The latest EU VAT regime came in force this January, shows what EU bureaucrats know about modern e-businesses; they don’t have a clue!
To make a long story short, while until last December any business could offer its e-services to any private consumer within the EU without collecting any tax, if it was based outside the EU, or by collecting a local VATax, if it was based within the EU, this changed dramatically this January. Businesses anywhere in the world are obliged to collect VAT for purchases by private consumers at the VAT rate effective in the country the consumer resides. For instance, if a German consumer purchases web hosting service for his private blog from a hosting company based in the US, the US company has to collect not only the hosting fees, but also the German VAT on top of those fees, and then pay the tax collected to the German tax authorities. But it doesn’t stop there. Even if the US company decides to fully comply with the new VAT regime, each and every EU national tax authority has the right to inspect the books of that company for proper tax collection within a 10-year period.
It doesn’t only sound ridiculous; it is ridiculous! And it gets even more ridiculous, if the company is based in say China or Russia. Do the EU bureucrats expect to be able to inspect books of Chinese or Russian companies? And even if they manage to make it, do they expect to be able to enforce payment of taxes collected by those companies? Get real, people!
However, where it gets worse, is for businesses within the EU. Even if an EU business is VAT registered domestically, and deal with the local tax authorities, it now has to be VAT registered for all 28 member states (in seperate or through the MOSS scheme) and submit VAT returns quarterly with all of them, even if its sales for a state are nil. Unfortunately, businesses within the EU cannot behave like a Chinese or Russian company. Once registered with their local tax authority, they may be asked to have their books inspected by their local tax authority on behalf of any member state tax authority for VAT miscollection and be forced to pay any tax amount that the inspector believes to be miscollected, plus interest or fines.
Imagine now a startup company of 3-5 people, based anywhere in the EU. Besides the fact that they will need to make significant changes to their ordering process requiring more information than before – and we all know what this means for conversion rates – they now need to hire an army of accountants in order to be able to deal with all paperwork added by the new VAT regime. Many EU small companies chose to do something else though; to accept only domestic orders, leaving the field clear to the multinationals with the armies of accountants and to Chinese and Russian firms – that don’t care much about paying any tax – collected or not – to the EU tax authorities. That’s a job well done by our MEPs!
We chose not to restrict ScreenTag to domestic sales only. We designed our service to be global and this is not going to change because some bureucrats with no clue about how e-businesses work, found a new way to collect more tax money. That’s why we decided to partner with FastSpring to handle all our B2C sales as our e-reseller. And until our development team finalises the ordering process steps with FastSpring – hopefully within the next 10-15 days – we won’t be accepting any orders placed by individual users through our website.