Beginning this month, the European Union is changing the procedure by which sellers must collect and remit value-added taxes (VAT) on digital goods and services purchased by residents of EU countries.
The changes, which took effect Jan. 1, mean that merchants selling items like e-books and downloadable PDFs in the European market must register with EU authorities and calculate taxes in accordance with the rates of each country where they sell.
Previously, EU VAT rates on digital goods and services had been based on the location of the seller – not the buyer, as they are under the new legislation.
In addition to complicating the process of selling to EU customers, the rules will also alter how fees are assessed on eBay sellers in EU member states, as seller fees are deemed an electronic service under the new law.
“For the purposes of eBay and its seller fees in relation to this directive, sellers are the customer so VAT is applied at the national rate based on where they are located,” Clare Moore-Bridger, a spokeswoman for eBay in Europe, told EcommerceBytes in an email.
So, for instance, sellers in the Ireland will now have a VAT of 23 percent included in their fees, up from the 15 percent that is the rate for Luxembourg, where eBay maintains its European headquarters.
Moore-Bridger noted that business sellers in the EU will be charged on a net-pricing basis, excluding the VAT, “so the impact is neutral or even positive for them.”
A listing of current VAT rates in EU states can be downloaded here.
In an explanatory note outlining the new rules, the EU explained the reason for the shift as follows:
“The underlying reason for these changes was to bring the VAT treatment of these services in line with one of the main principles of VAT that, as a consumption tax, revenues should accrue to the Member State in which goods or services are consumed.”
The EU also noted that under a system where VAT rates were based on the supplier’s country, sellers in member states with lower rates enjoyed a competitive advantage over merchants in nations with higher rates.
“The new rules of taxation based on the country where the customer belongs will provide, as from 2015, a level playing field,” the EU’s explanatory note said.
Sellers have organized a public Facebook group to help members of the ecommerce community navigate the new tax policies.
Not all sellers will feel an impact from the new tax policy, as those offering digital goods through intermediary platforms won’t be on the hook for calculating and remitting the taxes. Google, for instance, reassured developers selling apps and in-app purchases through the Google Play store that it will assume responsibility for calculating the VAT rates in the EU.
But for others, the changes will bring an added compliance burden. Late last month, Etsy’s Nadine Heintz took to the company’s blog to notify sellers of the new rules for selling digital goods in the EU. While she noted with sympathy that the VAT policy will create new challenges for sellers, Heintz reiterated Etsy’s standing policy of not involving itself in the tax issues that sellers on the site face.
“Historically, Etsy has acted as a venue on which individual entrepreneurs run their businesses, with Etsy sellers responsible for paying appropriate sales taxes for those businesses,” Heintz wrote. “We are treating VAT the same way, with sellers expected to collect and pay VAT.”
Heintz said that Etsy is at work developing a tool that aims to help sellers navigate the VAT tax issues, with more details expected in “early 2015.” She said the company is exploring the possibility of allowing users to control the countries in which they sell digital goods, and that beginning this month, sellers will be able to verify the country of their customers.
Heintz also pointed to efforts within the EU to simplify the registration and filing process through what it is calling the mini one-stop shop, or MOSS. More information on MOSS can be found here.
An Etsy spokesperson would not confirm whether the new rules will change the way listing fees are assessed to EU sellers, saying only that the company is still studying the matter.
“The new VAT rules on digital items are extremely complex, and we are actively working to understand the potential implications for ourselves and our sellers, as well as to identify product solutions to help our sellers navigate these implications to their businesses,” the spokesperson said.
Like Etsy, sellers on eBay offering digital goods to EU customers will be responsible for handling the VAT assessments, though Moore-Bridger explained that that will only affect a small segment of the marketplace.
“Regarding the effect on businesses selling electronic services, whether that be e-books or something else, yes they would need to apply VAT from 1st Jan. in a different way if their services fall under the scope of the directive,” she said. “But these do not generally affect eBay sellers since they are not themselves generally selling electronic services to their buyers.”