Thursday, December 25, 2014

Christmas Time Is Here, Confusion Everywhere

I'm talking about the EU's new digital VAT regulation when I say "confusion everywhere".  What a party-pooper this has been for the holidays!  Really, so many little people like me, the micro-businesses, are freaking out for no good reason because of this new regulation set to go into effect January 1, 2015.  They want the VAT (value added tax) on digital goods, collected and paid on all sales made to residents of EU member nations.  There is no minimum/threshold amount, so it applies to every sale.  Each member nation sets different VAT rate, so if we were to comply, we are expected to collect different rate for some 28 nations and file quarterly report and make payments to all 28 countries.  Seriously...  This, if the sellers and businesses were to fully comply, is an accounting nightmare.  And by putting the burden of collection on the sellers, this regulation has created some nebulous mess of speculations and interpretations.

As I am in the US, I'm just like a whole bunch of people scratching our heads, going, "And how is this going to affect me, IF I'm supposed to be affected by this?"  Although the regulation maintains that if you sell to any residents of an EU member nation, you are required to collect, report and eventually pay to respective authority, the big question for a lot of us who sell on Etsy, or similar 'platforms' (the Internet services that charges a fee for us to use in order to sell our goods) comes down to "WHO handles this tedious collecting, reporting and paying of the VAT to 28 EU nations?"

Just look at the forum discussions on Etsy and see how confused everyone is.  It's a definite nightmare for sellers actually residing in EU-member nations, because they know they're bound by this regulation for sure, unlike the sellers in parts of the world that don't belong in the EU.  Some are asking for technical feature updates so Etsy can properly address this issue for them.  Others are asking the flexibility to block sales to EU nations to avoid this VAT mess altogether by choosing not to sell.  (As much as this sounds like a discrimination to EU member nation residents, as such discrimination within the EU is against the law, to the rest of the world, as far as I know, are not required to abide by EU's anti-discrimination law and should be and will do so as soon as a tool is available -  after all, we can refuse service for 'no shoes, no shirt' here in the US. lol)  Yet some others are taking the extreme measure of closing their shops.  Now, I've seen some fellow digital stamp shops choosing this route, and it made me wonder if they're jumping to the gun.  And also maybe this is yet another sneaky sales pitch...?  Create a sense of urgency (It's a "Going Out of Business" Sale!) to cause a spike in sales before the end of the year.  I mean, if things are business as usual, come January 1st, 2015, they can 'reopen' and say, "Oh, aren't you glad you can still buy our digis?!"

Meanwhile, here's the official stance issued by Etsy as of Dec. 22, 2014.  The angry mob is responding with "pitchfork and torches" equivalent in words. *amused* While yet others are sticking two very enthusiastic middle fingers up at EU bonehead politicians who thought they've figured out a way to collect money on all these digital goods transactions, by pointing out the reality of enforcing such a law, as many critics have also wondered about.  I'm kind of sitting in between the extremes and waiting for the dust to settle, hoping for some clarity.

Hours of research into this matter on how I, the independent tiny business in the non-EU member nation, is actually affected, proved mostly a waste of precious time during this hectic holiday season.  Really, we should be enjoying the company of friends and family and appreciating what we have and celebrating the birth of Jesus and all good things in life, rather than pulling our hairs out, trying to figure out this ill-conceived law.

The UK authority on this issue, HMRC (Her Majesty's Revenue & Customs), has come out and said, according to many sources I've spotted across the web, that Etsy is indeed responsible for collecting, reporting, and paying of VAT, not the individual service-users (shop owners, the little people).  They have also said that if a seller of digital goods actually e-mails the goods, accompanied by non-form letter, to each individual customers, rather than using 'automated instant download', then it does not come under the new digital VAT law.  But all this is the official UK words.  Doesn't mean this will be the case with the rest of the EU-member nations tax authority's take on the law.  And THIS is precisely where things get murky.

