Changes to EU VAT rules from January 2015

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RWAP
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Changes to EU VAT rules from January 2015

Post by RWAP » Sun Feb 15, 2015 1:40 am

The changes to the EU rules for electronic delivery of services is a real pain for administrators of any auction websites particularly if the business running the auction site is not VAT registered! The following is based on our understanding of the rules, but you should seek your own tax advice.

You need to ask yourself the following questions to determine if you are affected:
a) Does your site allow sellers to list items for sale which can be delivered automatically on payment (eg, as soon as buyer clicks a paypal button to make payment, a download begins)?
b) Does your site charge sellers fees for listing or selling items?
c) Are all sellers on your site definitely businesses, or are some of them consumers (private individuals)?
d) Are any of the sellers operating from (or residing) in a country caught by VAT - this is all of the EU countries plus some extras (!) - see http://en.wikipedia.org/wiki/European_U ... _added_tax

The rules stipulate that payments received for electronic services (automated downloads and fees in our case), may be chargeable to VAT.

FEES:
a) If the seller is a business, VAT is charged according to your own rules - many countries have a VAT threshold below which you do not have to charge VAT, so you will need to check whether you are liable to charge VAT on fees in your own country. If the business has a valid VAT number and you are VAT registered, you can also elect not to charge VAT to the business and they will have to account for it at their end.
b) If the seller is a private individual (consumer) based in the same country as the business running the website then again VAT is charged according to your own rules.
c) If the seller is based outside of the countries in (d) above, then there is no VAT charged. This applies whether they are a business or a consumer.
d) In the case of any other sellers who are consumers (not businesses) you have to work out the VAT on any fees charged to that seller BASED ON THE COUNTRY IN WHICH THE SELLER RESIDES OR WHERE THEY ARE LISTING ITEMS FROM. You then have to pay that VAT amount directly to that country's government.

AUTOMATED DOWNLOADS:
These are an oddity - if a manual element is required (eg, the seller receives payment and then manually sends an email with the attachment), then this is not subject to the VAT rules for electronic services. However, if there is code which links the payment and an automated download, then it is subject to the VAT rules for electronic services (as per FEES).

ACCOUNTING FOR THE VAT COLLECTED
If you are caught by (d) above and have to account for VAT, you can either register for VAT in the country where the consumer is based (which seems to much trouble as each country has different rules and regulations), or you can make use of a VAT MINI ONE STOP SHOP (VATMOSS) which is run by your own government.

A VATMOSS allows you to complete a form every 3 months detailing how much VAT you owe, to each country. You can then make one payment to your own Government and they will divide it out to the other countries. Note however, that there is no minimum amount for these transactions, so you could find that even if you have only charged one person in another country £3 in fees, you still need to complete the VATMOSS return and account for a small amount of VAT (which could be as small as 9p in the case of a private seller based in Luxembourg with their lowest VAT rate of 3% and you are running your site from the UK) !

ISSUES TO CONSIDER
a) How do you determine if a seller is a business or a consumer?
b) How to determine the country where a seller is resident / listing items from?
c) If you offer automated downloads on your site, then how to determine the country where a buyer is resident / buying items from?
d) Do you want to minimise the chances of having to register for VATMOSS and complete the returns by increasing the minimum amount below which you will invoice for your fees?
e) Bearing in mind the range of VAT rates (from 2.1% to 27%) are the fees on your site enough to cover the administration of collecting and accounting for this VAT !

Business customers can be identified by having their own VAT number, but not all businesses are registered for VAT, so we would suggest that a field is added to the user registration form to ask them if they consider themselves to be a business or a consumer (and collect any VAT registration number if they have one). You can also make rules on your site to determine that a user is a business based on a history of trading (eg. selling LOT items on a regular basis).

For determining the country applicable to each user, you need at least two forms of matching evidence (or is it three?) and retain that information for 10 years. If you take payment for fees by PayPal, then you can use the PayPal registered address as one form of evidence and potentially the country declared when the user registered on the site as the second form of evidence.

However, we would also suggest that the IP address of the user is collected on registration and a lookup made to store the country linked to that IP address. You may also want to similarly capture the IP address of the user when they list items.

However, there is no guidance as to what you should do if these various forms of evidence do not match apart from saying that more investigation is required.

Typical of the EU, capturing the IP address of transactions can be dangerous - as the regulations state that if the consumer is on a train (for example) travelling through EU countries, then the country should be based on the original origin of that journey (how we are supposed to know that someone is travelling on a train listing items is beyond me).

