Ideas

Information - crucial!

  • Paul Soper profile
    Paul Soper
    6 March 2015 - updated 4 years ago
  • 3 comments
    Total votes: 0

This is a direct quote from another section of this site - "Entrepreneurs and small businesses in Europe are the lifeblood of our economy: they need to be able to start up, scale up, and take advantage of having a market of 510 million people at their fingertips. They want clear rules to allow them to operate cross border."

Unfortunately the EU decided to follow the lead of the OECD and adopt a policy where supplies to consumers would take place where those consumers were normally resident and this creates a problem in clear contradiction of the principle stated above.  A trader 'accepts', through their website, orders from other EU countries and is then obliged to either register for VAT in the member state of the consumer or use the MOSS, the Mini One Stop Shop which enables a single return to be made, in the member state of the trader - so far, so good.  This is clearly designed to simplify the problem of multiple registration and undoubtedly achieves that aim but, and it is a very big but, it requires the trader to have detailed knowledge of the VAT law of each member state and the appropriate rate of VAT that is required by that member state.

There are, at the latest count, 81 different rates of VAT applying to transactions in the 28 member states of the EU and no simple way of determining which rate should apply to a particular transaction.  Research might enable a trader to become aware that in Italy, for example, the rate of VAT that applies to an ebook with an ISBN number is not the same as the rate that applies to an ebook without an ISBN!  However as the quote from the site says "they want clear rules to allow them to operate cross border" and, at the moment that is exactly what traders do not have.  There is no central source of information and guidance to facilitate the identification of the correct treatment to adopt and yet traders need this information to be able to comply with the demands that the EU places upon them.

Large companies have the resources to enable them to be aware of the markets in which they operate and they spend thousands, if not millions, of euros in a constant process of research to identify the correct rates and rules to apply.

Small businesses do not have those resources and that is why it is crucial that the EU provides a facility to enable smaller businesses to comply in the same way.  The administrative rules are, at the moment exactly the same for the largest as for the smallest of businesses but this lack of up to date and clear information must be a considerable barrier to growth, and yet...

In the same section of this site it says "we want be confident in carrying out online transactions cross-border; we want to know what's happening to our personal data; and we want to know that our consumer rights are the same in all EU countries"  With 28 member states each interpreting EU directives in slightly different ways, and 81 different rates to cope with, changing at unpredictable times, often with very little notice, the lack of centralised guidance and clarity denies smaller traders the right to "be confident in carrying out online transactions cross-border".

The very smallest of traders, the 'Nano' businesses I referred to in an earlier blog, would not be able to cope with this complexity even if there was a centralised information and guidance point, they must surely be relieved from this burden by providing a reasonable de minimis limit so that they can begin to grow and reach a size where a centralised information resource can help them grow further.  Idealised statements are all very well, and the "Our Vision" page of this site contains a fair few, but they must be matched by action to enable them to be realised.  Otherwise they will remain as idealised statements.

Tags: 
access to informationVATMOSSNanoSMEsentrepreneur

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Annika Ostergren's picture
Annika Ostergren,
31/03/2015 15:14

My guess is that the UK has the largest proportion of small online traders. This is partly connected with the maturity of the e-commerce markets in different countries and, in some European countries, the extremely serious fiscal and administrative challenges in setting up and running small hobby-type businesses.

For instance in Spain and Italy the complexity means professional help is normally required with tax offices very keen to impose fines. In the UK and Germany self-employment is much easier, but Germany for instance, places some restrictions on 'craft' type businesses which makes it harder to start up kitchen table type ventures.

A recommendation for the Digital4U team would be to Google "becoming self-employed in X" where X is an EU country to find out how easy or difficult people find these processes, and in some cases the horror stories they have of trying cope with the rules and paperwork. There's a reason why there aren't as many online traders in other European states as in the UK, beyond simple VAT thresholds.

Total votes: 0
Annika Ostergren's picture
Annika Ostergren,
31/03/2015 15:12

I do indeed know Rod and thank you for your answer.

The MOSS structure is one that seems designed with an eye to simplifying reporting requirements from the perspective of entities who are deciding to actively trade in a particular market, for them, assuming that they have the resources to resolve the issue of a plethora of different rates, as well as different treatments, but for the very, very small trader, the Nano business - often a one-man band, or often we find a one-woman band selling knitting patterns and the like the very complexity of having to comply with 2 countries rates and rules is so daunting that it operates as a barrier and the provision of the MOSS is of little practical assistance.

