And again, the European Commission has adopted and accepted some laws during the summer holidays, that will have subsequently effect on every administration of businesses which sells electronics, software and telecom products towards end-users in the connected states of the European Union.Oostdam-VAT-BTW-ZOLL-picture You can almost wait for it during the summer season. Lots and lots of organisations, local governments, and country administrations seems to make a habit of adjusting laws in the summer nowadays. I guess they assume that these months they get the least resistance or everyone is missing the impact due to the holiday season. This article has been translated from the original dutch article and discusses the upcoming VAT changes for all the sales towards end-users (customers) in the European Union, related towards electronics, software and telecom products and services. These changes will have a large impact on businesses, e-commerce and web shops that deliver these, from all over the world. That is directly the reason that some of my direct friends asked my to create this English translation. Every businessman doesn't want to have problems with their accountants and with their countries tax department. Nobody is looking for problems with additional assessments I guess. And do you really know which tax rates all the European countries have? Are the tax rates different?  I didn't and had to look it up. Did you knew? Awesome if you could! Actually, I do not understand why major news networks and broadcasting stations hasn't picked this up yet, and spread the world. Well,.. perhaps this article will be shared so much that this will be happening in the next months. The impact of this new law is rather heavy and every business, selling some things in one of these categories will feel the administrative impact of it all over the world. 

It says it all in this publication about taxes from the European Community.
(http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm)

Just read my remarks and examples underneath and think a little with me about the impact. If I missed something?  
Please give me a direct message on twitter and I will check it and adjust this page with it. 


Selling to consumers from outside the European Community:
This is likely to change for all European residents in Europe. And it ain't funny and will cost you probably more. Although, with the parliament, there are still running discussions about branches from businesses from outside the EU with branches in some European countries. Actually, my best guess is that that discussion will end soon, and you wouldn't like it. Your invoice will be higher as per 2015 as the new default rule is that taxes has to be paid and charged for in the countries where the consumer resides. For instance, do you have a subscription on HBO or Netflix? These are Us companies but as of 2015 they have to charge you with the VAT rate of 21%. Ha, ha, I bed the increase will be at least 25%! US companies will be forced to charge you the VAT and,.. knowing how it works, we as consumers will pay the price for it.


Selling from the EU to consumers outside the EU:
There are no changes here. The tax changes are only about consumers that reside in the EU. Selling electronics, software and telecom products from Europe to to rest of the world will be excluded from VAT charges The EU seems very strict internally, but much more friendly for end-users in foreign countries.


Shops through the EU countries:
Are you selling an electronics, software or telecom product in you shop, and someone from another country wants to buy something? Lucky you! Likely, you can assume that the product will be used most of the time in the customers home country. You then have to check from which country that customer is from, in order to charge him/her the correct VAT amount. Remember, this law is only applicable on electronic, software and telecom products. Is the customer an European citizen? Than you have to charge him/her with the VAT rate of their home country. A USB disk, a TV, Phone, game or something like that,.. it is due to the VAT rate of the country the customer resides in. Remember, this law has no effect on food, drinks, fruits or other products. I smell some difficulties on the checkout registers already. 


Phone calls and telecom services in the EU:
This one is going to be funny and an absolute administrative disaster for companies. I explained the new law earlier above and mentioned the URL also, you can check it out yourself there. Just read it very carefully and draw your conclusion. It says clearly phone calls in another European country should be charged with the VAT rate of that country. That funny when your travelling through Europe as I often do. Even more complex if you are running a business. You might end up with up to 5 or 6 different VAT rates on your invoice a month later when you have been abroad. Even funnier if you want to give your boss a declaration of phone calls done for the business during your holiday. That going to be an administrative mess. 


Settle VAT from (other) EU countries:
This one is also nice. Most organisations are settling their tax declaration on a quarterly basis. VAT that has been paid in foreign countries, think about this for a brief moment, can mostly be set off with local tax departments, but often there is a minimum threshold to the amount. This has been done to reduce the administrative work load. As the threshold is often around € 10.000,=. most of the people will never reach this limit, unless you buying some expensive machinery, cars and so on. This will only lead to grabbing the paid VAT in other European countries and putting it on the large stack of the home country. The risk?  Rather small, tax audits on large companies will be the first to experience this. Mid- & small sized companies will have hardly any annoyance from it, at least for the first 2 years. Lack of competences, the exchange of data between EU countries, reduction of inspectors and control possibilities are making this almost impossible. Just settle it in your home country is preliminary my advise. 


Privacy:
This might become an issue. If you are selling electronics, software or telecom products, and you want to obey to the law, is it allowed for you to ask a customer for his passport in order to verify from which country he's from so you are able to charge the correct VAT rate?  I'm very curious how this will develop. For instance, I own an Azure account from Microsoft. The data and virtual machines are running in the Netherlands and sometimes in Ireland. I mainly use these machines from the Netherlands, Belgium and France, and only sometimes from Denmark or Germany. Usage should be charged with various VAT rates, but it seems almost impossible to do. And what will happen if I move the actual storage towards the United States? A'm I fully VAT free then?  I guess, I'm going to retrieve the full specified invoice somewhere in February or March 2015. In case you think you still have some privacy in the electronic world? Forget it! They all know more about you already than you can ever imagine. It will only getting worse.


Some general examples for companies:
Underneath some extra examples to explain the new VAT rules in practice. 

