On paper, I mostly think the EU is a great idea. The Euro currency too. It fits well with one of the most loudly broadcasted purposes of EU; to strengthen and easen trade between member countries. Well, it’s not officially phrased that way, but you’d be hard pressed not to interpret the Treaty on European Union that way:
DETERMINED to promote economic and social progress for their peoples, taking into account the principle of sustainable development and within the context of the accomplishment of the internal market and of reinforced cohesion and environmental protection, and to implement policies ensuring that advances in economic integration are accompanied by parallel progress in other fields,
Anyone who runs anything but a local — as in brick and mortar style — business should think this is a great idea. Essentially, it should widen the adressable market for a business with little to no overhead, give or take your sales channels. For Internet companies, this is awesome. Gone are the odd trade agreements between neighbouring European countries, replaced with a simple, consistent model, which everyone agrees on.
For Iconfinder, this has been especially great; we only need to deal with the distinction between EU and non-EU customers, and in the case of EU customers, whether they’re valid legal entities or simply consumers. Based on this information, it’s pretty simple to figure out what to do about VAT. That part about “valid legal entity” is actually not that simple, though, as you are actually required to verify the validity of a legal entity. For this, the EU has a mostly unstable Web service (SOAP, of course), VIES, which is woefully underdocumented, but if you do a bit of work, like we have with our pyvat Python module, you can pretty easily automate this process. It sure as hell still beats dealing with whatever trade agreements existed before the EU.
It’s all down hill from here
But, all these good things are going to come to a screeching halt on January 1st, 2015, at least if you’re in the broadcasting, telecommunications, or, in our case, “electronic services” category of businesses. If you’re so lucky as to be one of these businesses, you now no longer have to pay your local VAT rate to the country in which you operate, when you sell to a consumer in the EU. Instead, you now have to pay VAT in the consumer’s country of residence at the rate applicable to the good, you’re selling, in that country.
In other words, until January 1st, when Iconfinder sells an icon to a consumer in Malta, we have to pay 25 % VAT to the Danish government on the sale. From January 1st, we have to pay 18 % VAT to the Maltesian government instead. This alone, in my opinion, is unnecessarily complex. Think about it; we now have to keep track of VAT rates in all individual EU countries. Sure, the EU published a set of instructions containing a table of these rates, on their 1995 style VAT insanity page, but there’s no obvious way of being subscribed to notifications on changes. Pray that your accountant will keep an eye on that for you, or hope that you remember to visit that site every so often.
But, wait, it gets better. Some countries have varying VAT rates depending on where in the country the consumer lives. Some Greek islands have a discounted VAT rate of 16 % instead of the normal 23 %, so you’re now stuck with having to figure out if that’s the case. As anyone who’s ever tried to parse or validate adresses knows, doing this consistently from user input is going to be borderline impossible. And, then, of course, there’s the varying VAT rates depending on the good you’re selling. In France, e-books are sold at a 5.5 % VAT rate as opposed to the standard 20 % rate, and e-newspapers (whatever they are, exactly) are sold at an even lower rate of 2.1 %. Then, lastly, there are little details like the “use and enjoyment” VAT levying rule, which is of course only applicable in certain countries.
None of this is exposed in any useful manner. It’s 2014 and the EU did not think to make it easy for businesses to comply with these rules by, say, exposing this information through a Web service. Instead, your get a PDF summary and a bunch of documents to read, understand and implement. Have fun.
As for the question of actually paying the VAT owed to ther countries, the EU did actually decide to use some new fangled technology in offering a consolidated platform for payment, the “MOSS,” or “Mini One Stop Shop” (who names these things!?) Knowing how well these things usually work, it’ll probably be utterly useless and a huge headache for the next couple of years, but at least they tried.
Now, as if all of this wasn’t ridiculous enough, the EU laments its self-image of being an economic super power by maintaing the ridiculous rule of countries outside the EU selling to consumers in the EU technically being required to pay VAT in the country where the consumer lives. This is of course in spite of the fact that the rules state, that businesses in the EU doing selling to consumers outside the EU are no longer required to deal with any kind of VAT payments. Fat chance that American companies will start charging me Danish VAT from January 1st, especially when this is now a one-way street.
It’s a treaty breach
The only real upside I can see, is that we’ll improve our margins slightly as only few other countries in the EU have as ridiculous a VAT rate as Denmark. I’m just not sure it’s worth it in time and complexity, not to mention development, bookkeeping and accounting costs.
I honestly think that, if you squint your eyes a little, these new VAT rules are counter to the stated purpose of the EU, and in essense, a breach of the stated goal in the aformentioned treaty. Sure, getting VAT to the country, where a good is consumed makes theoretical sense, as VAT is essentially a consumption based income tax. As so-called electronic services are becoming an ever increasing economic force, this of course skews the balance. However, it’s at the expense of the businesses providing these services. The overhead is substantial, and in that regard raises the barrier to entry for any business wanting to do business with consumers in EU countries — albeit most notably for EU businesses, as the rules can actually be legally enforced here. Sustainable? Maybe — those with skin in the game will manage and adapt. Does it promote economic progress? Definitely not.
The next weeks of my life will be spent implementing a good way to handle these new rules and testing to make sure everything works according to plan. What a royal waste of time, energy and money.