Note to mods: Please leave this in the Messy forum (or make it visible in all forums), it is absolutely vital that as many WAM producers as possible, and especially the small scale independents, see this - it's the biggest legal change to hit digital content sales ever, and if people get it wrong they could be looking at big losses.

Major change to EU VAT rules will affect all WAM producers from January 2015

From the 1st of January 2015 the European Union is making a massive change to its VAT (sales tax) system, which affects anyone, anywhere in the world, who sells digital content to purchasers in EU countries. From the start of 2015 onwards, the seller must charge the purchaser the appropriate VAT rate for the country the purchaser is in, and pass that back to that country's tax authorities. Up till now, VAT was payable in the seller's country, which meant in countries with a relatively high VAT threshold, microbusinesses (like most WAM producers) didn't need to register or worry about VAT. That is all coming to an end.

This applies to all sellers, anywhere in the world - if an American producer sells a scene as digital media (downloadable content) to someone in Germany, they must pass 19% VAT to the German tax authorities, though at this stage it's unclear how that will be enforced.

But it will be enforced, with immediate effect, on all sellers based inside the EU (including the UK).

Historically, here in the UK no business had to register for or collect and pay VAT unless their turnover was more than (current figure) £81,000 per year. This is the "VAT Threshold", and is adjusted every year. However, the UK is unusual in this, in many EU countries sellers are legally obliged to register for and collect and pay VAT if they sell anything at all in that country - even just a single £5 scene.

Which means that as of the start of next year, anyone at all selling digital content to citizens of EU member states MUST register for VAT with their own country's tax authorities (so that's HMRC here in the UK), and then levy and collect the correct rate of VAT for each EU country, depending on where the buyer is.

To make life slightly easier for small businesses, the EU tax authorities have set up a joint scheme called MOSS (Mini One Stop Shop) - you can register with the MOSS for your own country and then submit all your sales data (and the relevant tax) to them, and they'll distribute it to all the other authorities, so you don't actually have to VAT register in every EU country individually. Sellers from outside the EU can register with the MOSS in a country of their choice.

For 20 years we've enjoyed a largely tax-free Internet. That is now changing.

I've checked all of this with our accountants, they confirm it's real, it affects anyone selling anywhere in the UK, and it goes live on January 1st.

Here at Saturation Hall we are already working on new purchase system code to implement the change. Note this means as of January 1st our prices will increase significantly for UK and EU customers, as we'll have to add the VAT for the visitor's country (rates vary between 15% and 27%) to the $50 purchase price - so anyone who wants to join VAT-free needs to sign up before 31st December this year.

Can this be avoided? Yes, if a seller is willing to lock out all sales from the EU. A UK producer could simply not allow anyone from anywhere in the EU (other than the UK itself) to sign up or make a purchase, in that case the UK's £81,000 turnover threshold would still apply and if they are selling less than that they don't need to register at all. But that would mean cutting off the significant market in Germany, the Netherlands, and surrounding countries.

Does this affect customs? Yes, if the finished scene is delivered by digital download. As far as I know it doesn't apply if it's supplied on physical media such as DVDs or memory sticks sent through the post, at least for now.

What about download stores? In the case of most download stores where it's the store operator who controls things like the terms and conditions and access to the product, it's the store operator itself, rather than the producer, who is liable to pay the tax, so a producer selling only via a download store doesn't need to worry about it, but may have to raise prices to allow for the VAT deduction. This will of course make life complicated for store operators.

Some links for more information:

Article on the changes and their effects on digital newspaper publishers from The Media Briefing

MOSS information from HM Revenue & Customs

Details of current EU VAT rates (PDF) - note the relevant figure for us is "Standard Rate"


I only found out about this on Friday and have been clarifying it with our London-based accountants by email over the weekend, seems an awful lot of people (including all of us at the Hall) knew nothing about it even though the EU has been working towards it for the last six years. The bottom line is, on-line WAM in the EU is about to get significantly more expensive.

