The state of online sales tax summarized

Gosh, I never knew that Engadget understood anything about tax, but I was wrong!

Here is a comprehensive and legible summary of the Marketplace Fairness Act – a proposed set of rules that would have a major impact on collecting sales tax in the U.S.

Don’t forget the comments for your reading enjoyment – some are sensible, but most are ludicrous.

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It’s drop shipment week!

I just replied to the fifth question this week about the VAT implications of drop-shipments in the EU. You know, these are shipments where the seller ships directly to the buyer’s customer. So there are two transactions, one where the ship-to is different from the bill-to, and one where the bill-from is different from the ship-from. Fun and games!

There are quite a number of different scenarios here, and I will show you the most popular one.
Hello Mark,
Can you please help me one last time with this scenario:
We have a US customer that is making a purchase from our inventory in Germany.  The parts are being drop shipped to the UK.  Do we or do we not charge the US customer VAT?
Our initial interpretation was that we don’t charge VAT if the US customer has a valid VAT ID.
Then I was told that the VAT ID was only for customers in the EU.  A US customer would have to pay VAT if the parts were staying in the EU regardless of a VAT ID or not.
Please advise
Thank you,

I agree with your interpretation. If US Co. has a valid VAT ID in the UK, then no VAT is chargeable as this is an intra-EU supply. US Co. does not need to be a UK resident business, as long as he has a VAT number.

Even if he does not have a UK VAT number, but a VAT number in an EU country other than Germany, you can still drop-ship to the UK and use US Co’s VAT number to apply the zero-rate. This is a so-called ’simplified’ triangular (“ABC”) supply. Some EU countries can be difficult about this though.

Finally, if US Co. only has a German VAT number, then you should try to treat the supply as a local supply and charge German VAT. US Co. then will charge their UK customer with zero-rate German VAT as the intra-EU supply then takes place between US Co. and UK customer. The condition though is that US Co. organizes the transport to the UK.

I would be lost without a whiteboard and a marker Powerpoint!

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Luxembourg taxes explained

It is pretty straight-forward to explain why major B2C service providers (think Apple iTunes, eBay and Amazon) favor Luxembourg for a EU headquarters – the VAT rate is one of the lowest in the EU, and under the pre-2015 VAT rules that is / was a major advantage.

Yes, Madeira has an even lower VAT rate, but for whatever reason Madeira did not make the cut.

The other reason why Luxembourg is a tax favorite, is their favored income tax treatment of companies. The video below explains it to some extent. Also have a look here: When reading this, you should realize that there is nothing “secret” about it – when everybody does it, it’s not a secret. The writers are creating a lot of fluff for nothing.

Also, it is not the companies, nor Luxembourg’s fault that these tax structures are created. There are no leaks, no loopholes and no tricks – all this is in perfect harmony with Luxembourg, U.S. and EU tax laws. If the U.S. would revise their corporate income tax rules, everybody pays their fair share.

So this is not about VAT, but surely an interesting and well-researched opinion worth sharing.

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India: GST in April 2016 (?)

“A GST roll-out is most likely April 2016″

Every fall there is an Indian official who seems to be designated to make a statement that federal GST implementation is a year and a half out. The big issue is a constitutional amendment (in addition to all the states being in agreement). Parliament in India seems to be interested in picking up the issue.

See (subscription!) for more.

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Spain: Changes in import VAT accounting

Meridian writes about Spanish plans to introduce an arrangement to postpone the import VAT liability to the next VAT return. As Meridian notes, there are an increasing number of countries that allow for a similar simplification (see art. 201 of the VAT Directive).

According to my somewhat dated “EU VAT Compass” (IBFD, 2011) these postponed accounting rules do not apply in Cyprus, Estonia, Finland, Germany. Italy, Slovak Republic, Slovenia and Sweden. The UK has introduced a scheme that is similar. All member states naturally set pretty strict conditions.


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Mind The VAT Gap…

An estimated €177 billion in VAT revenues was lost due to non-compliance or non-collection in 2012, according to the latest VAT Gap study published by the Commission.

“Algirdas Šemeta, Commissioner for Taxation, said: “The VAT Gap is essentially a marker of how effective – or not – VAT enforcement and compliance measures are across the EU. Today’s figures show there is a lot more work to be done. Member States cannot afford revenue losses of this scale. They must up their game and take decisive steps to recapture this public money. The Commission, for its part, remains focused on a fundamental reform of the VAT system, to make it more robust, more effective and less prone to fraud.””

The lowest VAT gap for 2012 was in the Netherlands – the highest was in Romania, where (almost) half of the VAT due is basically missing (!!!).

See here for the press release:

Next up: Vertex Exchange from this Sunday to Wednesday in New Orleans. I will be speaking on VAT and environmental taxes. Come and see Andy Hallsworth and me on Tuesday morning for our epic “Two Men And A Pen” VAT show-and-tell! It’s going to be a fun couple of days. See

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Sale of software outside the U.S.

That was a quick but fun call this morning with the good people from Collobos Software. They produce software that is typically purchased by businesses and they have a growing customer base outside the U.S.

For VAT in the EU, the sale of software business-to-business means that the place of supply is where the recipient is resident.

Does Collobos have any overseas offices? “Nope, and we don’t plan to for now.” Any servers overseas, or office-less employees “No.”. OK, then you’re good. No VAT liabilities.

Same applies in most countries outside of the EU – actually I would not know any country that requires a non-resident company to register for tax under these circumstances.

“Thanks Mark – what can we do in return?” Spread the word!

So I just saw this twitter message. Thanks Collobos!

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