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Do you collect VAT for EU customers

If I'm not mistaken, vendors of electronic goods (like software) are supposed to collect VAT for customers in EU even if the company itself is outside EU.

Are you doing that? How do you handle the darn transactions?

I am selling a small shareware myself and I don't know what to do... damn taxes!

Another Vendor
Thursday, March 25, 2004

Fortunately this here is the United States of America and the EU does not have sovereignity here, therefore their laws do not apply to us.

If we had a physical presence of some sort in the EU we would probably want to comply.

Joel Spolsky
Fog Creek Software
Thursday, March 25, 2004

But US and EU do have taxation and trading agreements. And these are EU customers we are selling to.

Are you sure it's risk free to not take VAT?

Another Vendor
Thursday, March 25, 2004

No. Ask your accountant.

Joel Spolsky
Fog Creek Software
Thursday, March 25, 2004

I believe there has been an EU directive about this a year ot two ago, and Joel made a thread about it.

Normally you wouldn't charge and it would be up to the customer to pay. Same thing applies to customs duties.

The reason for any change in that policy is the AOL and Freeserve spat. Freeserve had to charge its customers VAT because it was based in the EU but AOL, which offered exaclty the same service didn't. Freeserve quite reasonably, complianed to high heaven about unfair competition.

Might be worth searching the JOS forum for Joel's original post. I seem to remember some links were given.

Stephen Jones
Thursday, March 25, 2004

>> "Fortunately this here is the United States of America and the EU does not have sovereignity here, therefore their laws do not apply to us."

That's not strictly true - as several high-profile cases in the EU (the latest with MS springs to mind, also the Lindows ban in the Benelux) might suggest.

I'm no lawyer, but if you're going to _trade_ with the EU then your business practice needs to conform somewhat to EU laws & regulations.

To turn the argument around you'd probably not be happy if non-US citizens were able to flaunt US laws.  For example anti-Spam laws etc.  Of course the court's judgement may be unimplementable as long as the person involved stays out the US. Or until the country where the offender is suddly decides extradition is a good thing...

The EU Vat collection issue (you're not being taxed, you're merely being instructed to collect tax from the customer) has not yet been tested in the courts.  When it is then the position will become clearer. (At which point the US may enforce the payment of taxes you should have collected, but didn't.) 

What's important with this regulation is that it is in the long term _benefit_ of the US govt. to enforce it. It creates a precedent which will ultimately allow US States to implement a similar system. (eg Joel collecting Florida GST even though he lives in NY.) 

From a practical point of view there is an extra burden placed on individual companies. The usual approach then is to sell via SWREG or equivalent which basically does all this for you.  At least until your internal computer systems are capable of conforming to the regulations.

Bruce Johnson

Bruce Jo
Friday, March 26, 2004

If I understand correctly the VAT scheme has been introduced throughout the EU in order to collect the VAT which an EU customer would normally have paid on the product had they physically imported the goods across the border by land, sea or air. If, for example, Joel were to FedEx a package to me in the UK, then FedEx would declare the goods at UK Customs, bond them and then send me a bill for VAT, which I'd have to pay before Customs would allow them to forward the goods to me. This is exactly what happens if, for example, I decide to buy a new bike from a US supplier.

This, of course, all falls apart if I simply download the software from his website. Hence the new scheme, which quite frankly stands no chance of working. If you are outside EU-jurisdiction (and can't be brought before an EU court because you have no prescence in Europe), EU governments may be able to determine that you have a product available that its consumers _might_ buy, but they'd be hard put to determine if anyone _has bought_ without intervention from the local courts.

If your interested in the mechanics of the scheme, the place to look is:

http://www.hmce.gov.uk/business/electronic/electronic.htm

There's bound to be similar arrangements throughout the whole EU, but at least this site is in English.

In any event, my proposition would be that it's the customer - not the supplier - who is responsible for paying import duties and VAT , just as if you sell physical goods FoB your factory. Besides which, it may be presumed that you know the law of your country of residence, but I can't see a court holding someone who is not resident blameworthy not knowing the law of an alien jurisdiction.

David Roper
Friday, March 26, 2004

Here's the way I think it should work:

In Saskatchewan (and Canada), I am required by law to self-declare any purchase I made outside the relevant jurisdiction and brought home. That is, if I walk into Joel's store in New York, NY, USA, and buy something, he doesn't collect any taxes except local ones. When I get home, I'm supposed to figure out how much tax I would have paid to each level of government had that purchase been made in the jurisdiction where I reside. Having made that calculation, I'm supposed to actually send that money in.

