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Collecting VAT on software sales from USA

Starting July 1 2003, those of us here in the USA who sell software (shrinkwrap box or direct download) to residents of the European Union states are supposed to start collecting appropriate VAT and file an appropriate VAT return.

Has anyone investigated this?

Mitch & Murray (from downtown)
Tuesday, June 24, 2003

Say that I fail to report my VAT earnings.  What are they going to do about it?

Garnish my wages?
Haul me off to "prison EU"?
Hassle my customers?

I am guessing that this is only enforceable with companies that have a presence in the EU.  I.e. Microsoft's Office in France, et al.

--
ee

eclectic_echidna
Tuesday, June 24, 2003

You are supposed to do this now when you sell into Canada.

You can give UPS, FedEx etc. a few extra bucks, and they will do this for you when you ship....

Albert D. Kallal
Edmonton, Alberta Canada
kallal@msn.com
http://www.attcanada.net/~kallal.msn

Albert D. Kallal
Tuesday, June 24, 2003

If you don't show that taxes are being collected, then your stuff may be held up at customs.

I guess, it might be time to make a download verison.....

Albert D. Kallal
Tuesday, June 24, 2003

Actually, the new regulations apply exclusively to "electronic services" (downloadable software, hosting services, etc.).

The first interesting thing is that the EU has passed a law which says what people outside of the EU should do. I am outside of the EU (Poland), not a EU citizen, yet this new directive says I am supposed to collect taxes for the EU.

The second interesting thing is that eBay, Amazon, AOL, and virtually all major shareware services (RegNow, Kagi, eSellerate...) have already indicated they are going to play along and add 15-25% tax to every purchase made by a customer in the EU.

(Something tells me this thread is way off-topic for this forum...)

Tomasz P. Szynalski
Tuesday, June 24, 2003

If I was truly underhanded, I could collect the 17% and then not send it in.  That way my customers would feel comfortable that I am doing business properly, and I get a nice bonus.  This is because those laws seem unenforceable.  Or am I just crazy? I don’t recall our senate voting to join the EU.

The truth is that I am not underhanded.

--
ee

eclectic_echidna
Tuesday, June 24, 2003

Very mysterious. I couldn't find one investigative reporter on the planet who went to the trouble of finding out exactly how the EU thought they would enforce this bizarre law on companies who do not have any physical presence in Europe.

Joel Spolsky
Tuesday, June 24, 2003

Joel,

My understanding is they send you 100 cases of French wine and then notify CNN that you have broken the boycott. :)

Marc
Tuesday, June 24, 2003

I would have thought the logical approach would be to hold the item in customs, whereupon the purchaser pays the requisite VAT.  To the best of my inadequate knowledge, this is how things have traditionally operated.

Do you have a link?

hohum
Tuesday, June 24, 2003

We're talking about software downloads, here.

Joel Spolsky
Tuesday, June 24, 2003

As Tomasz said, this is only for downloaded software.
How will customs hold that?

I imagine it's like the sales taxes being implementation nation-wide in the US: voluntary, but big organizations will do their best to comply.

In the US, you're supposed to self-report use tax (like sales tax) on items where you didn't pay the sales tax. No one does. So states have pressured Amazon et al to do the work for them. The EU wants to do the same.

http://www.washingtonpost.com/wp-dyn/articles/A36150-2003Jun9.html

mb
Tuesday, June 24, 2003

It will be interesting to see how the plan to do this for people d/l s/w.

Prakash S
Tuesday, June 24, 2003

I would guess that there's nothing to enforce to non EU companies. The responsibility to pay the VAT is on the customer, not on the seller. So if the company don't take the VAT at the time of purchase, the customer is probably supposed to pay it with the rest of the taxes. It's just a convenience thing for the customer, since most customers are used with VAT being baked in with the price.

Note also that EU companies that are registered VAT payers, don't have to pay the VAT to the seller. They can instead pay (or receive) with the annual budgettyhingy (no, English is not my native language :-) ).

This is actually nothing new, it's just a natural cause of computer services bacoming a everyday thing. We pay VAT for everything else, and theres no reason these things should be excluded.

olsson
Wednesday, June 25, 2003

Joel,

Well, in my opinion, this whole thing is illegal, but one of the ways in which the EU could make you pay up would be by seizing your intellectual property (e.g. eSellerate has said they were afraid of that). For example, they could make CityDesk available for download on an official EU site for half the regular price.

Some of the developers over at alt.shareware.authors have also been worrying that the EU could arrest them when they travel to Europe or use an European airline.