Bill must be rolling in his grave. How does this effect us here on UMD? Does UMD forward the tax or is it the producer here?

I remember last year I received an email from Amazon that gave me a good laugh. My brother lives in another state (SC), and they informed me I was accountable for making payment to SC for the sales tax on the products I had bought from Amazon and shipped to him over the course of the year. Nice try. Now if Amazon added the sales tax to my order that would have been a different story and I wouldn't argue it. But so long as I don't live in SC, I won't be paying any of their taxes or following any of their state laws.

Though in the Amazon scenario I was just an end-user, I'm inclined to have the same mindset on the EU news. If The Mothership takes action and sets up new policies, I will comply with that. However, I have no plans of worrying about someone else's laws in the meanwhile.

After reading the original post:

Nothing the EU does or says has any affect whatsoever on merchants elsewhere in the world. The Mothership's sales infrastructure and merchant accounts operate entirely within the borders of the US and we therefore answer only to US tax authorities.

Anyone interested in the details might find the following useful.

http://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop

http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm#new_rules

To be honest that's what I thought, but according to my accountant, who is an expert and knows a great deal about the tax systems of both the UK and USA, this does and will apply to anyone, anywhere in the world, who supplies digital products to EU consumers. Precisely how the EU would attempt to enforce such rules outside the borders of the EU I've no idea, but I'm just passing on what I've been told. If you read the second link that besidethesea posted above, and the EU Commission report that's linked from it (just off the bottom of the screen when the link opens), the EU clearly believes it does apply worldwide. Apparently other US distributors of digital goods are implementing this already and will start charging VAT to EU-based consumers as of January 1st. Might be an idea to talk to a tax adviser, just to be on the safe side?

My main reason for posting though was to warn fellow UK-based producers about the changes - we probably all need to talk to our various billing companies about whether they are going to implement the relevant systems and charges for us, or if we need to do so ourselves.

I'm quite sure a US vs a EU tax advisor or accountant will have completely different views of this.

But yeah, glad to see The Mothership's views support mine. You can enact whatever rules or taxes you want, within your regulation... I'll pay my taxes that I am actually accountable for, but nothing more.

HAHAHAHAHAHAHAHA.

Wait.


HAHAHAHAHAHAHAHAHAAAAA.

I'll get right on that.

Pass my sales data to a centralized "service"?

Right oh. My customers privacy is as important as my own.


It will be interesting to see the first court case coming out of this, it's an interesting approach to strangling businesses. As the UK has found, if the government doesn't like something simply tax it out of existence.

What a cash grab. I have a feeling my business interests in the UK could be at an end soon. 17.5% of nothing... is nothing.

I pay my taxes, but I won't be screwed over.

things like this really annoy me.the bloody government let big corporations dodge tax yet seem to turn a blind eye to it.for small businesses this could be a death sentence.they should be looking after small businesses and maybe the worldwide slump would ease off.

UKIP is looking better and better these Eurocrats are a law unto themselves. Were going to need the US to step in and help liberate Europe again soon if they carry on the way there going, please save us from these european bellends

My thought was more "arrrghhhhhh!" (followed by assorted swearing).

Personally I think it's a bloody stupid idea drawn up by people with no concept of how the internet works, and who probably don't even know that small digital content producers exist. Unfortunately it's about to become law.



I think all the needs to be passed on is "Sale of $xx to Germany at (date/time) with VAT $yy", as so far I've not seen anyone yelling about privacy concerns - but I could well be wrong. Big Data is watching you and all that.



Exactly - which is utter madness in a country which does a fair bit of digital content creation. I first read about this in a social network post from an author who has taken all their self-published e-books off their website, as otherwise they would have had to register.



You've not been here for a while - it's 20% now, has been for the last 4 years.