I don't know about other jurisdictions, but if you come on holiday to SK and buy something, you'll be charged 7% SK tax (PST) and 7% CA tax (GST). The CA and SK governments have forms that non-residents can fill in to request reimbursement of these taxes.

The seller doesn't have to know anything about where I'm from. I get charged tax on every purchase and it's up to me to request refunds from the appropriate party. As a courtesy, the seller can opt to not charge me tax as long as local law permits and as long as I can provide sufficient proof that I reside outside the jurisdiction.

This scheme scales nicely from the corner store, through mail-order of 'hard' goods all the way to downloads of software.

Oh yeah, I've never actually heard of any individual either self-declaring or submitting refund requests, but businesses do so all the time.

Ron Porter
Friday, March 26, 2004

For EU customers, I ship a physical CD. There's a custome's declaration form I fill out with the price of the software. When they pick it up at the post office, they have to pay the VAT at that time.

For electronic delivery it seems it would be impossible to collect until the long awaited 'identification management' 'improvements' are made to the net infrastructure. These are being sold as improvements that will stop fraud and spam but my bet is that neither of those things will stop, but I am certain that universal taxation will be implemented, which is of course the real impetus behind these initiatives.

Scott
Friday, March 26, 2004

Don't collect VAT for the EU!!!!!!

The EU can't mandate a U.S. company collects VAT taxes and the EU has no juristiction to do so ... and they know it.  For enforcement they are threatening to selectively non-enforce copyright infringement cases brought by U.S. companies.  So if you don't act as EU tax collector then the EU will give people a blank check to pirate your software!

What next - a software company needs to check VAT tax regulations in every country in the world that decides to add this law - then I will be sending checks to Japan, Nigeria and Indonesia?

The problem is not the EU's right to tax their citizens to death - which they can do for all I care.  It is that they are foisting the administration of this tax (the calculation and collection) on U.S. companies!  A EU consumer can pay tax directly to EU.

Furthermore - the whole basis of the tax is to make U.S. firms less competative againt EU firms overburdened by excessive taxation..  So it's like - I want you to spend a bunch of time and money to make your firm less competative and if you don't we'll pirate your software.

I'm amazed more people aren't fighting this tax - the EU can kiss my ass.

F the EU
Friday, March 26, 2004

I agree that it is unreasonable for the EU to mandate that US companies act as EU tax collectors because EU law is invalid in the US.

Similarly, it is unreasonable for the US to expect its laws to be followed outside the US. However, there are examples when US "jurisdiction" is extended into other territories in a way that is equally unreasonable. For example, the case of Dmitry Sklyarov, who was allowed to return home to Russia on the condition that he report in to the US Justice Department monthly, and to conform to other restrictions on his conduct, even in Russia. Another example is the pressure being put on other countries to implement DMCA-compatible laws. The US needs to try the shoe on the other foot occasionally.

I think attitudes like "the EU can kiss my ass" or "the US can kiss my ass" are unproductive. If you are operating a business in other territories (and if you sell to citizens of other countries via the web, then that is exactly what you are doing), then it would seem prudent to follow reasonable steps to ensure that your customers comply with their local laws.

If, as a result of dealing with a US company that was asked to charge me EU tax and forward that tax to the EU, I was found in breach of EU law and fined, I'd think twice about buying from that company again.

What if the EU blocked sales of your product as a result of non-compliance? What if they refused you the opportunity to set up shop in the EU if your business went global -- or to tax you more heavily? What if they charged EU citizens a heavy tax for importing your products?

A reasonable solution would be to let EU citizens pay online and download immediately, but to also ship them a physical item so that customs can charge the tax. It's daft for the EU to ask US companies to charge their tax, but if that is what's being asked...

C Rose
Saturday, March 27, 2004

VAT is an indirect tax. In the States you have Sales Tax in the different states.

You don't say that the US is trying to crush EU, or Japaneese, or Chinese competition because nearlly every State puts a heflty sales tax on their products. In fact you'd be screaming to high heaven about unfair advantages if they didn't have to pay the same tax as you.

The problem with out of EU sales is collection. Within the EU each part of the production and delivery process both pays and charges VAT. If an out of EU supplier sells to the EU the importer, or the customer if it is a direct sale, is responsible for payment. With electronic delivery the whole system breaks down. However to not charge out of EU companies at all is to give them an unfair advantage, which is what the Freeserve v AOL case was all about.

