9 ms·

"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 sel

"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.
  - smackfu 12y ago
    It is definitely a lot harder to use this kind of tax avoidance if you are a European company.
  - danmaz74 12y ago
    I agree that the proper way would be unification, but that's impossible - the UK would be the first one to say no. They should "just" add a size limit or at least make it much simpler for companies to comply with the law.
    - cstross 12y ago
      Hitherto, the UK has had a threshold for mandatory VAT registration: if your VAT-able turnover (sales within the EU) exceed the threshold, you must file a VAT-1 and register, but if your VAT-able sales are below the threshold (e.g. you do B2B sales to customers outside the EU -- which aren't VAT-able -- or your turnover is just plain low) you aren't required to register. As of the current time, the threshold is £81,000 per annum turnover: arguably, if you're turning over that much, you can bloody well afford the bookkeeping costs. Unfortunately not all EU countries have a lower threshold and the new arrangements have a lower threshold for mandatory VAT registration of any amount -- a single €0.99 sale in Estonia and whoops, you need to be registered to collect and pay VAT in Estonia or via your own tax authority's One Stop Shop. If the £81,000 threshold applied to the new arrangement, nobody would be shouting. But as it is, this will kill a huge number of spare bedroom businesses and start-ups.
      - teamonkey 12y ago
        In the UK at least it's not difficult or expensive to register for VAT, but it is yet another barrier. Bear in mind that registering a company is trivial in the UK compared to some other countries. I registered my small business for VAT voluntarily when I was bringing in much less than 81k since I found that larger companies wouldn't deal with me if I wasn't VAT registered. Since I already had an accountant and used software for my bookkeeping the effort and increase in costs was negligible. What is difficult is charging a different VAT rate for every non-VAT registered individual in every country you sell to.
pja 12y 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.
- tormeh 12y ago
  This. It was about time they got started.
- oh_sigh 12y ago
  Does placing advertising on web property count as a digital good?
  - jkulmala 12y ago
    Yes, as said, they have pretty much covered everything. You can find some more detailed information here: 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 https://www.gov.uk/government/publications/revenue-and-custo...
humanrebar 12y 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 12y ago
  because it's much bigger than sales tax in any of the us states?
- pja 12y 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 :)
  - arethuza 12y ago
    Worth noting that if you sell shares in your own company (e.g. your start-up is acquired) you probably won't pay 28% CGT as you will qualify for some kind of tax relief - I paid 10% CGT on the sale of our company ~12 years ago because of Taper Relief, this has apparently been replaced by Entrepreneurs' Relief: https://www.gov.uk/entrepreneurs-relief/eligibility https://www.gov.uk/entrepreneurs-relief/eligibility
  - TimSAstro 12y ago
    Minor correction on income tax: 0-10K: Untaxed, 10-40K: 20%, 40K+: 40%,
    - pja 12y ago
chris_va 12y 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.

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.
- smackfu 12y ago
  It is definitely a lot harder to use this kind of tax avoidance if you are a European company.
- danmaz74 12y ago
  I agree that the proper way would be unification, but that's impossible - the UK would be the first one to say no. They should "just" add a size limit or at least make it much simpler for companies to comply with the law.
  - cstross 12y ago
    Hitherto, the UK has had a threshold for mandatory VAT registration: if your VAT-able turnover (sales within the EU) exceed the threshold, you must file a VAT-1 and register, but if your VAT-able sales are below the threshold (e.g. you do B2B sales to customers outside the EU -- which aren't VAT-able -- or your turnover is just plain low) you aren't required to register. As of the current time, the threshold is £81,000 per annum turnover: arguably, if you're turning over that much, you can bloody well afford the bookkeeping costs. Unfortunately not all EU countries have a lower threshold and the new arrangements have a lower threshold for mandatory VAT registration of any amount -- a single €0.99 sale in Estonia and whoops, you need to be registered to collect and pay VAT in Estonia or via your own tax authority's One Stop Shop. If the £81,000 threshold applied to the new arrangement, nobody would be shouting. But as it is, this will kill a huge number of spare bedroom businesses and start-ups.
    - teamonkey 12y ago
      In the UK at least it's not difficult or expensive to register for VAT, but it is yet another barrier. Bear in mind that registering a company is trivial in the UK compared to some other countries. I registered my small business for VAT voluntarily when I was bringing in much less than 81k since I found that larger companies wouldn't deal with me if I wasn't VAT registered. Since I already had an accountant and used software for my bookkeeping the effort and increase in costs was negligible. What is difficult is charging a different VAT rate for every non-VAT registered individual in every country you sell to.

pja 12y 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.

tormeh 12y ago
This. It was about time they got started.
oh_sigh 12y ago
Does placing advertising on web property count as a digital good?
- jkulmala 12y ago
  Yes, as said, they have pretty much covered everything. You can find some more detailed information here: 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 https://www.gov.uk/government/publications/revenue-and-custo...

humanrebar 12y 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 12y ago
because it's much bigger than sales tax in any of the us states?
pja 12y 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 :)
- arethuza 12y ago
  Worth noting that if you sell shares in your own company (e.g. your start-up is acquired) you probably won't pay 28% CGT as you will qualify for some kind of tax relief - I paid 10% CGT on the sale of our company ~12 years ago because of Taper Relief, this has apparently been replaced by Entrepreneurs' Relief: https://www.gov.uk/entrepreneurs-relief/eligibility https://www.gov.uk/entrepreneurs-relief/eligibility
- TimSAstro 12y ago
  Minor correction on income tax: 0-10K: Untaxed, 10-40K: 20%, 40K+: 40%,
  - pja 12y ago

chris_va 12y 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.