The start of 2015 will bring about another change in the way that International Tax is paid within the EU. The main impact will be on digital services and content in the B2C sector, where the C for consumer is an end-user in Europe.
From January 1st, any company in the EU selling digital services (for example – games, music or content) will be required to pay VAT in the end-users country rather than the country the business is based. This legislation has been brought in to even up the distribution of taxes across the EU, and bring everything inline with a VAT system where the tax is paid in the country the consumer is based in.
Why is this an issue?
Previously, a UK based company selling services such as apps or content streaming, would only be required to pay UK VAT on those transactions, regardless of where their customer was in the EU. Now, that same UK company is required to pay tax in the customer’s country instead. With over 30 different tax codes applicable to 28 different EU member states, it will require a significant amount of work to make sure this is calculated correctly. You’ll need to know where exactly the end user is and what the particular VAT rule for that service is in that country.
How should we tackle this?
Companies will need to alter their payment platforms in order to reflect the new system.
- Tax Exclusive
- The payment platform reflects the cost price before tax. At checkout, the appropriate county’s VAT rate can be added
- Risks: Your prices aren’t transparent as end users are used to seeing VAT inclusive prices
- Tax Inclusive
- You take the average VAT rate (currently 21.5%) across all member states and apply it to the product
- Risks: If you suddenly find a large customer base in Hungary (with a VAT rate of 27%), you will be losing out.
After correctly billing your customers across the EU, you will then need to pay each individual Country’s tax revenue service the money due. HMRC are making this easier by allowing you to pay the tax to them, and they will distribute to the relevant country under a system called MOSS (The Mini One-Stop Shop)
- Pros: Eliminates the need to register in each individual country, thus saving a huge amount of paperwork
- Cons: MOSS returns will still need to be filed separately from UK VAT returns (so another form) and they will not allow you to reclaim any VAT paid in those countries, which will still follow the old rules
How can I get my company ready?
- Research – Look into the different tax rates to ensure you have the correct ones for your type of business (some EU member states have several)
- Identifying the Consumer Country – Make sure your data capture platform is connected to your payment system so you can bill for the correct tax rate
- Collecting Tax – Make sure your pricing and payment system are tested and ready
- MOSS – Understand how it can help you
We will connect with all our clients affected on an individual basis. If you have any questions about the new EU legislation please contact us at email@example.com