Precisely how they plan to enforce this on non-EU businesses I have no idea - International co-operation between tax authorities? Lean on the credit card processors to do it for them (or face with being banned from trading)? My first thought on reading it applying to non-EU businesses was "People in the US will point and laugh", but I assume they do expect to enforce it somehow.

Hence the post - people at least need to know about it, and find out from their payment processor whether they are making any changes related to it.

Here's a feature from PriceWaterhouseCoopers on the changes - they do actually mention the privacy and data protection issues: http://www.pwc.com/gx/en/tax/indirect-taxes/b2c-2015-vat-changes-what-do-they-mean-for-you.jhtml

the USA is as bad when it comes to collect taxes from other countries. I believe US citizens have to pay tax to the USA even when they have been fully taxed in their country of residence. Take Boris Johnson Lord Mayor of London. He sold his English house and paid all the legal English Stamp duty and taxes relevant. He then got a bill from the USA for Capital Gains Tax.

I shouldn't imagine the US based producers / delivery platforms really need to worry about this, where as i'm sure that the EU expect to be paid, in 'real-terms' its pretty much voluntary unless your somebody the size of amazon etc who will be expected to find someway of making it work and are much to public to fly under the radar.

One way to go might be, accepting bitcoin as payment, and effectively having an anonymous customer, which is probably not a bad idea for fetish clips

At least the mud is free....for now. :devil:

There's nothing to enforce. The "sale" does not occur at the location of the buyer (EU), it occurs at the location of the payment processor (US). The content is stored in the US. When you buy something from Vidown, you are given the time-limited right to make a copy of that US-based content for personal use. You are under no contractual obligation to do so. If you choose to "import" that copy into a jurisdiction that levies a VAT tax, that's entirely your doing, and it's entirely incumbent upon you to pay it yourself.

In the US, this type of internet taxation has been specifically outlawed, so yes we ARE pretty much pointing and laughing. We do that a lot anyway though. Keep in mind that a big chunk of the US citizenry is descended from people who were sick of Europe's shit and got the hell out.

What Soundguy said.

It's unenforceable, it's not law in the U.S.

The E.U can go pound sand.


20 percent VAT now in the UK?

How much is petrol? Six quid a gallon... around 9.41 USD?

I just filled up at three bucks per gallon.

Yeah... can't think why I haven't been back in a while.

Petrols been coming down a bit lately only about £5 a gallon ish now so only 21/2 times the price in the US lol nvm Russia and opec are conspiring to get the oil price back up will soon be £2 a litre :-S

No american is going to pay that tax. Technically american's are supposed to keep track of any purchase they make on the internet and then voluntarily pay sales tax at the end of the year and no one does that except accountants and tax lawyers.

The EU can try to enforce this but I don't see any way they can actually get people who don't live or work in the EU to follow their silly rules.

I am in the process of importing a musical instrument into the UK from USA. In trying to ascertain the correct commodity code for that, (it is quite complicated) I came across a sentence which seemed to say that ANY good or service bought from USA (in this case) attracted Import Duty as well as VAT. It seems there are financial limits below which Import duty is not required to be paid. In my case, as the instrument is above that threshold I have to pay Import Duty. Differing rates apply, but some are as high as 85%. So it would appear that some care needs to be taken over into which category digital products such as downloadable videos fall.
This may all prove to be a Red Herring as far as WAM content is concerned, but I suspect that authorities are out to maximise income from cross border purchases.:ahahah:

As rules stand at the moment, Taxes and Import Duty fall due when the good arrive at a UK port. The concept of taxing at source does seem to raise some enforcement difficulties.

I've been looking into this some more since I found out about it.

Here's what Forbes (one of the US's premier business magazines) has to say:
http://www.forbes.com/sites/janetnovack/2014/05/15/european-vat-10-things-online-sellers-need-to-know-about-taxes-on-digital-goods-and-services/

That makes pretty clear that it does apply to US and international companies - and also that it's actually been a requirement for non-EU businesses to do so since 2003, which means there are going to be a hell of a lot of back taxes already owed, as hardly anyone has complied in the meanwhile, probably because most people had no idea the laws existed. UK-based WAM producers are off that particular hook as the UK's high VAT registration threshold has protected us until now, but come January, all that changes completely.