From the few updates I've read from the admin on Etsy, they seem to be working to possibly use this HMRC's definition (Seriously, I've looked all over the Internet and found very little else from any other countries - but then again, it could just be because my searches are performed in English and results are only pulling up in English.) and try to get away from having to implement the full-compliance features, but rather 1.) disable instant download feature for digital goods and/or 2.) introduce a new feature that allows us sellers to choose whom we sell to (That's just a more polite way of saying 'who we can refuse to sell' or 'block', obviously.).  Either way, they seem 'reluctant' to make things easier for the individual sellers.

The Aurora Wings shop at my own web site is run by DGS (www.digitalgoodstore.com).  Now, they have taken a completely different stance from Etsy on this issue.  The higher-ups at DGS received an inquiry from one of us, little people, back in October, asking what they were doing about this EU digital VAT law.  They scrambled to implement a new business model to address it rather than wait till the last week of December like Etsy did.

I am hoping that when January 1st is here, I will still be able to sell to the EU-member nation customers, at least through the Aurora Wings shop at my web site without the hassle.  With VAT rate being as high as something like 28% in some EU-member countries, the prices will go up for some.  In the end, this seems to hurt both businesses and consumers (maybe a gain for those people who are dependant on the social services the VAT is supposed to help provide for) on a large scale.

From my own limited perspective (based on the data collected on my Etsy shop's stats) though, my customer base looks roughly as follows.

United States -- 45%
United Kingdom (EU member nation) -- 29%
Australia -- 9.9%
Canada -- 6.9%
Rest of EU - 8.1%
Remaining - 1.1%

As you can see, I do have a lot of customers in EU nations.  But since 2/3 of my business comes from non-EU countries, closing the shop is out of the question.  Also, with sales to EU nation customers being the other 1/3, blocking sales (worst case scenario) would mean significant decrease in income, which subsequently hurt my family along with my digi fans in these 28 countries.

As some commenters on Etsy forum have pointed out, similar regulations on physical goods are expected to go into effect in 2016 in EU.  Small business owners who utilize third-party e-commerce platforms such as Etsy (That's what they are, no matter how they try to distance themselves in legal terms.) will no doubt be closely watching how these services act in coming months.

*** FOR THE ACTIVISTS IN YOU ***
There are currently two petitions at change.org regarding the EU digital VAT regulation.  One calls for exemption for micro-businesses and sole propriotorships (signed so far by some 14,000 petitioners, addressed to UK authorities on the matter) the other one calls for unilateral suspension of this regulation (signed so far by a little short of 9000 petitioners).

3 comments:

  1. As an EU resident (Netherlands) I fear for this stupid Tax.. It takes away a whole lot of our creating oportunities as everything will become much pricier. And yes some shops even closing up. I so hope that there will be some clarity soon and that maybe it will be possible to buy/send through mail although this would be much more work for you artists. I so love your work so hope to still be able to buy.

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  2. I am a resident of the UK and my first question on this whole scenario is 'have the EU and US developed a treaty for tax collection' I don't think so. I think the US and the UK have enough problems collecting taxes from their own people so they are unlikely to agree to oversee the collection of taxes for another country. If there is no international treaty on this issue then surely non EU businesses can tell the EU to take a hike! My first point of reference would be to ask the question of the US government, or similar.
    I think this tax it totally unrealistic, Having worked with VAT in business for too many years I do know the VAT laws in our country and to a lesser degree in EU and the fact that they are going for VAT from a base of zero is ridiculous. This would appear to some mindless bureaucrat seeing digital sales being carried out with ease across borders and thinking that they should be getting their cut - like most EU laws it has not been thought through and will prove to be unenforceable!
    Don't give up sell to all countries until it is proved that you are responsible for tax collecting for another country!

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  3. I'm absolutely gutted by all this rigmoral I love my Digis not haven't found a UK supplier that's up to ur level so I'm very glad u r still selling to us x

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