A number of as yet unanswered questions, mostly about implementation. Please let me know if you spot an official response to any of these.
How do we get "proof" of customer location?
There are certain conditions under which we only need to gather one piece of evidence of customer location. However these "presumptions" are not going to apply to most web businesses. For us we need to supply two pieces of non-contradictory evidence of location. These can be:
- the billing address of the customer
- the Internet Protocol (IP) address of the device used by the customer
- location of the bank
- the country code of SIM card used by the customer
- the location of the customer’s fixed land line through which the service is supplied to him
- other commercially relevant information (for example, product coding information which electronically links the sale to a particular jurisdiction)
Most online stores can request a billing address and IP addresses can be obtained via the browser and a geocoding service used to get a country code. If the two match then we have our "proof".
The issue arises where these conflict, we need a second piece of proof.
SIM Card and fixed landline data is not something available to us on the web platform.
Location of the bank requires that we actually take payment or at least pre-authorise payment to get this data back. We are then dependent on our provider in order to access this information. Some sellers will struggle to get this data.
Other commercially relevant information is vague.
It seems that this requirement has not been thought through in terms of standard web sales of downloadables. We need clear technical guidance in terms of what to do if there is a mismatch in the two pieces of information (one customer provided, one provided via their IP address/location of their computer).
Can we allow customers to self-certify their location?
In the above scenario of a mismatch of billing address and location, a possible resolution would be that when we detect this issue we show a screen explaining that due to VAT laws we need to verify the customer location. Ask them to clarify which location is their primary location (in a similar way to agree terms checkboxes work).
It seems that a lot of businesses are intending to use self certification of location. See this PDF.
Is "billing address" even allowable?
Clause 9.5.2 of the guidance notes "What may or may not be considered a billing address?" says:
For those reasons an electronic address to which an electronic invoice is sent, seen by many as a billing address, cannot serve as an item of evidence in this respect. For telecommunications, broadcasting or electronic services although the IP address cannot be taken as a billing address, it is recognised as a valid item of evidence which can be used by the supplier when identifying the customer.
In addition, a postal address (PO Box) should not be seen as sufficient to indicate the place where the customer belongs.
This concerns me that addresses collected before selling will not be allowable as proof. If not, how do we ascertain in a web sales scenario where the person is to even charge them the right VAT?
Do we need to hold this proof even where the customer appears to be outside of the EU, or in our own country?
Do we have to hold this proof for every one of our customers even if they initially give a billing address that is outside of the EU. What happens if at some point the US government become concerned at the huge amount of data EU businesses are holding about consumers for ten years?
What proof needs to be kept by people who choose to block EU Sales?
How do we display pricing information when the amount of VAT added effectively changes the price?
Anyone whose business has them selling predominently to consumers needs to display prices inclusive of VAT. This is consumer law in the UK I believe (I'm not an expert). The legislation therefore will force sellers to pick a VAT rate for display of products. I imagine that this will result in people assuming the highest rate of VAT when pricing products in order not to have to swallow the fluctuations themselves.
In particular if this legislation is to be increased to apply to physical goods as well we will need to have consumer law addressed so that prices may be shown excluding VAT for online sales. This would take us to the system in the US where tax is calculated at checkout according to State laws.
How are businesses out of the EU being made to comply?
Question raised by Elizabeth Felgate
One issue not yet addressed is how they plan to make US businesses comply. In conversations with American microbusinesses some (many?) are taking the view that compliance with this law is on a voluntary basis only for them and they will not therefore comply. And I quote:
"I just got some good information that applies to US people. I just spoke with the Washington office of Congressman Mo Brooks, my state’s representative who is very involved in small business issues in Washington. The staff person I spoke with said there is no existing legal agreement/arrangement between the US and the EU that would require/obligate any US company, with NO physical presence in the EU, to collect and remit VAT.
He said the EU has NO AUTHORITY at all to impose this on any US business with no physical presence in the EU.
I trust Congressman Brooks’ office, so I’m going to accept this answer"
If this is the case, although many large businesses will still comply for reputational reasons, small traders (our direct competition as microbusinesses) will not. This means that the "level playing field" justification of this legislation for (micro)businesses in the EU becomes even more of a farce. Clearly some clear guidance is required on this and if wrong needs to be issued to key US bodies such as congressional offices etc asap.
Will these mean that businesses will refuse to sell to "consumers" without a VAT number?
Question raised by Elizabeth Felgate
One side effect of the legislation is that although B2B sales are not directly affected, B2B suppliers must now prove that they are selling to a business customer or charge VAT. A VAT number has been set as the proof required that you are selling to a businesses. Therefore from now on all B2B sales should require a VAT number at point of sale. As all sales to individuals without a vat number are counted as b 2 c it is reasonable to assume that service companies may refuse to sell goods to those without a vat reg number in order to avoid being liable under the new rules and having the to do the software development on their websites that will recognise a non business customer and apply the correct tax for the country of origin (and oh, yeah prove the country of origin) all of which is onerous and expensive (if possible). Apart for being very bad news for hobbyists who want to use technical software for their own enjoyment I can't get any clarity on whether it would be legal for a business to discriminate against my microbusinesses in this way.
I have 3 microbusinesses that could be affected by this. Here's one example:
I am a freelance web marketing manager. I don't sell digital services direct (I sell knitting patterns as another business but VAT is/will be managed by the platforms I sell through). With relief it seems I will not have to register for VATMOSS. However for my digital marketing business I buy a license for search engine optimisation software that lets me help clients get good search engine rankings. Most of the clients of this business are likely to be web development and marketing agencies, many of whom will be big enough to be VAT reg. For all I know they may decide that its not worth supporting the few freelancers who buy their software and insist on VAT number before they will sell to me. Would this mean I would have to try and obtain a VAT number just to buy stuff? Could I even do this?
Although this is a hypothetical situation currently the law seems to be making it an almost certainty that this will arise for many many small businesses amd we will need a workable solution.
Will compliance with the less rigorous "proof" guidelines issued by HMRC be deemed acceptable by other member states?
In a clarification HMRC have stated that:
So, if you use a payment service provider to obtain payment for your digital service, HMRC suggests the following two step approach:
When the customer places their order ask them to confirm either:
- the EU member state they usually live in
- their billing address
When the customer pays for the product using the payment service provider, arrange for that provider to transmit the following two pieces of evidence to you:
- the customer’s billing address
- the country code of the customer’s bank or registered credit card
Where a provider such as PayPal is concerned it seems that the country code returned via the API is linked to the customer entered shipping address. This does not meet the EU requirements as explained in the explanatory notes, section 9.5.5.
“it should be borne in mind that the items of evidence have to be different and should not duplicate each other. For instance, when a customer gives a billing address and later confirms that same address through self-certification, that can only be taken to constitute a single item of evidence.”