I've also searched through lots of sites trying to find out how the EU might try and enforce it - I was assuming joint deals with other jurisdictions' tax authorities through mechanisms that are being put in place in the International Free Trade Agreements - but one (where small record label people were discussing it) suggested a truly terrifying option - the EU could simply rescind copyright within the EU on all digital media sold by non-compliant sellers. No need to try and get another country's tax authorities to chase their citizens, just nuke their entire business model from orbit. I've no idea how realistic a proposition that is, but it was being seriously suggested by experienced music industry businesspeople as a possible enforcement method.

There is a precedent, in 2013 the World Trade Organisation gave Antigua the go-ahead to suspend US copyright, effectively allowing what the US called "government-authorised piracy", in retaliation for the US's ban on cross-border gambling, which the WTO says is in violation of the General Agreement on Trade and Services (GATS).
http://www.worldipreview.com/news/wto-gives-antigua-go-ahead-to-suspend-us-copyright

However the overall feeling from everything I read though was that the US authorities are liable to be very much on-board with the new EU system, because before very much longer the reverse will apply, anyone selling digital content into the US market (whether local or non-US) will be required to levy and forward to the US authorities the US State's sales taxes, again based on where the purchaser is located, not where the seller is. But the EU has been faster than Congress and hence got there first. It's all coming from a global push to make multinational companies like Amazon pay their taxes, and the general presumption that an on-line sale happens where the purchaser is, not where the seller or payment processor is, is part of that. Unfortunately an awful lot of small businesses are going to get run down and crushed in the stampede to tax the big boys, unless dramatic changes are made between now and Jan 1st.

I've not yet decided whether to become VAT registered and go through the whole process, or whether to just firewall off all of Europe from Saturation Hall and only sell memberships to people in non-EU locations or here in the UK itself, or even to abandon the membership model entirely, close that part of the site permanently (existing members of course still getting their full six months of updates), and only sell through download stores (which makes the store operator entirely responsible for the VAT issues), I'm having a meeting with my accountants in London at the start of December to go through all the options and decide what is financially viable.

Meanwhile though I have started designing the code to implement the changes regardless (better to have it and not need it than the other way round, and I like coding), and I'm doing it on the basis that I will eventually have not just the 28 EU countries, but all 50 (or 51 by then) US states (or at least the ones, 45 at the moment, with sales taxes), and indeed most other countries in the world, in the system.

Here's another report from PriceWaterhouseCoopers (PwC), one of the world's biggest accounting firms, this one highlights that the requirements to identify the customer's location are one of the biggest headaches. At first I'd assumed I could automate this by IP address mapping, but it looks as if I'll need to also have something where the customer can indicate where they are located (drop down selector or similar), and only if what they enter agrees with the IP data can the sale go ahead - so as to meet the "two non-contradictory pieces of evidence" rule.
http://ebiz.pwc.com/wp-content/uploads/2014/11/2015-Impact-and-Readiness-survey_v7.pdf
(note earlier this evening that was giving a server error, though it's working as I post this - I guess an awful lot of people are just becoming aware of this issue).

Though as someone on another site discussing it pointed out, what happens when a French citizen travelling home on a train from London to Paris, having emerged from the Channel Tunnel and connected to the French mobile phone network, uses their French credit card to buy some content - legally by the EU rules that transaction should be counted as British and the VAT paid to the UK, because the international train started its journey in the UK - and getting that wrong can lead to an unlimited fine, even though the VAT rate in both countries is 20%.

Another example, an Italian citizen sailing on a cruise liner whose last port of call was in Spain, and is connected to the Internet via a British IP address - the correct answer is "Spain", but how on earth is your website software supposed to work it out?

