to hell with the small businesses
  - stdbrouw 10y ago
    > if they have any EU customers they must either VAT register in the UK (which adds 20% to their UK prices) While I'm sympathetic to the fact that this will increase your administrative burdens, in terms of your bottom line this really won't make much of a difference, because once you register for VAT you can also deduct it for all the costs you make – you only pay tax on the value you add, hence the name. Thanks for the correction re: the UK not having VAT before joining the union, didn't know that.
    - blibble 10y ago
      the variable costs for digital services are essentially zero (make once, sell many times), so having an extra 20% tax makes a phenomenal difference to either profit or competitiveness
      - stdbrouw 10y ago
        The VAT for all costs you incur can be deducted, regardless of whether they're fixed or variable. If you're operating at a loss or if you do a lot of business with places where you don't have to charge VAT, it's not impossible to have VAT owed to you rather than the other way around. Might it affect your profitability? Definitely possible. But it won't eat up 20% of your revenue or require you to charge 20% more to break even.
        blibble 10y ago
        no VAT: - £10,000 to produce a infinitely reproducible widget -> costs of £10,000 - sell 5,000 times for £10 -> income £50,000 profit of £40,000 with VAT: - £10,000 to produce a infinitely reproducible widget, all allowable, 20% VAT back -> costs of £8,000 - sell 5,000 times for £10 - (approx) £2 VAT -> income of £40,000 now I have a profit of £32,000 instead if I'm selling mostly domestically the logical conclusion is to no longer sell to non-domestic EU customers
        toyg 10y ago
        The misrepresentation in your calculation is that with VAT you really sell a widget for £12; if you're selling to businesses, they recoup those £2 so they don't care, and if you're selling to consumers all your competitors also factor in the same tax in their prices so again nobody cares. At that point, 5000 widgets at 10 net = 50000 - 8000 net costs = 42000 -> as a business, if your costs include VAT, you're actually better off by opting in. Sure, you feel the pain when you first transition (which is why you should have started with it right away), the first couple of years the taxman will be greedy, and vatmoss is a clusterfuck in its own right, but vat as a concept is actually extremely business-friendly. (I say that as someone who hates it for the regressive flat-tax on the poor that it actually is; I'd be happy to lose it tomorrow in exchange for higher corporation tax, but that won't make you any happier...)
agopaul 10y ago
Well, corporate taxes and income taxes are already quite high in some countries (eg. Italy) and I'm not sure what other alternatives there are to VAT other than raising those two to compensate
- tomschlick 10y ago
  I understand why there is a need for the variable rates, but the administration of it all sounds horrible. There should be a single source of truth for the rates data, and there should be an api instead of having to rely on a third party for that information.
  - agopaul 10y ago
    Definitely, and hopefully, an API that works better than the one already in place for VAT validation (which is quite unreliable)
    - tonyedgecombe 10y ago
      That API really is awful, I'm sure it's down most of the time.
MatthewWilkes 10y ago
Complex sales tax almost seems inevitable, there are lots of similar services in the US, like https://www.taxjar.com/api/ https://www.taxjar.com/api/. One of the things regulators want from a tax code is to stop large companies picking their jurisdiction to avoid sales tax, and therefore gain an unfair advantage. The MOSS is really annoying for microbusinesses, like musicians wanting to sell their album online, but compliance is easily handed off to an accountant for anyone working on such things full-time.
bambax 10y ago
"VAT" (the idea) is certainly not a mistake, it's one of the best way to do taxes, because it's, if not painless, at least almost invisible to the taxpayer (but it's considered by many to be unjust, because the poor spend a much larger part of their income in taxable goods than the rich, and so pay a bigger share of VAT). The complexity of VAT in Europe is recent. (I think) it used to be the case that if you sold something from one European country to another, then you weren't subject to VAT because it was considered an "export". Foreign companies (esp. US-based ones like Amazon) exploited this loophole so much, it became a problem. All they had to do was set up shop in a small, low-tax country [1] (Luxembourg / Ireland) and sell in every other country tax-free. So the EU created this rule that the VAT that should be paid, is the VAT of the country where the customer resides -- it had to be, because if it was the VAT of the seller's country then companies would have again clustered in the country with the lowest VAT in order to evade the new rule. It's not a bad rule; if you're a huge corporation, well, maybe you don't like it but you can hire the necessary lawyers and accountants to implement it. If you're an SMB that sells across Europe, it's absolutely horrible. I guess the bureaucrats who wrote the rule didn't care much about SMBs or thought there were few who sold internationally. It would be simple to exonerate SMBs based on their revenue (and I think it's the case, but the triggers are very low and different in every country); it would be even simpler to have just one tax rate but that's politically impossible. In practice it doesn't seem to be very much enforced for small companies. - - - [1] Low corporate tax, to optimize taxes even further; no need to be based in a low-tax country to free oneself from VAT; the smaller the country the better, because you want to have as few of your customers in the same country as you, as possible.
- waynecochran 10y ago
  I am admittedly naive on these matters, but I always thought that VAT is more efficient than a sales tax from the vendor's perspective and transparent to the consumer (an item costs $1.25 and you pay $1.25).
  - kspaans 10y ago
    The main difference between VAT and sales tax is that VAT is paid by each stage in the supply chain (every time someone "adds value"), and reclaimed by charging it to the next stage up in the chain. Sales tax is charged only once, at the final point of sale to the consumer. The end effect is the same: the consumer ends up paying whatever % the tax is. The difference is in how it's collected. Sales tax is easier to evade because business-to-business sales usually don't charge sales tax. So you could wink at your customer and say they're a business and not charge them sales tax. With VAT everyone is supposed to pay it, so it's harder to evade (and consequently more expensive for governments to collect).

