The EU VAT Action Campaign – recent and upcoming events

Last Monday saw the EU VAT Action team represented for the first time at the HMRC Working Group meeting to discuss implementation of the new VATMOSS system. You may rest assured that we highlighted the ongoing problems which microbusinesses are having with compliance, 3rd party platforms and the VATMOSS system itself, not to mention the widespread failures in European implementation.

Since he’s my constituency MP, I was also able to meet David Cameron last Friday, aiming to make sure he realises what the current problems are as well as their wider and longer term implications. It was a positive and constructive meeting, with every indication that the PM understands the seriousness and complexity of this issue.

While we are definitely making headway convincing the UK government, we still need to convince the finance ministers and key officials in other EU member states that this same trouble is heading their way. They just don’t know it yet because their own digital businesses don’t even know about the new regulations, still less about how impossible the law is to work with!

We need as many non-UK responses to the EU VAT Action survey as possible, as soon as possible.

Please spread the word. We’re already compiling country-specific reports from the data we do have – and the picture in the Netherlands for instance, is horrifying.

We want as many people as possible to contact the EU Commission’s Taxation Department with a personal complaint and also to submit comments to the OECD’s current consultation on implementing this sort of taxation.

Sounds daunting? We’re putting together clear guidance on how to go about it and on Thursday 12th February, we’ll be having a major online push to inspire as many people to act as possible.

On Wednesday 11th February I’ll be part of a Google Hangouts live online event at 7pm GMT organised by the The Alliance of Independent Authors to discuss the new regulations, VATMOSS and associated issues.

I’ll be particularly focusing on the campaign and the actions everyone can take to help. The more voices raised, the better the chances of being heard!

If you can’t make that particular time, you’ll be able to access a recording afterwards – check back for linkage in due course.

Could the EU Commission be legally challenged for basing digital regulations in 2015 on 2006 research?

A point that’s been made time and again in general terms, is how vastly different the digital world now is, compared to the situation in 2006 when the new EU VAT on digital sales regime was first being discussed.

Adam Dobay has gone further and looked at the specifics, writing an eye-opening post for the EU VAT Action Campaign Group on Facebook.

With his full permission, I’m posting his research here – and both he and I would be very interested indeed in further information and analysis by those with more detailed technical knowledge.

Similarly I’d very much like to know any informed – albeit informal – legal opinions on whether or not these regulations can be challenged as not fit for purpose or something similar.

As Adam writes –

“”A 2006 EU document is not suitable to regulate digital businesses in 2015” — research [UPDATED 01.26]
I’ve made some very basic research concerning just how vastly different the internet was in 2006 when the EU regulation resulting in today’s rules was on the table — and how surreal it is that us entrepreneurs and all the member states have to draw definitions from something this outdated.

The research was prompted by Les Howard’s article where he states “the definitions of telecommunication, broadcasting, and electronic services are found in the Implementing Regulation 2006/112/EC, arts 6-7. Rather than fret about the definitions applying in different member states, read the relevant article”.

The following is meant as a resource for the EU VAT Campaign Group as well as websites and bloggers who want to highlight differences in a variety of fields. The list is unfinished and the process of adding citations is ongoing — I am continually updating this post as I find new data from 2006 and today to compare (harder than it sounds). If anyone has knowledge of better or more relevant data, please notify me in the comments below.

Feel free to copy, quote, and use in blog posts and other publications, citing Adam Dobay, digital entrepreneur, http://www.cabbitsupreme.com as the source. Thank you!

INTRODUCTION
Concerning the digital marketplace, referring to a 2006 piece of writing in 2015 is highly erroneous. One huge part of the problem with definitions of digital products and services is exactly the significant number of ways in which the internet and digital entrepreneurship have changed in a mere 9 years.