  • A company sells SaaS (Software as a Service) Consumers, or other companies, are using these services, but they have multiple branches in the world. The company has to specify the charged VAT correctly, meaning divided into a part VAT free, and into all different EU VAT rates. Only when most usage is outside the EU, the invoice can be completely VAT free. Impossible to perform and comply to. Might become even more complex if the software can be used privately as well by employees. This is on verifiable. Reports, test law suites and cases on these matters will appear on these topics in 2015.
  • The previously mentioned example of my Azure account from Microsoft. Is it sold from the US towards me? or from some EU country. I use is through many different countries in the EU. Will I be charged with the VAt rate depending on from which country I connect to it? Impossible to perform. And what if I put the actual storage in the US? I can do that, no problem at all. Will it become cheaper? This is going to be a very difficult one to apply an comply to.
  • I own a US resided Hotmail account. This is  free now, it has always been free for me as a customer. The only question now is,,..  how long will it stay free ?
  • I own an account for One Drive and Office 365. As a consumer I do not know where the data is actually stored. A'm I charged with European VAT because I use it mainly from Europe, or is it VAT free because the data is stored in the US? And how can I check that? Will Microsoft increase the price for Office 365 Home as they have to pay VAT?  That will increase the price with an average 20%. That's a lot. And I use these accounts through all Europe. Usage should be charged with the countries VAT rate. That going to be a very difficult calculation. Best way I can think of to work around this and keep it simple for now?  I have a US MasterCard, and will use that to pay for the services. Definitively VAT free, or at least the administration will a verify problem.
  • Games: A lot of people are playing (online) games. I actually don't play these so much and had to look into this. Game platforms are mostly from outside Europe, but consumers are playing it at home of course. Therefore, all points, credits, stars and whatever you have to but to get to the next level, will be charged with the local VAT rate. This is going to cost you! You might want to register an .LI mail address. It is my guess that game companies, mainly will look at that as base for your home country. .LI mail addresses are from the European country Liechtenstein and their highest VAT rate is 8%. You can re-round your (fake) VPN connection through Liechtenstein as well. It might save you a lot of money.
  • Telecom companies will have to charge you with different VAT rates for using your phone in different countries. You will get and see multiple VAT lines on the invoice. Not to handy if you may declare business calls during a holiday break. 


Checkout points and systems:
This is something that a lot of (virtual) shops are going to have troubles with. From Amsterdam, Paris to Berlin. If you are selling electronics, software, or telecom related products to customers, you sure will have to make some adjustments. If you can assume that a product will mainly be used in the home country of the consumer,... you must charge them with the correct VAT percentage. For digital shops, it will be less difficult than for physical shops. Think about it. Multiple VAT buttons on a checkout system?  Hmm,.. I don't see that happen to soon, but officially you are required to do it. Hmm,.. and instructing your employees on how to handle these situations. I'm really curious how all companies are going to deal with this. And what about the jeweler that sells a iPhone with an inlaid diamond cover? It can seriously make a difference in which country you reside. Personally I'm going to tell my Italian web designer that I reside in Liechtenstein. That's saves me 13% VAT on the invoice of my new web shop. W'll see..  at the moment I'm investigating the very small letters of the new law. It is hard to explain during a tax audit, when websites are ending on a .nl or .fr domain, especially when they are fully in that native language. Have to sort that out some day.


Shop and web price listings:
This is annoying. A lot of small letters or little remarking stars will appear hear. There exist a conflicting Eu law that states that listed prices in shops are the correct prices, even if it's the wrong price. I know all about that. I recently bought a wrongly priced reserve module for one of my websites in Germany. It saved me a lot of money as is was incorrectly priced. Officially this cannot occur after January 2015 due to this new law, as prices may change due to the various VAT rates. That's going to be some very nice stuff for some lawyers. Another contradiction for the phone companies is even more difficult. EU rules have limited the call rates for making a phone call or sending a text message between European countries. That's inclusive the VAT. prices may vary a lot and margins are already small. Prices are due to go up as roaming cost vary a lot. Almost impossible to predict the future price effects.

Collecting evidence:
Do you own an online shop selling these kind of articles? I'm curious how you are going to prove where you're customer is from when a digital sell is done. The shipping address says nothing about the place it's being used. All kinds of software is available to hide your IP address or to re-route it through another country or continent. Very difficult to prove that someone is residing a a particular country for you as a company. Again, I suggest that everyone re-directs the mail through Liechtenstein as the highest VAT rate is 8% there. Nice price difference on an expensive article. You even might want to delay you purchase to January 2015 :-). The actual VAT rates for the European countries can be found on Wikipedia; you might be interested in it. Well, wake up!!  As businessman or organization, the tax departments in Europe uses revers evidence policies on tax declarations. Start acting on the future rules right now! It might not be that tight for 2015, but you better avoid problems.


The future:?
The future seems clear to me. Slowly, the EU is working towards more and simple VAT rates for all connected countries. The trend is now, to impose the VAT rates of the country the service or product is used. After this, more product lines will follow, and VAT rates might be all the same in 10 years. One step further to a single market that the EU wants so much. Much companies will not be ready for these new VAT rules and this will lead to penalties and more commotion in the second half of 2015. At the end of 2015 the dodge behavior of European citizens will become painfully clear is my opinion. Yes there will be some audits, but tax departments will hardly be able to check and control this law in a decent manner. There's still a long way to go. 


Summery:
Check if these changing VAT rules are effecting your business. Almost everyone that works with end-consumers, telecom, electronics of software products within the EU will be touched by this new law. It is now the time to adjust systems, procedure and administrations to be prepared for these new rules. Time does not stand still, remember that! No-one is waiting for additional accounting costs and fines. Personally I only want to warn of the consequences of these VAT rules by writing this article. An entrepreneur warned, forearmed.

 

Agust 16th, 2014                                                     

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Ben Oostdam

Ben Oostdam has been working with Windows systems since 1993. Worked for several companies as a system administrator, and is currently a Senior Support Engineer & (Freelance) Trainer for a large company in the Netherlands.  

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