RWAP
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Re: Changes to EU VAT rules from January 2015

Post by RWAP » Tue Mar 03, 2015 10:14 am

It looks like even Google have not figured out how to work with these rules yet - I received an invoice from them today for an app I have on their system, and they simply charge no VAT and state that under the reverse rules, the recipient is responsible to account for the VAT on their charges.

Unfortunately, this only applies to business customers who are VAT registered - whilst a business, I am not currently VAT registered so they should be accounting for the VAT directly through VATMOSS so far as I understand.

It just reflects how ridiculous the rules are - how much was the invoice for? A grand total of 0.01USD !! :lol: :lol:

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Re: Changes to EU VAT rules from January 2015

Post by RWAP » Fri Mar 20, 2015 4:20 pm

Hmm Google have updated their answer and seem to have taken a very odd interpretation of the regulations - I wonder if this could be applied to Enuuk based auction sites too - I have emailed HMRC, in case I get an answer...

See https://support.google.com/cloud/answer/6090602?hl=en

Basically, Google has taken a policy decision:
a) All users of its services MUST be businesses. Consumers are told they must not use their services!
b) If the user is within Eire (where Google are based), Google will charge VAT on any fees for use of their services and account for the VAT
c) If the user is within any other EU country - that user is not charged VAT (even if they are not registered for VAT). According to Google that user is then responsible for accounting for the VAT to their own government (although how a non-VAT registered individual or business is supposed to do this is beyond me).

As sellers on auction websites are listing items for monetary gain, you could argue that they are in the same position (even if it is someone selling an old toy they found in the back of a drawer).

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Re: Changes to EU VAT rules from January 2015

Post by RWAP » Tue Apr 25, 2017 6:16 pm

Just an update on this very complex subject. From the point of view of running a PHP auction site, there are two main considerations:

1) Do you allow sellers to offer digital downloads through your marketplace?
2) Treatment of tax on the fees you charge sellers (and potentially buyers if you have implemented a buyer's premium).

Both areas are prone to real issues.

In the case of (1), the person running the auction site (the marketplace) is responsible for dealing with the taxes on behalf of the seller on the site. Thus, responsible for ascertaining the location of the buyer, determining if that person is a consumer or a business, charging and collecting the appropriate amount of tax (or VAT) and remitting it to the appropriate tax authority.

Remember also that EU regulations insist that consumers see prices inclusive of any VAT on the site!

This is a real headache - particularly if the buyer is paying the cost of the item by PayPal (for example) direct to the seller. How do you recoup the correct amount of VAT? The best option would be for all payments to be made through the website and then paid out from there to each seller - although here you have to take account of your own tax laws and position of (say) taking a payment in the UK on behalf of a seller based in Spain, selling to a buyer based in France..

By comparison, (2) would seem slightly easier (especially if you do not charge a buyers premium). You know the location of a seller by virtue of their registration on the site, and can compare that to the IP ranges which they use to access the site. You may be able to determine if they are selling as a business by the nature of items they sell and the quantities they have available, as well as any VAT or other registration number.

However, the position is becoming increasingly more complex as different countries implement their own versions of the EU Digital VAT legislation. To date, the summary (as we understand it) is (dependent on the location of the seller and your own location as site owner):

This VAT / Sales taxes are applied according to the location of the seller on the site, and each country / region have their own rules.

a) EU Countries (business sellers are exempt, but there is no minimum amount, so in effect we could have to account for VAT to say, Spain, on a single €1 fee !)
b) South Africa (this applies to all sellers, but there is a minimum threshold of around £2,200 before it applies). The threshold is accumulative and does not reset annually!
c) Norway (business sellers are exempt, and with an annual minimum threshold of around £4,500)
d) Japan (business sellers are exempt, and there is an annual minimum threshold of around £55,000)
e) South Korea (it appears as though it applies to all sellers and with no minimum amount)
f) New Zealand (business sellers are exempt, and there is an annual minimum threshold of $60,000 NZD).
g) India (appears to apply to all sellers and there is a threshold of 1,000,000 rupees. Oddly this even applies to bespoke software development!
h) Russia (business sellers are exempt, but there is no minimum threshold)
i) Serbia (business sellers are exempt, but there is no minimum threshold)
j) Taiwan (business sellers are exempt, and a minimum threshold of NTD480,000)

Warning - some of these countries insist that you appoint a local agent, or have a local office in order to register and pay the tax.

Even worse, is that we have yet to find any accounting package which can handle all of this either, which just adds to the administrative headache. Some packages include a means of you setting VAT rates for transactions to EU countries and will produce a report to help you complete VATMOSS, but this is still very much a manual process, with no easy means of taking a transactional amount and working out the amount of VAT included in that transaction (according to the buyer's country).

There is also no means of tracking or dealing with transactions related to the other countries who have brought in these rules.

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