THE INTERNET AND ENTREPRENEURSHIP IN 2006 VS TODAY

Basing regulations on how the Internet looked in 2006 is actuallyreferring to a time when:
– the number of internet users was 35% lower than today [1]

– mobile broadband penetration was 50% lower than today in the EU [2]

– the EU e-commerce market was was 66% smaller than today [11] [12]

– the very concept of “web 2.0” and social networks was in its infancy [3]

– blogging still dominantly meant people keeping personal journals online [4]

– only 5% of blogs concerned business at all[4] (compared to 8% corporate and 13% entrepreneurial blogs in 2014[5])

– 8% bloggers made any money through their blog[4] (compare today’s 17% of bloggers who earn full-time income[6])

– making money from a website almost exclusively meant displaying banner ads; blog content marketing, affiliate marketing, video ads, subscription services, membership sites, and digital products did not exist as they do today

– Youtube was less than a year old and was just being bought by Google [7]

– the concept of vlogging was in its infancy, and enterpreneurs using online video as a platform did not exist

– digital music distribution was only 3 years old and was restricted to Apple [8]

– one year before the Kindle’s debut, the e-book market was non-existent [9]

– e-learning solutions, and online courses did not exist in the sense they do today

– the concept of crowdfunding would not kick off for another 2 years [10]

– one-click digital shopping cart solutions did not exist

– digital sales solutions easily accessible and widely available for entrepreneurs did not exist
– it was not commonplace for users to buy digital products directly from entrepreneurs and small businesses
– the concept of apps for phones would not exist for another 2 years (the iPhone itself would not debut for another year)
– purchasing on mobile devices was limited to polyphonic ringtones

BOTTOM LINE
In 2006, the digital products and services that entrepreneurs sell today did not exist.

The concept of entrepreneurs selling digital products directly to their consumers without third parties did not exist.

The concept of digital microbusinesses did not exist.

The above list could go on for a long time.

A 2006 regulation is not suitable for the 2015 internet landscape.

A 2006 regulation is not suitable for digital microbusinesses.

REFERENCES
[1] International Telecommunications Union statistics, http://bit.ly/1tcwY1P
[2] ITU statistics, http://bit.ly/1CpMd9p
[3] One of many papers defining web 2.0 by Catherine Styles, http://bit.ly/1JoHzdW
[4] Pew Internet & American Life Project, http://pewrsr.ch/1C0C30n
[5] Blogconomy Stats 2014, http://bit.ly/1iTeC0H
[6] Lifehacker, 2014 http://bit.ly/1iebTdk
[7] http://nbcnews.to/1CpMoBF
[8] Natalie Klym, MIT, 2005, http://bit.ly/1BpUGYU
[9] T.D. Wilson, Information Research, 2014, http://bit.ly/15BL4it
[10] Freedman and Nutting, 2015, http://bit.ly/1pM6JqI
[11] European Commission, 2009, http://bit.ly/1LajYzw
[12] European B2C Consumer Report, 2014, http://bit.ly/1r5H3rV

Should HMRC and HM Treasury be the ones explaining themselves in court?

Let’s have a look at the Tax Information and Impact Notes published in December 2013, signed off by David Gauke, Financial Secretary to the Treasury, specifically relating to this particular area of indirect tax.

Now, there are all sorts of holes to be ripped in this particular document and its reasoning, by far better qualified folk than me. Meantime, two things catch my eye in the section dealing with VAT: place of supply and the introduction of the Mini-One Stop Shop starting p.133 of that document.

Equalities impacts. The Government has no information about the protected equality groups of any individuals who may be affected but no specific impacts have been identified for any protected equalities group.

Really? Absence of evidence is not evidence of absence and the point’s been made time and again that the smallest online businesses are a way out of benefits for the housebound, carers, the retired and the disabled. Not to mention the unemployed, who Job Centres actively encourage to use their skills to go self-employed. Using digital skills is one realistic way to do that because you can set up a business investing time instead of money.

It also doesn’t look like HMRC have learned anything from the legal judgement that’s already gone against them, as reported here, stating that mandatory online VAT filing is breach of taxpayers’ human rights. There were no exemptions for those who found online filing difficult, for any reason.

I’m guessing their first argument here would be that anyone running an online business must self-evidently be computer literate. But there’s a world of difference between running a small online business using a free plug-in to enable downloads alongside a PayPal ‘Buy Now’ button and having to manage a e-commerce system fully integrated with PayPal’s API, with all the costs that entails – and that’s before we get on to the record keeping and reporting issues.