thecopy 10y ago

What do you think the EU is? A democracy? ;)

stdbrouw 10y ago

It's not easy by any means but neither would I call it a huge, overcomplicated mistake. Even the new rules for digital services are overdramatized – it's really just as simple as charging a different VAT rate per country and submitting a single quarterly VAT return for the entire EU. For most people, if their web store and accounting software doesn't already take care of this, it will soon enough. Also, every EU member state already had VAT and already had differing rates and rules before joining the EU, so the complexity was already there.

blibble 10y ago
the UK did not have VAT prior to joining the EU VATmoss has been disastrous for small online UK businesses. UK businesses do not have to register for VAT until their turnover exceeds a figure (£80,000 odd). with VATmoss: if they have any EU customers they must either VAT register in the UK (which adds 20% to their UK prices), OR register and fill out VAT returns for each member state they have customers in, which is not really feasible I have simply stopped selling to EU customers... "single market", yeah right. The EU commission's answer to this has been "we know this is a problem for small businesses. we'll sort it out when we discuss it in 2019"... not good enough. all this bureaucracy was an attempt to try and get Amazon to pay their fair share of VAT... to hell with the small businesses
- stdbrouw 10y ago
  > if they have any EU customers they must either VAT register in the UK (which adds 20% to their UK prices) While I'm sympathetic to the fact that this will increase your administrative burdens, in terms of your bottom line this really won't make much of a difference, because once you register for VAT you can also deduct it for all the costs you make – you only pay tax on the value you add, hence the name. Thanks for the correction re: the UK not having VAT before joining the union, didn't know that.
  - blibble 10y ago
    the variable costs for digital services are essentially zero (make once, sell many times), so having an extra 20% tax makes a phenomenal difference to either profit or competitiveness
    - stdbrouw 10y ago
      The VAT for all costs you incur can be deducted, regardless of whether they're fixed or variable. If you're operating at a loss or if you do a lot of business with places where you don't have to charge VAT, it's not impossible to have VAT owed to you rather than the other way around. Might it affect your profitability? Definitely possible. But it won't eat up 20% of your revenue or require you to charge 20% more to break even.
      - blibble 10y ago
        no VAT: - £10,000 to produce a infinitely reproducible widget -> costs of £10,000 - sell 5,000 times for £10 -> income £50,000 profit of £40,000 with VAT: - £10,000 to produce a infinitely reproducible widget, all allowable, 20% VAT back -> costs of £8,000 - sell 5,000 times for £10 - (approx) £2 VAT -> income of £40,000 now I have a profit of £32,000 instead if I'm selling mostly domestically the logical conclusion is to no longer sell to non-domestic EU customers
        toyg 10y ago
        The misrepresentation in your calculation is that with VAT you really sell a widget for £12; if you're selling to businesses, they recoup those £2 so they don't care, and if you're selling to consumers all your competitors also factor in the same tax in their prices so again nobody cares. At that point, 5000 widgets at 10 net = 50000 - 8000 net costs = 42000 -> as a business, if your costs include VAT, you're actually better off by opting in. Sure, you feel the pain when you first transition (which is why you should have started with it right away), the first couple of years the taxman will be greedy, and vatmoss is a clusterfuck in its own right, but vat as a concept is actually extremely business-friendly. (I say that as someone who hates it for the regressive flat-tax on the poor that it actually is; I'd be happy to lose it tomorrow in exchange for higher corporation tax, but that won't make you any happier...)