A couple interesting links on the topic:
https://www.cato.org/dailys/08-21-00.html
http://www.hmce.gov.uk/business/electronic/vat-on-e-services.htm
http://europa.eu.int/comm/taxation_customs/taxation/ecommerce/vat_en.htm

Tomasz P. Szynalski
Wednesday, June 25, 2003

Well of course what will happen is that they'll pass the pressure off to the CC companies. For corporate users it makes no difference as it's all zero rated. It's really designed to catch ebay and aol both of whom haven't been charging VAT. However they may well decide to lean on the credit card companies, get some data from them on card holder not present purchases where the company is in the US and the CC holder is in the EU and attempt to bust some high profile folks.

This is analogous to the DCMA stuff that the US has tried.

http://www.hmce.gov.uk/business/electronic/vat-on-e-services.htm has more on this in english language.

Peter Ibbotson
Wednesday, June 25, 2003

All our sales are handled by Regsoft.com. I contacted them and Regsoft responded that starting July 1st they will start charging VAT for customers in the European Union. Pretty much as I expected.

Like it or not, but this one is gonna stay and from a tax point of view makes sense. If you are high profile there's not much you can do than follow the rules, if you're smaller and feel lucky you might fly under the European tax inspector's radar, but you will be breaking the law. I wonder if there is a sales limit. Like if you sell less than X to Europe you don't have to register.

Jan Derk
Wednesday, June 25, 2003

Oh BTW Shrink wrap box means you shouldn't need to do anything. (The post man will collect it)

Peter Ibbotson
Wednesday, June 25, 2003

The new VAT regulations apply only to products delivered electronically (there are existing regulations for tangible goods). It doesn't apply just to the USA, it applies to any non-EU countries selling into the EU. The legal justification is because the point of download (the customer's PC) is in the EU, hence VAT applies. There is a threshold of approx 50,000 Euros, below which VAT need not be collected.

As other people have pointed out, if you have no presence in the EU you may be able to ignore it. The only legal recourse I could see is a judgement registered against you in an EU country, which the VAT commissioner could seek to enforce in your home country. I wouldn't imagine this is likely.

Also see an earlier topic: "Have you registered for VAT? The EU wants your $$$"

Bill Rayer
Wednesday, June 25, 2003

I think you'll find that the seller is actually responsible for paying VAT. Otherwise every electronics store would be simply handing over its goods to customers and saying 'I haven't paid VAT on this - would you mind doing it'.

I imagine that the simplest way to achieve this would be the same way Netscape ensured that its encrypted versions were not exported to foreign countries from the US - by making you check the box 'I am a citizen of the US or Canada' in the download procedure. :-/

David Clayworth
Wednesday, June 25, 2003

Checking up the links given it does appear that the seller will have to register to collect VAT in one of the  member states.

The registration procedure does not appear to be particularly onerous but looking further it appears that you are supposed to keep statisitics on all EU countries to which software is downloaded and to send the total sales by country with your quarterly VAT return. You are supposed to use the billiing address on the credit card for that.

If you sell through a middleman he should do the collecting, but if you sell direct then you need either to ignore it or to change your software to check up on the billing addresses, charge VAT if necessary and then send a total per country together with making an arrangement with the bankto pay the VAT collected in one go.

I don't know about the legality of the regulation; previously it has been the States that has tended to try and extend its jurisdiction to the rest of the world - there are certainly plenty of other more useful ideas that Europeans could copy from America.

On another note it does provide a great opportunity for unscrupulous vendors to charge customers VAT and then pocket it. I rather suspect that they will be the cases taking up the limited resources of the VAT inspectors for the next few years.

Apart from simply ignoring the regulation, which is what I would say is the most prudent thing to do, there are other alternatives. You could go and register with some new entry to the EU such as Estonia or the Czech Republic where they've only just started wth VAT for domestic consumption and you can bet your bottom dollar they'll be many years before they even think of trying to translate your replies to them into English.

Stephen Jones
Wednesday, June 25, 2003

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
Tuesday, March 23, 2004

PS - any company that collects VAT tax in accordance with this new regulation is most likely, by definition,  in violation of their own privacy policy to NOT provide customer details to third parties (which is boiler plate in most software companies)

"Keep adequate records of transactions subject to EU VAT for audit purposes. "

this means that if EU asks they expect all order details from EU customers (name, company, contact info, amount purchased, etc)

To any company acting as EU VAT tax collector that also states that according to their privacy policy that they don't provide info to third parties - amend your privacy policy to state that you WILL give up customer data to anybody who strong arms your company or quit acting as a EU lackey.

If the EU tries to selectively enforce this the U.S. should retaliate with a 20-30% VAT on European software that varies according to each state in the U.S. the software was purchased in to ensure maximum headache - which is what the EU is doing now.

F the EU
Tuesday, March 23, 2004

API and UPI report that the French Government announced today that in light of the Madrid bombing, France has raised it's terror alert level from "run" to "hide."

The only two higher levels in France are "surrender" and "collaborate"!

F the EU
Thursday, March 25, 2004

And there goes a well-reasoned argument straight into the crapper.

You can catch more flies with honey than vinegar.
Friday, May 07, 2004

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