Did HMRC ever actually look into any of this beyond making the most superficial assumptions?

Then there’s the final note on ‘Other Impacts’.

Small and micro business assessment: small businesses that provide e-services direct to customers in other member states may incur additional costs, although these are expected to be partially mitigated by MOSS.
Businesses currently unregistered in the UK who choose to register for MOSS in the UK will also have to obtain a UK VAT registration and their UK supplies will therefore also become liable to VAT.
Other impacts have been considered and none have been identified.

Really? None? I really would dearly love to see the people who set all this up explaining in court just how they went about considering other impacts and how exactly none have been identified!

And those costs little businesses may incur which are expected to be partially mitigated? How about that for vague and conditional language? Was there any actual research done here? With actual y’know, numbers? And where and who exactly did this information come from?

Because we know full well they didn’t even go as far as consulting, let alone notifying the UK’s 370,000+ registered sole traders. That’s registered with HMRC so it’s not as if they had far to go to find out who they were and there are already systems in place for notifying them of tax changes!

Well, I am not a lawyer, nor anything close, and sadly I don’t have the funds to pay anyone who is to launch any legal challenge along these lines.

So we have to carry on challenging this appallingly flawed legislation in letters to our MPs and MEPs.

And as far as that HMRC and HM Treasury impact assessment goes? You can use this particular website to register your own disapproval of David Gauke offering this appallingly complacent and ill-informed document as an answer David Morris’s written question of 19th January, asking for a comparative assessment of the level of administrative burden the EU VAT place of supply rules places on (a) micro businesses and sole traders and (b) large multinational companies.

Click through and look at the right hand side of the page. Does this answer the above question? If you don’t think so, click on ‘NO!’

How long before the first court case over VATMOSS and the new digital EU VAT?

Is it going to be one of the tiny businesses and solo e-commerce traders in the UK who are desperately trying to find a compliant solution, only to discover the best currently on offer are semi-compliant? What’s going to happen on the 1st of July when the 6 month grace period on collecting two pieces of customer location data offered by HMRC expires – and people find themselves tied into a system that can only collect one?

Will it be someone who’s read the inaccurate newspaper and media reports of that grace period and believes the whole legislation has been suspended for six months? Because it hasn’t.

Will it be someone who’s read about someone else’s cunning ‘work around’ and believed it, without checking with HMRC themselves?

Will it be someone who’s made their own judgement on their business’s level of ‘manual intervention’, only to discover somewhere down the line that HMRC don’t agree…

Will it be someone who’s decided to opt out of all the confusion by barring all sales to other EU countries, only to discover this falls foul of discrimination legislation? At best that’s a very grey area.

Will it be someone who’s aware of discrimination legislation and has decided that they are still going to bar EU sales, because they’re going to rely on the ‘unreasonable burden’ get-out clause in there. Only to discover that HMRC don’t agree.

Because personally I can see the authorities coming down hard and fast on any such argument. If they allow that sort of precedent to stand, this whole system will quickly become unworkable.

Will it be someone who’s assumed that HMRC’s definitions of what is and isn’t an electronic service covered by these regulations apply across the EU? Because they don’t.

Not that there’s any centralised way of finding out what Bulgaria, for example, have decided about the digital supply of knitting patterns by downloadable pdf.

And since HMRC have already contradicted themselves and changed their minds several times, it’s entirely possible there are people out there relying on outdated information which could cause them problems later on.

Though let’s give HMRC their due. They are at least communicating with those affected and there are resources online to find. Other tax authorities across the EU are playing catch up at best, and at worst, people in France, Germany, Sweden, Finland and the Netherlands are getting contradictory and confusing answers, depending on what whoever happens to answer the phone happens to think.

And those are only the countries I’ve seen information from. Not from their tax authorities, you understand, but from personal stories on Twitter and Facebook.

So how exactly am I supposed to find out anything definitive for myself, especially relating to countries where I don’t even speak the language. What’s the Romanian verdict on where the balance lies between personal intervention and an automatic download for a training course delivered part by webinar and part by ebook?

Will we someone prosecuted for applying an out of date VAT rate or one that doesn’t apply under the particular regional exception where their customer happens to live?