You may well say "it is easier to add to diversity than to reduce it in terms of rates" but what the Nano business needs is one of two things. Either some form of exemption through the provision of a realistic de minimis threshold, of benefit both to them and indeed to the various countries that need to police the MOSS system (as I am sure you are aware, for example, the penalties for the late submission of a MOSS return are levied individually by each of the member states for whom sales are recorded on the return - daunting enough for a larger business). The costs involved in administration for the Nano businesses must exceed the revenue that they produce. The alternative is to provide direct assistance through the EU to clrify the position that such a trader finds themselves in. Providing an electronic tool or wizard could be very useful, providing a centralised resource of rulings on different types of supplies would also be of assistance although this may require, perhaps, some level of human intervention. Without it, in my opinion, you run the risk of many of these very small businesses being stifled; there is already considerable evidence of businesses either closing entirely or refusing to sell into other EU countries (or for non Union vendors refusing to sell into the EU at all) which must run counter to the encouragement of a digital economy which you apparently embrace.

As you raised a couple of issues which I did not please allow to comment further - you stated "I am reminded of Britain's low rate VAT applied to children's clothes, which does not result in cheaper children's clothes; or France's low VAT for restaurants, which has not reduced restaurant bills." I don't think that either of these statements actually stand. Children's clothes - for children of school age clothing can be sold at the zero rate even though a small adult could wear such clothing, but as it is school clothing, sold in an environment where children's clothes are sold it IS cheaper that the same garment sold in a different department of a clothing store such as the John Lewis chain. In France the objective of a reduced rate for catering, placing it into the lower VAT band has reduced in some reductions in price, most retaurants show one or two dishes which have a price reduced as a result of this initiative, however the objective was NOT to achieve a reduction in price per se but enable the number of people employed in the restaurant trade to increase and as far as I am aware has been successful in meetring this objective.

Lastly you comment "DG Tax & Customs Union hasn't received a massive number of complaints from traders in other Member States, apart from UK, about VATMOSS" - that is because of an almost complete failure by the other member states to publicise this requirement, we complain in the UK about the level of publicity received in the UK but elsewhere it seems largely ignored. This facilitates avoidance of the obligation (although ignorance of the law should be no excuse!) and actively discriminates against small businesses in the UK who, where they are aware of the rules, do strive to comply.

You then state "It only covers broadcasting, telecoms and business to consumer services, not other services or goods". I have highlighted the word ONLY because this demonstrates, to me, one of the failings of the EU in introducing and implementing thgese rules. When VoES was implemented in 2003, and then in 2006 when the decision was taken to make changes to the place of supply rules (implemented for services generally in 2011) and 2008 when the firm decision was taken to implement the changes for B2C supplies of eservices the internet was a very, very different world to that which we see today. The development of internet trading has meant that the market for eservices has grown but more importantly the nature of the eservices have developed as well. Discussion held with HMRC since September 2014 made it clear that there was a blanket assumption that the only way in which "Nano" businesses would make supplies would be through the Amazon's of the world but that is not so. If it were then these rules would not impact on service suppliers as their transactions would be B2B placing obligations of the platforms. I am sure that the thousands of "Nano" businesses would object to the dismissive use of the term "only" showing that the EU just doesn't understand what it is dealing with at all...

Total votes: 0
Annika Ostergren's picture
Annika Ostergren,
31/03/2015 15:11

VAT issues

As you know, tax is an area which requires unanimous agreement by Member States. The proliferation or different rates reflects special causes in different Member States that they have managed to agree; it is easier to add to diversity than to reduce it in terms of rates. I am reminded of Britain's low rate VAT applied to children's clothes, which does not result in cheaper children's clothes; or France's low VAT for restaurants, which has not reduced restaurant bills. Lobbies are strong and policy makers have to give in.

DG Tax & Customs Union hasn't received a massive number of complaints from traders in other Member States, apart from UK, about VATMOSS. It only covers broadcasting, telecoms and business to consumer services, not other services or goods. I understand that the ceiling was higher in the UK than in other Member States.

Have I understood that you are proposing that the Commission provides some sort of electronic tool or wizard to assist small traders with all these different rates?

I will seek to involve more expert colleagues to respond to your rather cogent post.

Interested to see from Linked-in that you know Rod Dowler, a colleague from KMG/KPMG days

Total votes: 0