Intended to close the loophole that let Amazon avoid most European value-added taxes by operating its e-book business out of Luxembourg, the VAT MOSS rules have proven a headache for most businesses that sell digital goods into the European Union. The recordkeeping requirements are so stringent, and unsupported by most e-commerce platforms, that many businesses that formerly sold to Europe have simply decided to stop doing business there.
As Diane Duane explained in our podcast interview, she was able to adapt (here’s her blog post going into more detail about it), but others have not been so lucky. For example, Howard Tayler’s Schlock Mercenary webcomic’s on-line store no longer sells PDF e-book editions of the webcomic at all, because it currently has no way to make sure that the buyer is not from Europe.
[UK small business owner Clare] Josa set up campaign group EU VAT Action and she and other business owners have been protesting about the law. She also attended the recent EU Fiscalis event in Dublin where finance ministers agreed that small businesses should be exempted. However, Josa says businesses cannot afford to wait for Brussels to act. “The legislation will not be debated until the end of next year and it could be two or three years more before it comes in. Meanwhile businesses are not trading in Europe or in some cases even starting up.”
The problem is exacerbated for small businesses in the UK because UK businesses did not have to worry about paying VAT until they earned £82,000 in revenue. However, the VAT laws for the rest of Europe have a much lower threshold, meaning that a lot of these businesses suddenly had to start collecting VAT for everywhere unless, like Josa, they stopped selling outside the UK altogether.
In theory, US businesses such as Schlock Mercenary could ignore the laws, given that US tax authorities aren’t likely to want to help move money overseas to Europe. However, should those business owners set foot in Europe for any reason (for example, if Schlock Mercenary gets nominated for a Best Graphic Novel Hugo in 2017 and Tayler wants to attend the WorldCon in Helsinki in case he wins), they might risk being arrested as tax criminals. Given that any revenues earned from PDF e-books are probably a relatively small percentage of the store’s total income, it’s understandable that Tayler would not want to take that risk.
It’s good that VAT relief is coming eventually, but until the wheels of bureaucracy finish grinding, most small businesses unfortunately see little relief in sight. Meanwhile, this restrictive rule set is going to continue to pose a problem for small businesses with European customers.