All businesses large and small
cry for a level playing field, a fair taxation system under which apples can
compete with apples and where all contribute the community in which they earn
their living. Unfortunately Utopia doesn’t exist and as trading communities spread,
global trade increases and an individual consumer can buy direct from anywhere
in the world with any business anywhere in the world the issue of tax just gets
more complex.
The new digital and technology
traders from outside the EU discovered what could be best described as sink
holes in corporation taxation and VAT across Europe. Not only were the rates
all over the table but many governments were happy to induce companies to set
up operations in their own countries with generous allowances and breaks. As
new markets such as digital media grew many screamed foul, others tried to
imitate and no one actually sorted much out.
Jean-Claude Juncker, the European
commission president is now facing increasing pressure as allegations mount
which indicate that even he used questionable tactics when he was prime
minister of Luxembourg to promote the country as the destination for
multinational corporations such as Amazon.
Bob Comfort, the former head of
tax for Amazon, has claimed Juncker helped Amazon secured a confidential deal
from the local tax office. A deal which is now the subject of a formal
investigation by the European commission itself. Since 2003 Luxembourg has
become the VAT haven for the likes of Amazon, Kobo, Nook and others all wanting
to benefit from their 3% digital VAT rate. Companies could buy digital wares at
a VAT inclusive price from higher rated counties such as the UK (20%), sell at
3% and effectively cream off 17%. This was possible due to the VAT being
incurred at the point of distribution and registered office.
European commission investigators claim
that they believe the Amazon 2003 deal with
Luxembourg is so generous as to amount to illegal state aid. Amazon EU Sarl,
the company with which customers across much of EU do business when they buy
online from the retailer, took €13.6bn (£10.7bn) in sales last year, up from
€11.9bn in 2012.
In January The EU
is changing the rules such that VAT will be paid at the point of consumption of
digital product. This means that the previous VAT benefit is levelled and this should
benefit local retailers but many question whether this is the case and whether
the EU has made it even harder for smaller traders to compete as they have to
now deal with potentially not one but 28 different rates of tax. This also
applies to those authors and publishers who sell direct and may be too small in
terms of VAT sales to be registered. The VAT threshold below which many small
businesses do not have to register for or pay/claim back VAT will be entirely
removed for those dealing in digital goods selling into the EU. All companies
will be responsible for paying VAT on every digital product they sell, even if
they only sell one. Sell one ebook at 99p directly to someone in the EU, fail
to report, and you risk of an unlimited fine. To avoid the need to
register in up to 28 different EU member states, sellers can opt for the Mini
One-Stop Shop (MOSS) alternative: registering in its home jurisdiction only,
and submitting only one return and payment.
The question as to whether the
VAT change will result is higher ebook prices for many within the higher rated
EU countries remains a strong reality. However those selling into businesses
and education will remain unaffected. Where the goods supplied consist of physical
product which is ‘bundled’ with a product that is accessed digitally, then the
place of supply rule changes will only apply to the digital element of the
supply if this is seen as a supply or the dominant part of the bundle.
We still have no answer over the
drop in France’s ebook VAT rate to 5%, which was deemed illegal by the EU but
remains despite protest. France has now been joined by which has lowered the
VAT on e-Books from the standard 22% to 4% so it matches the rate imposed
on printed books. Malta has also cut its VAT on e-books from 18% to 5%, also so
it is in line with print. The rates in France, Luxembourg, Italy and |Malta now
are at significant variance to the likes of the UK , Denmark and others. VAT
harmonisation across the EU even on one product seems very unlikely and so the
muddle will continue.
Corporation, or business tax,
which is based on profits made within a trading community also remains in a
mess with various different rates being applied in different countries across
the EU. This prompts Apple to seek refuge in Ireland and others to channel
funds through other countries or create high royalty payments to subsidiaries
to offset tax. The UK has declared a “diverted profits tax”, or Google tax, which
is aimed at targeting companies who shift profits out of the UK in artificial
ways, with a punitive 25% tax rate from April next year. The question of how
effective this will be remains as does the question of whether the EU will
follow suit. What is clear is that many are demanding tax is paid where sales
are made not in safe tax havens.
But change is not just about the
EU and the Japanese government is introducing a new Consumption tax on
digital good sold to Japanese consumers. This will mean that any digital media
sold by vendors whose headquarters are located outside Japan will be subject to
the new tax. This will include companies such as Amazon.com and even Kobo Inc.,
who despite being owned by Japanese retailer Rakuten is registered in Canada.