The official EU pdf detailing VAT rates comes with a very prominent disclaimer:

“The purpose of this document is to disseminate information about the VAT rates in force in the Member States of the European Union. The information has been supplied by the respective Member States, but part of it has not been verified by some of them yet. The Commission cannot be held responsible for its accuracy or completeness, neither does its publication imply any endorsement by the Commission of those Member States’ legal provisions.”

Will we see someone prosecuted in France for believing the widespread assertion that Autoentrepreneur status which bars them from levying VAT takes them out of the scope of this legislation?

Apparently the French VATMOSS portal has now changed so that Autoentrepreneurs can register which they couldn’t do up till now. I wonder how many people who tried and were told the system didn’t apply to them will have heard about this?

Will we see someone in Spain prosecuted for believing business media reports there that the same turnover thresholds apply for digital sales as for physical goods. And that’s not just a Spanish misunderstanding. It crops up time and again in queries from across the EU.

Will the first person in court be an American seller, or one from Australia, New Zealand, Canada – or anywhere else in the world – who’s decided that they’re simply not going to comply. Where does the EU have the right to dictate taxation to them? Only to discover that their own authorities have actually signed agreements to enable this sort of thing…

And onlookers wonder why small e-traders are deciding the safest thing to do is just shut up shop.

Well, there is more you can do. Check out the information on writing letters and emails here.

Do make sure to visit EU VAT Action for information, resources, calls to action and other ways you can make your voice heard!

For those of you on Facebook, there’s EU VAT Action Campaign Group – and associated foreign language groups are now being established.

Making ourselves heard in Brussels!

Okay! The pressure we’ve been applying through EU VAT Action – along with every letter and email you have all been sending – is getting results.

We convinced two London MEPs to present our data and case studies to Donato Raponi, Head of VAT at the EU Commission.

As a result he’s agreed to meet representatives from our group, and others, within the next ten days.
More details as arrangements are finalised.

Meantime, help us keep up the pressure with those letters and emails to your MEPs, MPs, trade bodies, professional associations…

Let’s make our voices heard!

Full update from EU VAT Action

What the companies who *did* know digital EU VAT was coming thought, according to KPMG

This far we’ve been focusing on the dire consequences of the new EU digital VAT legislation for the small scale traders who were never consulted or considered by the EU Commission, HM Treasury, HMRC – and just about everyone else – primarily because they had no idea this particular commercial sector even existed.

Larger companies, especially those who were lucky enough to belong to the voluntary associations and other business bodies that HMRC chose to brief, and also those who can afford to pay the sky-high fees of multinational accountancy firms were informed and indeed consulted.

You can read KPMG’s 2014 report on their readiness survey here.

Let me flag up a few key points for you.

Pricing strategy
Over 75% of businesses surveyed are considering increasing their prices from 2015.

Compliance and costs
31% – nearly one in three businesses with turnover of £50m-£100m do not believe that they will be ready to comply with the changes by 1 January 2015.

Commercial strategy
61% Of businesses with turnover of £50m-£100m are considering reducing the number of EU territories into which they sell affected products.

Education and awareness
62% Of small-sized businesses were not aware that the changes to VAT are happening.

And these are businesses who knew it was coming and could reasonably be expected to have the resources to cope.

How exactly are the smallest scale traders supposed to manage?

I have another question. Who in any kind of relevant government department would have seen this information? If not, why not?

Or do firms like KPMG just post this sort of stuff online, in the manner of someone chucking a message in a bottle out to sea? In hopes that someone somewhere might pick it up…?

Please feel free to use this in letters you are writing.

Independently publishing ebooks in the UK – what’s changed since 1st January 2015?

In broad brush strokes, here’s how things have changed, thanks to the new EU VAT laws on digital cross-border sales, for any UK author or small press independently publishing ebooks. By which I mean not just handing everything over to Amazon KDP. Bearing in mind almost all these people are doing this work in the evenings and at weekends, alongside the job that pays their bills. For whom reaching the VAT threshold with their business has never been a possibility – and they’re perfectly happy with that.

Up to 31st December 2014

Write your book and prepare it in epub and mobi formats, spending your own time and skills where possible, and money where you must, to buy in help, to get it copy-edited and proof-read, formatted, and source cover art and copy.

