Earlier today, my buddy Ursula linked to this article, What You Need to Know, If You’re Relying on Your Payment Processor to Dig You Out of the VAT-MOSS Mess. If Ursula didn’t post quality content, I never would have clicked. VAT-MOSS? Mess? Obviously this was Somebody Else’s Problem.
Nope. It was mine. And apparently had been since 2006 when the Sixth Directive of the VAT was recast and these directives put into play. (Possibly earlier: one article noted that a similar arrangement has been ongoing regarding “businesses who are selling into the EU from outside, [and] this has been the case since 2003″.)
In a nutshell, this is a Value Added Tax (VAT) imposed by the European Union on providers of certain digital products. It is business-to-consumer specific, meaning the provider is responsible for the tax; and location-dependent, meaning the location of the consumer at the time of purchase determines how the tax burden will be allocated. “MOSS” refers to a “Mini One-Stop Shop”, or a store which is registered to participate in the VAT and which sells digital items to customers. The legislation goes into effect in January of 2015.
The non-nutshell version is extremely knotty and I’ve spent most of my Saturday yelling at my monitor about how if I wanted to study international tax law, I’d have a lot more money and wouldn’t be so invested in how international tax law was about to screw me over.
(If you want specifics of how the VAT-MOSS works, I recommend starting with this Q&A held by HM Revenue and Customs. It’s a good breakdown of most major issues. If, like me, you had one question–I am located in the United States, so does the VAT-MOSS even apply to me at all?–I can answer that for you. Yes. Whether the tax applies depends on where the customer is located, not where the content provider is located.)
The VAT-MOSS impacts me directly, as I sell PDFs direct to customers. In fact, since October 2014, PDFs of ebooks and bonus comics are my only store items available to overseas customers, because international shipping and handling costs have become prohibitive. (Not that I won’t ship if asked: just this past week, a reader in Estonia asked how much it would be to send a copy of MAKER SPACE to him. I replied that it would be more than the book. He very reasonably declined.) If I register as a MOSS, I could still sell overseas, but I would be responsible for everything required by the VAT.
I will now relink to that first article to show why voluntarily registering may be a sign that you are certifiably mad. It is also worth noting that the main point of this article is that your payment portal (e.g.: Paypal) is not a solution.
So. It seems I have three options.
1) Registering with VAT-MOSS and complying with their tax laws.
2) Restricting all of my digital products so they are no longer available to EU customers.
3) Use a third-party content distributor.
(Okay, okay, there’s a fourth option, which is to ignore the whole thing and hope it goes away. Shall not be doing this, because Legal Reasons.)
I’m not happy. I don’t sell comics or bonus stories anywhere but through my own store. The products look the way I want them to look, and I can accurately track sales. I’m already paying service providers (Big Cartel, Pulley, and the finance people), in addition to my own tax responsibilities. Going through additional service providers to do what I’m already doing will nickle-and-dime me to death.
Finally, I am extremely concerned about how this might affect my Patreon campaign. On the one hand, Patreon is arguably set up as a monthly donation service, rather than a subscription service, and all digital content set up and distributed accordingly. It is not a shop per se, and nothing is being sold. On the other hand, taxes. I think the VAT-MOSS will shake itself out for a few years before Patreon-like service providers are directly affected, but as I’m becoming increasingly reliant on Patreon, this is a cause of concern.
13 thoughts on “VAT MOSS and Taxes”
Hmm. Thinking aloud – could you not get a single reseller in the EU so you end up with one VAT percentage? Not that I know something like that exists, but EU VAT is only an issue you cross the border the first time – in-EU providers are generally already used to sorting out the VAT issues. However, I guess that’ll make things more expensive as your reseller needs to live too :(.
VAT is one of those pesky things that have not been harmonised, and as I’m about to set up a company I’ll have to work this one out too (or at least the guy we get to do the bookkeeping), because you don’t mess with the tax man – ever.
Sent from my iPad
From my initial reading, that’s what the third-party distributor is supposed to do. They act as the tax middleman, while keeping a percent of your sales to offset this tax. But since each country in the EU is responsible for designating their own VAT tax, that reseller would then have to identify each customer individually, then determine what is owed to each country…
It seems like a spectacular clusterpoop of intent and legislation.
I wonder how this works in regard to Canada
@ anglo From what I can tell, it works the same as in Canada. It’s determined by the buyer’s location, not the seller’s. Hell if I know how they expect to enforce this.
Why is “option 4” so crazy? If I do not live in the EU, I am not beholden to the EU’s laws, no matter how much the EU wishes it were so. So unless the country in which I *do* live in has laws saying I have to collect VAT for the EU, then I can ignore the whole thing without any legal repercussions.
The technically legal answer is that as a seller of electronic services to “non-taxable” (read: normal, non-business) customers located in the EU, there is a legal obligation to collect and remit VAT at the customer’s location. Practically, it is difficult for the EU to perform enforce actions on small businesses located outside the EU and unlikely that small business will be on the radar any time soon, if ever. That, however, does not relieve the seller from the legal obligation. Large businesses that choose not to register, collect, and remit may eventually run into…difficulties…as those liabilities will be uncovered during due diligence and will cost the business. Should that business ever decide to expand to the EU, those uncollected taxes instantly become a very real exposure.
While MOSS simplifies the reporting requirements, there are still 28 EU member countries with varying tax rates along with currency and local invoice presentation requirements. It’s a complicated problem that even large businesses are struggling to address. What I’ve seen is that companies of all sizes are evaluating the risk and making business decisions that best fit them, especially considering that there is just over a month until the rule changes take effect.
Globally, more countries are adopting this same kind of position with regard to the applicability of tax on electronic services and the obligation of non-established businesses to collect and remit tax. I don’t really see this going away any time soon.
For background, I’m a tax consultant in the US who works for an international accounting firm, most recently on the VAT 2015 changes. All of the above reflects my personal opinion on the matter and is certainly not tax advice. 🙂
Thank you for this!
Out of curiosity–can you tell how much of your Patreon patrons are European?
Only if they choose to make their location data public, or if they are in a tier that requires an address to ship physical items. Patreon is fairly good about keeping personal information private.This might (would have to?) change if Patreon becomes integrated into VAT-MOSS.
How will this affect Kickstarter & other crowdfunding campaigns?
Can you give me things for free & I just happen to make a donation to the same value? An exchange of gifts per-se?
There’s a point in the legislation that specifically addresses [DONATIONS], but it’s another layer of crap on this cupcake.
ETA: As for Kickstarter, we’re still trying to sort that out. A friend has a message pending with Patreon to figure out liability.