In a word: crappy.
To be clear, I don’t currently sell any sort of electronic goods or services, either domestically or internationally. However I had hoped next year would be the first year I’d do so.
The recent coverage of changes to Europe’s VAT regulations makes me incredibly hesitant.
Up til now, companies selling goods in Europe have been required to pay a tax (value added tax, or VAT) on every sale depending on where they seller is physically located. Thanks to the competition of a free market, this has led wealthy American companies (i.e. Google, Amazon, and others) operating in Europe to put down roots in Luxembourg, which happens to have one of the lowest VAT rates of the European Union.
It’s also frustrated the EU that they can’t benefit from these companies’ success through added taxes.
Starting next month, the law will change. Now, corporations will have to charge a VAT on their electronic goods and services based on the location of the buyer. Why is this important? Because I, as an American businessman operating a website out of America, will have to charge a VAT on every sale and send that money to a foreign government if my customers happen to be located in the EU.
Watching the revelations of this change blossom on Twitter has been eye-opening. The number of “I just won’t sell to Europe” and “I’ll just block visitors from the EU” comments (and WordPress plugins) I’ve seen is truly astounding.
As a businessman, I find this new regulation 1 preposterous. I’m not in Europe. My business isn’t in Europe. Technically, the entire sales transaction is occurring outside of Europe. The thought that I have to pay a European tax because the end recipient of my digital work lives in Europe feels like something out of a dystopian sci-fi novel.
As a user of the Internet, I find this change to be wholly incompatible with the nature of online interactions. Firstly, I can purchase goods by providing nothing more than my email address (for delivery) and a PayPal/Stripe/etc transaction ID for payment. I provide no personally-identifying information and can, if I want, conduct my end of the sale over an anonymous VPN routing my traffic through who-knows-where. The Internet powers anonymity.
To conduct business involving European customers, however, we are required to strip that anonymity away and provide at least two pieces of non-contradictory evidence of a customer’s geographic location to prove we charged (or didn’t) the appropriate VAT.
There are three possible solutions to this immediate problem.
First, and the most common solution right now, is to merely block sales to customers in the EU. This is workable, would be somewhat effective in avoiding the complexities of 75 different tax rates depending on location, but it still just as crappy an endgame as the problem we solve. First, to know a customer is in the EU and would thus render a tax on the sale we’d have to gather just as much information as we would to pay the tax in the first place. It would be no more complicated to just tack on the added VAT and ship it off to the appropriate regulatory service.
A second option would be to inflate all prices to account for the added tax. Whether a customer is from London, Berlin, Paris, or Boston, every product in your catalog would cost the same. The only difference would be how much of the transaction you personally hold on to. Sales to non-EU customers would consequently have much higher markup than those to EU customers. There would be uniformity on the surface, but if sales aren’t evenly distributed across the globe you could end up hurting.
The final option is to suck it up and just pay the tax. If you’re smart, you’re already using some sort of payment gateway to manage sales – many of the most popular solutions on the market are already adding VAT support as we speak:
— WP e-Commerce (@wpecommerce) December 19, 2014
— EasyDigitalDownloads (@eddwp) December 19, 2014
There might be other alternatives involved, too, but my money is on option #3. I look forward to seeing what the major players can put out. The fact that at least two quality organizations are wading through the VAT minefield for us already is humbling – particularly since the core product from each is free.
I stated earlier that I was considering putting my 2015 ecommerce plans on hold in response to the new VAT regulations. Honestly, I still think the law is crap and overly hostile to the online community, but thanks to WP E-Commerce and Easy Digital Downloads, it looks like I’ll be shielded from the majority of that crap.
- There are regulations already in place for non-European sales to Europe, but by and large they don’t affect the kind of digital work I’d like to do. ↩