This seems to me to be a case that is crying out for a bilateral agreement. Electronic resellers in both countires withold 10% and send it to their government. However the fact that neither of the two taxes involved, Sales Tax in the States, and VAT in the US, actually go to the National Government (Sales Tax goes to the State in the US, and VAT revenue goes to the EU in its entirety) means that there is not the motivation there would be otherwise.

Incidentally, if anybody is considering registering for it, then remember you only have to register in one country, and then you can do business with the other 24.

Stephen Jones
Saturday, March 27, 2004

Incidentally, if you are selling to companies, they will simply deduct the VAT paid from the VAT they owe, so your product is no more expensive than it would be if you didn't charge VAT.

I presume that it will be those who sell to companies, and might find themselves excluded if they can't provide a VAT receipt, who will find themselves registering. And I would think that  Fog Creek may fall into that category.

Stephen Jones
Saturday, March 27, 2004

to "C Rose"

comparing case of intellectual property rights and criminal activity to foisting anti-competative tarriffs (which in effect this VAT tax is) on different countries is a terrible analogy.  but for EU apologists they have to reach pretty far to come up with even a semblance of justification for this law.

there is no fine for consumers for whom VAT is not collected - this is equally stupid argument ... no I think it is a little worse.  the consumer is free to report all such sales directly to their local governments - and I would strongly encourage them to do so.  But collection is out of their control.  Perhaps EU considers it's own citizens won't abide by EU laws so it compels U.S. companies to enforce them.

But the question is really - how can the EU legally mandate that U.S. companies self-enforce anti-competative measures targeted against these same companies!  Anybody who thinks this is a simple VAT issue is a moron - it is a means for EU to make non EU companies less compatative against their EU software industry.  As stated in their own documents - the purpose is to "end discrimination against EU companies obligated to charge VAT".  Discrimination?  The competative disadvantage was created by EU in the first place and so how do we "discriminate" against EU software companies because we don't match them in excessive taxation.

Don't think this is U.S. issue - ALL non EU countries must collect, administer and payout this tax.  And for EU consumers - you will also pay out the nose.

The only winners here are EU software companies and the EU's bloated government - which should reap more than $200 million per year, based on recent estimates, from this tarriff.

F the EU
Saturday, March 27, 2004

Dear F the EU,
                      You appear so obtuse that I am surprised you can manage to ship software to the next room, never mind across the Atlantic.

                      VAT IS NOT A TARIFF. Tariffs are taxes placed on imported goods that are not placed on goods produced in the host nation. Let me repeat that: Tariffs are taxes placed on imported goods that are not placed on goods produced in the host nation. Any company in the EU charges VAT for goods sold there. If you charge VAT on goods you sell to the EU you are simply in the same situation as an EU manufacturer.

                      Now, it's not quite that clear, because an EU manufacturer will only pay to the EU the net VAT (VAT collected - VAT paid) and if you are paying the US equivalent to VAT, which is State Sales tax, you wouldn't be able to claim that back. However the money involved would be minimal.

Stephen Jones
Sunday, March 28, 2004

"VAT IS NOT A TARIFF. Tariffs are taxes placed on imported goods that are not placed on goods produced in the host nation. Let me repeat that: Tariffs are taxes placed on imported goods that are not placed on goods produced in the host nation. Any company in the EU charges VAT for goods sold there. If you charge VAT on goods you sell to the EU you are simply in the same situation as an EU manufacturer."

ahhhhhh OK?

so if EU taxes U.S. software (an imported good) not produced in host nation (EU) then VAT taxes are not tarriffs

but tarriffs are are taxes placed on imported goods not produced in host nation ...

so even by your simplistic definition you have managed to equate VAT taxes with tarriffs.  note you didn't even challenge the premis of the argument just engaged in symantics (tarriff vs VAT tax on foreign good), which surprisingly enough you mangaged to scramble up so bad as to further enforce my case.

but in a general sense of the word tarrifs are ANY tax levied by one country against another in any shape or form.  Simply giving it a different name or pretext doesn't change this.  Foisting VAT taxes collection on foriegn countries is a classic case

but I guess changing the name of it is easy enough to confuse a simpleton like you.  If everyone was as simplistic as you the IRS could rename your next tax bill  as "Govt Investment Program" and everyone would rush to pay it.

countries try to jerry rig their trade laws to selectively reinforce local industries at expense of foreign competitors.  everyone does it.  but this is one of the most far reaching and egregious attempts I have seen. 

what amazes me is how morons like this are so easily duped by this obvious back door anti-competative tarriff against U.S. companies.

let's hope our gov't managed to read past chapter 3 of "International Trade for Dummies" which this poster obviously hasn't gotten to.

