I don’t like writing about VAT or as North Americans call it Tax rules. But that’s what this post will be about. It’s about more than just the boring new rules imposed on digital traders but also the general state of things for a small entrepreneur on the the internet. Or kids…

Imagine; you have a son who has a band and they’ve put their music on the internet for sale. Awesome! Now go to the HMRC¬†to become a VAT (or your local equivalent) registered company. Collect personal data from the people buying your MP3’s. Now make sure you record the location of the purchase so the local VAT can be added correctly. Keep these records according to the law for protecting personal information and possibly register as a company collecting personal information, depending on the country you live in. Keep the records safe for 10 years so the member states can come and request the records at any time. Or just let your son and his mates take care of bizz right ūüėČ

VAT MOSS, Another EU mess…

Frans Timmermans, our (Dutch) Vice president of the European commision gave a welcome speech saying he was sick and tired of too much regulatory madness while not solving any real issues. He talked about the much laughed at vacuum cleaner rules, as the EU wanted to cap the power on the vacuum machines to save the environment. Poor English thick rug lovers, how will they clean their thick rugs?

Although we do not (directly) elect the EU parliament, the English can put pressure on their representative to allow great sucking power on their machines. But if you thought this VAT MOSS thingy just affects¬†people living in member states of the EU…¬†Well do you have fans buying your digital downloads in europe? I am afraid you will have to register too! Wherever you are.

But why?

Well there must be a good reason for all this. There is, in a way. When I emailed a bunch of MP’s of my Dutch government¬† I got one reply saying that he knew about the VAT MOSS rules, but did not know about the practical implications it has on people like me. He was only aware that the rules were proposed to tackle what we call VAT evasion. Legally making constructions to minimize the VAT being paid at any given point in the rather complex chain. Amazon and the likes used Luxembourg for the sale of digital goods as they only charge you a mere 3% VAT. In the old rules this was legal. So they changed the rules to make the location of the purchase determine to what country you should pay VAT. Now we needed a system that will allow VAT registered businesses to ‘easily’ deal with one entity to pay each country their VAT. Remember this is instead of simply paying VAT in your and or your business’ country of residence. There is also a form protectionism involved as the EU is increasingly seeing low wage and low tax countries selling goods to european consumers. Naturally this is not what they call it, as it¬†has a dirty taste and rightfully so.

Confused Yet?

Juncker the President of the European Union and former Prime Minister of Luxembourg was very keen to get Amazon to register and pay their taxes in their country. They were so close the CEO and the PM even saw each other as business partners. So wait a second here… The EU has introduced new rules to prevent Amazon and the likes (Amazon was even mentioned in the email from the MP as the reason they voted for the rules)evading taxes. Meanwhile the preferred business partner of Amazon becomes President of the EU. Seems legit…

Starting to get annoyed yet? Well in a lovely gesture of irony Amazon will be glad to help you with retrieving your customers personal information and store it safely for 10 years and charge you a percentage of the sale so you can safely keep selling digital goods to and from the EU.

Bandcamp

After emailing Bandcamp earlier this week I got this reply today;

Does Bandcamp handle European Union VAT (Value Added Tax)?

Effective January 1, 2015, Bandcamp helps artists and labels collect and pay VAT on digital album and track purchases in the following ways:

  • For each purchase that includes a digital item, Bandcamp automatically determines if the buyer is based in an EU country.
  • If they are, we calculate the proper VAT amount and add it to the order total. As usual, the proceeds from these transactions flow directly to you (see Pricing for more details about how that works).
  • If you know you fall below your country’s VAT exemption threshold, a setting on your Profile page will allow you to disable VAT collection for domestic purchases.
  • Effective March 1, 2015, a downloadable VAT report will be available on your Tools page. This report, organized by calendar quarter, will include the data necessary to submit a VAT return for your Bandcamp sales.

To report and pay tax for sales in which VAT was charged, EU-based artists and labels:

  1. Register for MOSS (or “Mini One-Stop Shop,” a website used to report and pay cross-border VAT) in your country. UK MOSS sign up is here. In some countries this might involve becoming “VAT registered” first. See your country’s MOSS site for details.
  2. Each quarter, submit a VAT return using MOSS and pay the tax owed. Your Bandcamp VAT report includes all the information needed for the return, including your total taxable sales broken down by country, as well as the evidence used to determine the buyer’s location for each sale.

Under our current system, in which buyers pay you directly, the above is the easiest we can make it for sellers to meet their VAT obligations. In the first half of 2015, we plan to make payments for digital transactions flow through Bandcamp. Among other advantages, this will allow us to take care of everything related to digital VAT, including tax reporting and payment.

 

So big companies will solve this right?

Ok say you want to forget about the fact that the reason this set of rules was imposed on us is because of the big corporations. Say you want to sell digital goods via one that takes care of the whole thing for you. You will be paying for this service. Your customers (fans) will pay for this service. Because Amazon, Amazon. And as you can see a big guy like Bandcamp does not offer an all in one solution (yet) and you will need to register!

This blog post is mostly to inform my students and follow micro entrepreneurs on the internet not (fully) aware of the implications of the new rules. For more information please read one of the following resources:

http://www.ft.com/intl/cms/s/0/2d77e358-74c4-11e4-a418-00144feabdc0.html

http://rachelandrew.co.uk/archives/2014/11/25/how-small-companies-and-freelancers-can-deal-with-the-vatmoss-eu-vat-changes/

http://www.theguardian.com/world/2014/dec/10/juncker-amazon-luxembourg-eased-tax-expert-comfort