But regardless of the problems, this is the beginning of serious taxation of Internet trade. Major governments are all going to want this, as they're aware how much revenue they are losing in the global digital economy. This isn't just an EU thing, the whole G20 (including the USA) are in overall agreement on it.

There's currently a petition in the UK asking the Business Secretary to apply the UK VAT threshold, to protect UK microbusinesses from the VAT requirements, it's gained almost 6000 signatures in a few days, no idea if it will have any effect though.

Seriously, whatever anyone thinks about taxes (and don't get me wrong, I utterly *hate* this new system and if I wasn't already running a successful WAM site it would completely put me off trying to start one, or indeed any form of on-line sales site), I would strongly suggest that anyone, anywhere in the world, who sells WAM content on-line needs to at least talk to both their accountants and their payment processor, and find out what they need to do about this. We're a small community, the entire global WAM business is probably less than pocket change to the average EU bureaucrat, I'd hate to see any of us taken down by the juggernaut this thing is going to turn into.

Two things:

1 - Forbes is pretty much the "Daily Mail" of financial journalism. They are not a source to use when making decisions

2) - Again, this type of internet-specific tax is ILLEGAL in the US at the moment. No amount of alarmist bullshit from the yellow press is going to change that. Of course an accounting firm is going to try to scare the shit out of everyone. That's how they get new business.

In summation, the EU can suck my balls. They ain't getting a dime.

Soundguy just became my favorite Moderator on this website
(after Messmaster, of course... no offense intended toward your Holiness, the Messmaster :notworthy

The world needs more smart AND courageous people like Soundguy.
Hard to get BOTH qualities together.

There is not a chaaaaaaance of this being enforceable. I mean... if you don't volunteer the information... what're they gonna do? Go through the credit card transactions of every EU citizen and cross reference them with... what?

And also, as Soundguy says... if you're buying data from the US, you're buying data. You pay any US sales tax that's applicable, and that's it.

Because. You cannot. Verify. Anything. Else.

I'm not selling anything online at the moment, but if I were? I'd be joining in the point-and-laugh game too.

But most of all? And, hoo... this is a biggie. If, in the tiniest, craziest little offchance that it does come in, that they can (they can't) verify what someone in another country is selling to their citizens? If it all came in? Then that would be IT. Nobody's going to go through that bureaucratic insanity just to sell to a handful of European nations.

So, yeah. Point point.

I just spent an hour and a half writing a long response to SoundGuy's last post but when I hit Submit the UMD logged me out, and I'm not going to attempt to recreate it.

Short version: Looks like SoundGuy is right - there is no enforcement mechanism in place with the US, or indeed with anywhere outside the EU bar possibly Norway and Russia, where negotiations on joint enforcement pacts (working both ways) are already underway.

So while non-EU sellers are legally obliged to register and submit VAT returns, there is apparently absolutely nothing in place to actually make them do so.

So a measure that's meant to make things more equal (all sellers, regardless of where they are, must levy the same tax rate, based on where the purchaser is) is in fact just about to give a massive advantage to non-EU sellers of digital goods, while penalising anyone in the EU who sells so much as a single digital file with the kind of tax rules more appropriate to multinationals and an enforcement regime more suited to major fraudsters. It doesn't just affect the WAM business, a teenager who sells a single MP3 of a song she and her mates have recorded, to someone in another EU nation, could be facing huge fine for tax fraud if she doesn't register and submit a VAT return.

Of all the possible threats to the on-line WAM marketplace, the EU driving it's own producers out of business with insane rules was not one I saw coming.

I foresee quite a few EU-based sites going out of business, and a significant increase in non-EU download store activity, as when things are sold through a portal, it's the portal operator who is liable for the VAT (or seemingly free to give a testicular response). Long term there presumably will be joint enforcement, but at the moment it appears there isn't.

