On the 1 January 2015 the laws regarding VAT across Europe will change, with any one selling digital content having to charge VAT at the rate of the country where the consumer of that content resides, rather than where the merchant is based, as has thus far been the case.
But chaos reigns. Speaking in a webinar, hosted by on-line VAT compliance specialists Taxamo, HMRC emphasised that it expect e-commerce platforms, payment service providers, web stores and online marketplaces to manage the technical aspects of VAT accounting for their merchants, when the new rules on VAT for electronic services become law.
What does this mean for telemedia companies? Well, hopefully nothing more onerous than a raft of extra paper work. For most PRS and PSMS services, VAT was taken by the MNO, so its up to them, not the service provider, to sort it out.
But there are some headaches. Services charged to Payforit now have to be switched to charge VAT in the country of service consumption, so billing companies are going to have to tackle this issue, which will make a simple task much more complex.
Determining the place of supply is also going to cause headaches with mobile users. A consumer may be looking at adult services on a mobile in, say Marbella, but since he has a UK SIM the VAT is UK rate. Working this out will be trickier and time consuming.
The record keeping is also going to be a nightmare, warns AIME MD Rory Maguire. “the MNO has to keep records of the parties that they passed the VAT over to and those parties have to keep records of their pass through etc… down the chain, so that HMRC can trace the money flow. The Merchant also has to send a receipt with contact details so that the consumer can get a VAT receipt if they wish. Inside Payforit, a receipt is sent for each transaction, so that requirement is in place.”
But spare a thought for the bigger players in the e and m-commerce markets. With only 20-odd days to go, customers of PayPal, eBay, Etsy and similar platforms are desperately turning to online forums to get clarification on how these services will implement the changes needed to make it possible to continue to trade legally.
“Platforms realise that they have an obligation to make sure they take on the tax accounting responsibility for people selling digital services,” said Andrew Webb of HMRC. “If after the 1st January, the position has been left unclear then of course it moves into, potentially a compliance issue that we and other tax authorities would have, with the platform, not with the individuals using the platform.”
Yet major services including, PayPal, eBay and Etsy are still to make statements outlining how they will take the necessary steps to enable businesses using their platforms to comply with new tax law and account for VAT due via the new MOSS (Mini One Stop Shop) system that HMRC have established to simplify compliance.
Replying to concerned users in the Etsy.com support forums Patrick, manager of international support for Etsy.com said, “I’m sorry to say that we still have no further news to give you regarding this issue.”
PayPal is offering its customers who know how to use its web developer tools just one of the two pieces of location information that the law require for every transaction under the new rules. They are not however offering a way for customers to comply through its normal user interface.
eBay has questions being posed in their support forums but have provided no obvious public statements on the issues raised.
“We welcome HMRC’s clarity on the need for the online platform providers to take responsibility for facilitating merchants to trade tax compliantly,” said John McCarthy, CEO of Taxamo. “However, with the increased level of business awareness, and such clarity from the authorities, there really is no excuse for online sellers being left in the dark over how the platforms and payment services that they rely on are going to deliver what the law requires in order for them to trade legally. With 23 days to go there is still time for the platforms to communicate on how their systems will work to meet the requirements, or should a compliant service not be in place, to integrate an off-the-shelf compliance system, such as our own, to immediately support merchant compliance.”
What are the changes to VAT that will take place on the 1st of January 2015?
From January 1, 2015, suppliers of broadcasting, telecommunications and electronic services (BTE) to customers in the EU will have to account for VAT based on where their end customer (non-taxable person) resides. The changes are based on Council Directive 2008/8/EC (the ‘EU VAT Directive’).
In principle these rules already exist for non-EU suppliers, the key change is that EU businesses must now account for VAT on B2C cross-border sales from January 1, 2015. Only B2C sales are affected.