Quite possibly use a crowdfunding platform such as Kickstarter or Indiegogo to raise the money you need to do all this.

Decide if you want to use ISBNs, to benefit from your book being fully catalogued by libraries and databases, more easily found in searches and being quickly, provably your work in cases of copyright infringement. If so, buy some ISBNs. Not cheap but you can really bring down the price by buying in bulk. Then you are at least set for future projects.

Upload your book to Amazon.com to use the world’s biggest book market place. That automatically puts your book on sale in all their stores.

Bearing in mind that involves quite a bit of administration, including proving that you have the legal right to actually publish the book if you’re a small press rather than the author personally.

Upload your book to Nook and Kobo and Google, to give people who don’t want to use Amazon for whatever reason a choice. And to give yourself options if Amazon decides to do something odd like de-list whole swathes of books for no readily apparent reason. You know it happens after all.

Sort out the administration required to have a US Tax ID or acceptable equivalent if you don’t want all these sites to withhold 30% of your income from US sales just to keep the IRS happy.

Bearing in mind that using all these sites costs you a hefty percentage of your book’s price, under their non-negotiable terms and conditions, subject to change at any time as they see fit.

Remind yourself that if any of those sites’ those terms and conditions become outrageous, you can always point readers towards buying copies direct from your own website.

Have a look at iTunes and the general small-business-user unfriendliness of their terms and conditions etc. Quite possibly decide not to bother since iPeople can always buy epub copies direct from your own website.

Have a look at other independent, specialist ebook sellers and come to mutually acceptable terms with the ones most suited to your particular book’s genre and target audience.

Use PayPal’s ‘Buy Now’ button as your payment gateway (available in 203 markets and 26 currencies) and a free, simple e-commerce plug-in so you can offer direct sales from your own website.

So that should cover pretty much everyone who wants to buy your work, right?

While you won’t sell nearly as many books direct as you do through the big platforms, you will benefit from getting all of the money and getting it straight away rather than waiting for the 4-6 weeks it takes for the big platforms to pay revenue through to you.

So it’s been quite a bit of work, but that’s been manageable to maximise your potential income.

After 1st January 2015

Contemplate the additional costs now required in time, software, payment processing fees etc to continue with direct sales from your own website, now that you must gather 2 pieces of non-conflicting location-confirming data (which in practise means you must collect 3) to enable you to calculate, apply and collect the correct VAT applicable in a customer’s home country.

Realise the practical and technical difficulties of doing any of this in anything approaching an accurate or verifiable way. Have the people who put this system together ever actually used the Internet?

Realise there are over 75 different VAT rates in 28 EU member states (plus internal regional variations) only officially available as a pdf from the EU Commission updated every 6 months. But you know you saw something in the news quite recently about some country in Europe changing their VAT rates on something or other – but you cannot for the life of you remember the details or where you saw that.

Find the most recent EU Commission VAT rates pdf. Notice the prominent disclaimer “The information has been supplied by the respective Member States, but part of it has not been verified by some of them yet. The Commission cannot be held responsible for its accuracy or completeness, neither does its publication imply any endorsement by the Commission of those Member States’ legal provisions.” So that’s reassuring.

That’s before you consider how to go about meeting the 10 year data storage requirements and the need to complete quarterly VATMOSS returns to account for your EU cross-border sales where you are now acting as an unpaid tax collector for HMRC.

Do you really want all that extra administration and worry, when every country seems to be interpreting these regulations differently? Plus those definitions seem to change every time you try to check?

Never mind these hassles. Most likely realise that the additional costs simply make it uneconomic to continue with those direct sales which have never been the majority of your business, even though it’s definitely been useful additional income.

Assess how much longer it will now take for you to recoup the upfront costs of the books you have already published and/or save up enough to cover the costs for producing future projects.

Give up on using crowdfunding to finance new projects as you discover no major crowdfunding platforms support the new VAT legislation.

Adjust your business plans accordingly. Decide if your business is still viable.