Note (applies to all my posts in this thread): I'm not a lawyer or an accountant, nothing I've posted anywhere in the thread should be taken as legal or tax advice. The purpose of this thread was simply to let fellow producers know this change is coming. Those of us in the EU will have to follow it to the letter, or close our EU-based businesses. Those elsewhere will have to make their own minds up about what to do.

It will be interesting to see what, if anything, is done to attempt to enforce this on non-EU businesses after January 1st.

The irony of all this is the EU president is currently being investigated for creating corporate tax evasion on an industrial scale as the prime minister of Luxembourg anyone fancy sponsoring me and the Mrs to emigrate to the USA so we can get away from these loon balls

Yep, bang on. Hence why I started this thread here, I've also been raising it with several musicians I know. This could be the complete end of small bands being able to sell their tracks as digital downloads off their websites, destroying an important source of income and damaging our cultural industries.



As far as I know anyone in business can register for VAT, the £81,000 threshold is the point at which you are legally obliged to register, but smaller firms than that still can - and it does have the advantage that models' clothes, your camera gear, studio kit, etc, then become 20% cheaper, as you can reclaim the VAT paid when you bought them. But the downside is having to do full VAT accounting and quarterly returns. Sadly for those of us using food based gunge, in the UK foodstuffs are either VAT-free or zero-rated (it varies by type of item) so there's no advantage there.



Note that you need to keep records for ten years, even if you don't do any sales to other EU states, to prove that you didn't - any EU state's tax authority has the right to demand an audit of any business they suspect of breaching the law.



The penalties can be horrific, and vary according to which country's VAT has been incorrectly levied (or filed late) - the worst case is Poland where the fines can go all the way to 3.7 million Euro, which is about four and a half million US dollars or nearly three million quid.
____________________________________________________________________________________________________________________________________

I've written to my MP, asking them to raise this matter in Parliament and pointing out the complete insanity of imposing VAT duty on teenage musicians selling occasional tracks or e-book authors selling a few hundred copies. There is a petition going to get the UK's threshold applied to digital sales here too, which would help as a stop-gap.

I've also written to my Conservative (so hopefully business-friendly) MEP asking them to ask the Commission exactly how it intends to attempt to enforce this on overseas businesses operating entirely within the borders of sovereign foreign nations, and pointing out that enforcing onerous VAT requirements on all EU sellers while enabling foreign competitors to undercut us by 20% or more, with no way to prevent them doing so, is going to largely destroy the UK's creative industries. Hopefully that will either reveal what they actually plan to do, or that they don't have a plan and the whole thing is an unworkable disaster. Either way hopefully getting questions asked in the UK and EU parliaments will wake more people up to the oncoming train-wreck.

This isn't enforceable except for large multinational companies. There just isn't enough manpower to deal with the millions of download stores and online merchants throughout the world. There are a few hundred just for WAM alone, imagine how many there are for more mainstream fetishes.Then imagine how many authors, musicians, designers, ect who sell online. While I don't sell anything online, if I did and I ever got something from an EU country saying I owed them money I would throw it in the trash because they have no power to tax me. We fought a war over unfair taxes being imposed without our say. So, if you own a business you might want to consider moving it out of the EU, and therefore out of its jurisdiction.

i know quite a few of my friends who run businesses and sell things part time and when i mentioned it they had no idea of this. Also could i please have a copy of this info so i can share it with those that i know so i can help them out too.

Go back up the thread and copy out the various links in mine and besidethesea's posts, forward those links to your friends.

Note it only applies to digital sales (downloads, movies, MP3s, e-books, on-line content, basically). Doesn't affect someone who's selling physical stuff.

An example of the craziness: A UK business could ship and sell £80,000 worth of CD's in Germany and not have to pay any VAT, as that's less than the UK threshold. But if they sell one single MP3 for 50p, they need to register and submit VAT data. It's utterly bonkers, but it's also law.