New European Union regulations regarding value-added taxes (a sort of European equivalent of sales tax) will take effect January 1, 2015 that could cause problems for businesses selling electronic goods and services. Referred to as VAT MOSS (for “Mini One-Stop Shop,” the web portal each member state will run to make payments easier), the new regulations put the onus on businesses that provide “telecoms/broadcast/electronic services” to EU customers to keep track of and charge each customer VAT at the rates that apply to the country where that customer lives.

Previously, businesses were free to charge at the rate that applied in the country where the business was located. Also, UK businesses were exempt from paying VAT if they sold less than £81,000 worth of products per year. This was simpler all around, but it also allowed Amazon to set up its European e-book operations in Luxembourg, the EU country with the lowest VAT on e-books, and undercut the VAT rates on e-book vendors located in other countries. This will definitely close that loophole—but it will also cause a great big headache for a lot of small businesses that suddenly have to keep track of 75 different VAT rates in 28 different countries when that £81,000 exemption goes away.

And that’s not even getting into European data-protection rules that require all information to be stored on EU servers (which businesses have to do if they collect the kind of customer information this new law wants them to keep track of), an impossibility for many businesses outside the EU.

And the law states that even businesses outside the EU are required to collect those taxes. This could cause problems for those businesses—if there was any way for Europe to reach out and enforce them.

For example, Howard Tayler, webcartoonist for Schlock Mercenary, only just found out about the new law. He wrote on Twitter:

So, the EU’s new tax law probably won’t affect non-European businesses, but it could hit small European businesses like a ton of bricks with the administrative costs necessary to set up a system to either charge the right taxes or block business from other countries. All that just so that Amazon would have to charge and pay higher value-added taxes (as much as 20% of the price of e-books in the UK). I wonder how many of the businesses who complained about Amazon not paying its fair share might start singing a different tune once all those costs hit them?

This seems like an object lesson in why government intervention in the e-book market in the US would probably be a bad idea. Sure, publishers might want Amazon not to have as big a piece of the pie as it does—but any action profound enough to affect a giant could have far-reaching consequences for the little guys. (But then, I’ve never gotten the feeling that the Big Five publishers who hate Amazon care all that much about the little guys.)


  1. VATMOSS is optional.
    If you use it you lose the £81,000 exemption because in order to use VATMOSS you must register for VAT. If you make minimal sales to non-English speaking countries you can do so without the convenience of letting VATMOSS handle it all for you, especially as you cannot use VATMOSS to report sales in your own country or any other EU state in which you have a fixed establishment. E.g., to take your UK example if your only sales are to Ireland and your turnover is less than £81,000 then it is easier to register for VAT in Ireland if your turnover is between 37500 Euros and £81,000. It won’t be long before someone posts a website summarising the VAT laws of each of the 28 EU states.
    TL/DR: don’t get your legal interpretations from Twitter.

  2. Yes Chris, do your research on the UK government tax site rather than Twitter by following the link in my first comment. VAT MOSS is optional and there is a lot of scare stories being spread on Twitter about it. Businesses that close over a Twitter storm were probably not going to last anyway as you need a little bit more market knowledge that “trust Twitter” to survive.

  3. Mercia, that site says that using VAT MOSS is “optional”…but it doesn’t say that paying VAT is optional. The Irish tax site states (emphasis mine):

    The Mini One Stop Shop is an optional scheme which allows businesses that supply telecommunications, broadcasting or e-services to consumers in Member States in which they do not have an establishment to account for the VAT due on those supplies via a web-portal in one Member State. Otherwise, businesses making such supplies would be obliged to register for VAT, file returns and make payments in each Member State in which they make these supplies.

    So, MOSS is optional, but the new VAT rules most certainly aren’t. If you don’t use the VAT MOSS system you have to register for VAT individually in all 28 countries that collect VAT—and either way, you’re still on the hook for it. EU’s Taxation & Customs website says that telecom/broadcast/electronic services shops selling to EU customers, whether in the EU or outside of it, must collect VAT.

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