agopaul 10y ago

Well, corporate taxes and income taxes are already quite high in some countries (eg. Italy) and I'm not sure what other alternatives there are to VAT other than raising those two to compensate

tomschlick 10y ago
I understand why there is a need for the variable rates, but the administration of it all sounds horrible. There should be a single source of truth for the rates data, and there should be an api instead of having to rely on a third party for that information.
- agopaul 10y ago
  Definitely, and hopefully, an API that works better than the one already in place for VAT validation (which is quite unreliable)
  - tonyedgecombe 10y ago
    That API really is awful, I'm sure it's down most of the time.

MatthewWilkes 10y ago

Complex sales tax almost seems inevitable, there are lots of similar services in the US, like https://www.taxjar.com/api/ https://www.taxjar.com/api/. One of the things regulators want from a tax code is to stop large companies picking their jurisdiction to avoid sales tax, and therefore gain an unfair advantage. The MOSS is really annoying for microbusinesses, like musicians wanting to sell their album online, but compliance is easily handed off to an accountant for anyone working on such things full-time.

bambax 10y ago

"VAT" (the idea) is certainly not a mistake, it's one of the best way to do taxes, because it's, if not painless, at least almost invisible to the taxpayer (but it's considered by many to be unjust, because the poor spend a much larger part of their income in taxable goods than the rich, and so pay a bigger share of VAT). The complexity of VAT in Europe is recent. (I think) it used to be the case that if you sold something from one European country to another, then you weren't subject to VAT because it was considered an "export". Foreign companies (esp. US-based ones like Amazon) exploited this loophole so much, it became a problem. All they had to do was set up shop in a small, low-tax country [1] (Luxembourg / Ireland) and sell in every other country tax-free. So the EU created this rule that the VAT that should be paid, is the VAT of the country where the customer resides -- it had to be, because if it was the VAT of the seller's country then companies would have again clustered in the country with the lowest VAT in order to evade the new rule. It's not a bad rule; if you're a huge corporation, well, maybe you don't like it but you can hire the necessary lawyers and accountants to implement it. If you're an SMB that sells across Europe, it's absolutely horrible. I guess the bureaucrats who wrote the rule didn't care much about SMBs or thought there were few who sold internationally. It would be simple to exonerate SMBs based on their revenue (and I think it's the case, but the triggers are very low and different in every country); it would be even simpler to have just one tax rate but that's politically impossible. In practice it doesn't seem to be very much enforced for small companies. - - - [1] Low corporate tax, to optimize taxes even further; no need to be based in a low-tax country to free oneself from VAT; the smaller the country the better, because you want to have as few of your customers in the same country as you, as possible.

waynecochran 10y ago
I am admittedly naive on these matters, but I always thought that VAT is more efficient than a sales tax from the vendor's perspective and transparent to the consumer (an item costs $1.25 and you pay $1.25).
- kspaans 10y ago
  The main difference between VAT and sales tax is that VAT is paid by each stage in the supply chain (every time someone "adds value"), and reclaimed by charging it to the next stage up in the chain. Sales tax is charged only once, at the final point of sale to the consumer. The end effect is the same: the consumer ends up paying whatever % the tax is. The difference is in how it's collected. Sales tax is easier to evade because business-to-business sales usually don't charge sales tax. So you could wink at your customer and say they're a business and not charge them sales tax. With VAT everyone is supposed to pay it, so it's harder to evade (and consequently more expensive for governments to collect).