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Oh, those 2015 rules…

It seems like every VAT consultant, in the US and in the EU, has jumped on the new EU VAT rules that kick in on January 1, 2015. I have not paid as much attention to the changes, simply because the impact on U.S. companies is rather limited.

As a reminder, this is about the supplies of online services (downloads of all sorts of automated supplies, like video, games, music etc) to EU based individuals. VAT is due at the rate of the country of the buyer. See http://tinyurl.com/n9hv2qo for more information.

For a U.S. based company there are really only two things to keep in mind:

1. If the U.S. company has a branch or subsidiary that  – then the rules that used to apply to the U.S. parent company now apply to the EU branch or subsidiary as well.

2. If these online supplies to EU individuals are only made from a U.S. based company, then the U.S. company was required to register for VAT. Under certain conditions, the U.S. company could register for VAT in a single country (in practice this was mostly the UK). From January 1, the U.S. company will have to change its registration to the so-called mini-one-stop-shop (“MOSS”) registration. See http://www.hmrc.gov.uk/posmoss/index.htm for the guidance of the UK tax authorities.

Here is an email that one of my clients recently received from HMRC. It is a tough read, but the gist is that the US company has the change the VOES registration into a MOSS registration… Yes, it sounds weird, but they say that this swap is painless.

Download (PDF, 65KB)

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Scandia – supplies to a branch

In a wholly unsurprising ruling the European Court of Justice ruled last week that supplies by a head-office to a branch are within the scope of VAT if the branch is part of a VAT group / fiscal unity.

The Netherlands at least has had this rule in their regulations for decennia, but see here at LinkedIn for the UK view, which is rather different.

I pdf’d the ECJ ruling below. Like all ECJ rulings, this one is not very easy on the eyes…

Download (PDF, 518KB)

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OECD news: BEPS

“Base Erosion & Profit Shifting” sounds like something that has nothing to do with VAT. VAT expert James Robinson penned his thoughts on this OECD initiative – well worth a read.

Download (PDF, 386KB)

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I’m back…

Last week at the IPT VAT conference I was encouraged to pick up blogging about VAT. Thanks everybody! Here we go…

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Starbucks session at IPT

Reagan airport

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Portugal – VAT rate up to 23.5%?

Just when you thought that VAT rate increases have died down, Portugal announced plans to increase their VAT rate from 23% to 23.5%…

From January 1, 2015, or so they say now.

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US sales tax: the Marketplace Fairness Act

When Amazon Collects Sales Tax, Some Shoppers Head Elsewhere

In other words, even without knowing how much or even whether small businesses benefited from Amazon’s collection of sales tax, Mr. Baugh says the trend is clear: Money that had been spent at Amazon is mostly being redistributed to other online giants — and that will very likely intensify if Congress allows broad taxation of Internet sales. “This legislation is being pushed as a kind of savior to brick-and-mortar stores and a boon to local economies,” he said of the Marketplace Fairness Act, “and it doesn’t appear to be the case to me.”

Even for VAT specialists, an interesting article in this week’s New York Times.

See http://nyti.ms/1nyx0Ne.

 

 

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VAT and online sales of software

I had an email conversation recently about a very typical VAT question for U.S. based sellers of software. I am reprinting it here – apologies for the longish post, which has been edited for easy reading.

Finance person:

We are a small software company that manufactures a product called “X” that we sell to design professionals (not typically individuals).  We are expanding our business to the UK and plan on selling online and shipping to the UK as well as doing a few trade shows in there and plan on selling the software on site. The price of the software in the US is $1495, so I’m guessing we will sell it for a comparable price in £. 

From what we have read online, it appears that we do not have to register for VAT if we sell less than £81,000?  Obviously, this may take us a little while to establish this.  Is there no need to register for a VAT number until we reach that amount?  Therefore, we do not charge VAT until that time?  We are also not sure if there are differences in how VAT is collected whether the software is delivered via courier service (DHL/UPS), electronic download, or in person (at a trade show).”  

Mark:

“This is actually fairly straight-forward, as long as you only sell to businesses.

For online sales, no VAT is due because the recipient is required to self-assess VAT – this is somewhat similar to self-assessing use tax here in the US.

For sales of the software on a CD via courier, you will need to make sure that you instruct the courier that the recipient is the so-called importer, which means that the recipient is responsible for import duties, fees and also for the VAT that is due on imports. If you fail to do that, the courier will assume that you are the importer, and he will send the VAT bill to you (which is at least a 20% additional cost!). This applies to all countries outside the US, not just the UK.

For sales on trade shows, VAT would be chargeable. The registration threshold only applies to EU-resident sellers – so you can’t use that facility.

If you think that the sales on trade shows will be significant, you could register for VAT in the UK and account for the VAT on the local (trade show) sales. You could also refer trade show attendees to your website and limit your sales to online downloads with potentially shipments from the US of the CDs.

VAT wise I would recommend against selling CDs on tradeshows – you could hand out demo / trial CDs where the customer needs to download a license code online and avoid the compliance / invoicing burden of VAT.

Entirely separate from this, some of the VAT on expenses that you incur while in Europe may be refunded. Happy to provide you with referrals to service providers that can help you with that.” 

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