F the EU
Sunday, March 28, 2004

..."you mangaged to scramble up so bad as to further enforce my case."...

ROFPMSL!

Tom Hawkins
Monday, March 29, 2004

VAT is the EU wide successor to national and local sales taxes. It is paid on the vast majority of goods and services traded in the EU.

It was implemented for two basic reasons
- to provide a source of income to the EU
- to simplify the existing sales tax systems in the member countries, particularly for trade between EU countries.

Before VAT, national sales taxes were imposed on imported goods by the individual states. These were paid by the customer when the goods were delivered.

If VAT did not exist then the current problem would be multiplied by however many member states there are in the EU.

A bigger problem is online gambling, legal in the EU. Most of the sites are offshore.

So that's the background.

Now I am from the EU and I don't agree with the idea of forcing non-EU companies to collect the VAT due on sales.

In my view, as the majority of payments for these goods are made by credit-card, the VAT collection should be done within the card reconciliation system and not by the suppliers.

joneverett
Monday, March 29, 2004

Dear Tom,
                A google search for acronyms has found me two acronym finders with a quarter of a million acronyms each but ROFPMSL is not in either. Please let me know, and as I live outside the EU I promise you won't have to file any VAT returns.

Stephen Jones
Monday, March 29, 2004

---"tarrifs are ANY tax levied by one country against another in any shape or form."----

But VAT is not levied against any country. It's the same whatever country the goods or services come from.

If you have a car dealership and your home State charges ten per cent sales tax on al cars whether BMW's or Chevrolets you can't say that is a tariff against German goods!

Stephen Jones
Monday, March 29, 2004

F the EU, you might try working on your reading comprehension.

Stephen defined tariffs as "taxes placed on imported goods which *are not placed* on goods produced in-country"  The VAT applies to ALL goods regardless of where they are produced.  Therefore it is not a tariff, by definition.

MikeMcNertney
Monday, March 29, 2004

I file for GST refunds when I go to Canada on vacation. I have also filed for GST refunds on business trips but probably won't in the future. It's seldom worth it when you only stay in a hotel a couple of days, I don't know for sure that my company is not also filing for the same refund, and I my expense are paid for anyway.

pdq
Monday, March 29, 2004

Rolling on the Floor Pissing Myself Laughing.  That's my guess at least...


Tuesday, March 30, 2004

here is a quote from Sen. John Edwards on the issue after sending him an email about it

"As you know, on July 1, 2003, the European Union (EU) began requiring foreign firms to pay value added tax (VAT) on the sale of software, computer services and information  services digitally delivered to individual customers in the EU.  Although EU firms pay the VAT at the single rate of the country in which they are located, American and other non-EU firms are required to pay the VAT at the rate applicable in each customer's country. 

    I certainly understand your strong opposition to EU taxation of digital transactions.  As you wrote, the issue of requiring a foreign firm to collect tax on sales at multiple rates depending on the customer's country of residence is similar to the domestic issue of possibly requiring American sellers to collect tax on interstate sales based on the tax in the customer's state of residence.  You may be interested to learn that there has been discussion of the United States filing a complaint with the World Trade Organization about this requirement.  Please be assured that I will keep your thoughts in mind should related legislation come before the Senate."

Randal
Friday, May 07, 2004

MikeMcNertney,

why don't you try looking up definitiion of word in dictionary and not rely on how it is defined by a slightly confused poster on a software message board?  It would be interesting if we could all just randomly define what different words mean to suit our own purposes wouldn't it?

Tarrif

"a charge or list of charges either for services or on goods entering a country"

or

"The tax or duty to be paid on a particular class of goods imported or exported."

by any definition - foisting ANY tax on any external country - whether you call it VAT or some other name IS a tarrif.

Randal
Friday, May 07, 2004

The tariff isn't paid on the goods or services because they are imported - it is paid because they are goods or services.

Let's make it a little clearer. If you want to use the public conveniences at Victoria Ralway station you have to pay a coin to do so. Even if your shit has flown all the way across the Atlantic the money you pay to dump it in the cistern is not a tariff.

Stephen Jones
Friday, May 07, 2004

You must be an acrobat to be able to shit in the cistern...

JBreffni
Monday, May 10, 2004

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