Consider the workarounds suggested, such as processing orders via email and sending digital files to each individual customer. Realise how quickly that will become unworkable above a minimal level of sales. And may be illegal anyway as some countries are now deciding that manually emailed files do still fall within the scope of this legislation.

Assuming your customer’s inbox even accepts files of the requisite size and your own ISP doesn’t decide you’ve suddenly become a spammer when your pattern of email use changes so markedly. Wonder yet again if whoever dreamed this up actually uses the Internet.

Consider the helpful suggestion of posting out your books on CDs or USB sticks. Right, that’ll work because there’s a CD drive or standard USB port on every tablet or phone – NOT. Stop laughing some while later.

Okay, what about SD cards? That might work. But all these things have to be paid for up front, in bulk if you want them cheaply, plus postage and packing and then there’s the time taken making trips to the post office…

Oh, come on! What customer is going to bother ordering copies of books to be sent on digital media through the post, with all the risks of stuff getting lost or damaged, when they can just go to Amazon, Google Play or Kobo and get an instant download?

Get serious. Wish whoever dreamed this up would get serious.

Find out how many of those specialist online booksellers you’ve been working with so far have no idea what this is all about, thanks to the abysmal way this has all been communicated. Discover how many of those based outside the EU have decided their simplest option to escape this mess is to abandon sales into the EU entirely.

Most likely decide that your only realistic option is now to only sell through 3rd parties. So you’ll be giving up that hefty chunk of fees on all your income instead of on just most of it.

Take a moment to contemplate the irony of a new system designed to stop the big digital corporations gaming the tax system having the effect of consolidating their dominance of e-commerce.

Maybe indulge in a little conspiracy theorising. Did Amazon etc realise the benefits they would reap, to offset losing the Luxembourg-based taxation arrangements which have enabled their predatory pricing? Because they certainly do use the Internet and understand how it works. Just look how much easier life already becomes with every step an author takes to hand control of their epublishing over to Amazon…

Meantime, back in the real world, give up on Nook completely when you realise it’s now impossible to set the single European ex-VAT price they ask for which also enables you to meet separate German and French retail price maintenance regulations.

Realise, quite possibly for the first time, that Google Play only makes books available for sale in 57 countries. So what about everywhere else? Okay, granted, the chances of you selling an ebook in a lot of these countries is pretty remote. But at least there used to be a chance. Now that’s gone.

Take another look at iTunes and wonder if there’s any way to find out how many of your direct sales used to be to iPeople. Is it worth tackling their system now?

Realise that iTunes only sells books in 51 countries, to people with credit cards registered in a subtly different list of 54 countries. You can only offer books to the remaining 104 countries they list for free. Realise that list includes some pretty big countries like Russia as well as smaller ones like Croatia. Those particularly catch your eye because you know your books have keen readers in both.

Look at the list of 57 countries where people can apparently access Kindle content, according to the Amazon.co.uk website. It says to visit ‘the following page’ to find out about what people in countries not listed can do. Er, what following page? There’s no link or anything…?

Discover that when your books were tax free you could enter one price and rely on Amazon to adjust prices to match current exchange rates. But now Amazon wants you to enter tax inclusive prices in some countries (with different rates) and tax exclusive prices in others. Oh lovely, yet more work.

Read some stories on the Kindle User forums about having problems buying Kindle content depending on where you happen to be living or travelling, if that doesn’t tie up in the right way with the country where you bank or where your Amazon account is registered.

Realise that the chances of you selling an ebook in what looked like unlikely countries aren’t quite as remote as you thought.

Should you put a note on your website offering to post these people having trouble getting your books a CD, SD card or USB stick? Um, not really because if HMRC change their mind yet again and decide this isn’t a workaround, you’ve just convicted yourself of tax fraud.

Be realistic. There’s no point offering to post CDs anyway because these people will be getting your book so much more quickly and easily in an illegal download from a pirate site, won’t they?

Well, at least Kobo reckon to sell books in 190 countries. Keep your fingers crossed that their market share increases.

Read some EU pronouncements on the importance of the digital single market and the value of the online knowledge economy to employment growth and wealth creation.

Wonder if these people actually talk to each other, ever, at all, let alone talk to somebody who has the first clue about how the Internet really works in this day and age.