“I’m in the US – what if I just ignore the EU VAT changes?”(happybootstrapper.com)
happybootstrapper.com
“I’m in the US – what if I just ignore the EU VAT changes?”
http://www.happybootstrapper.com/2014/im-us-whatll-happen-just-ignore-eu-vat-changes/
15 comments
The really major f-up is that of online sellers (it's a major pain for sellers of physical goods as well, it's just easier for them to at least know which country they're selling to) who did absolutely nothing during the entire process of creating and implementing this change, and only now start to whine when it's way, way too late.
The reasoning behind the law is perfectly logical, and the problem they're trying to solve very real. The actual implementation utterly impractical, and a major burden on pretty much everyone.
But the only people who could have told the political dinosaurs and clueless civil servants just how impractical chose to pretend the change would somehow magically just go away.
This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.
The reasoning behind the law is perfectly logical, and the problem they're trying to solve very real. The actual implementation utterly impractical, and a major burden on pretty much everyone.
But the only people who could have told the political dinosaurs and clueless civil servants just how impractical chose to pretend the change would somehow magically just go away.
This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.
>if those affected had just bothered to try.
How about: If those affected had even known that this change was happening.
I'd certainly heard that they were changing the VAT rules to crack down on the likes of Amazon. That I'd now need to charge VAT based on country of consumer. That's not the crappy part of the legislation as I currently don't need to charge any VAT at all in the UK.
I hadn't heard that my VAT threshold was being invalidated
I hadn't heard that I'd need to keep records for 10 years (currently the longest I need to keep anything is 6 years).
I hadn't heard that I'd need to register as a Data Controller (as I now need to store personal info for 10 years). This leaves me liable for massive fines if anything goes wrong security-wise in the next 10 years.
It's basically a massive cockup that was targeted at Amazon, Google, Apple and the like, but has instead hit small business startups and independent traders the hardest.
How about: If those affected had even known that this change was happening.
I'd certainly heard that they were changing the VAT rules to crack down on the likes of Amazon. That I'd now need to charge VAT based on country of consumer. That's not the crappy part of the legislation as I currently don't need to charge any VAT at all in the UK.
I hadn't heard that my VAT threshold was being invalidated
I hadn't heard that I'd need to keep records for 10 years (currently the longest I need to keep anything is 6 years).
I hadn't heard that I'd need to register as a Data Controller (as I now need to store personal info for 10 years). This leaves me liable for massive fines if anything goes wrong security-wise in the next 10 years.
It's basically a massive cockup that was targeted at Amazon, Google, Apple and the like, but has instead hit small business startups and independent traders the hardest.
Good points, awareness certainly is an issue. I found out a few months ago and just finished updating the payment system for my site. I have learned a few more interesting gotchas:
- You are responsible for verifying the location of your buyer (how? who knows!)
- It is not enough to know the country code of your buyer. For example the Canary Islands have country code ES but have a different VAT rate from mainland Spain
- Some VAT rates can be fractional, so you can run into problems if you were using integer calculations in cents to prevent rounding errors (thankfully, for digital services all VAT numbers are round number starting this year, let's hope it stays that way)
- If you register for a MOSS then you pay VAT in euros, but you may have charged your customer in a local currency (GBP, DKK, CZK or SEK). You need to use the exchange rate at the day of the sale
This is just the top of my head, there are probably a bunch of minor issues I forgot.
- You are responsible for verifying the location of your buyer (how? who knows!)
- It is not enough to know the country code of your buyer. For example the Canary Islands have country code ES but have a different VAT rate from mainland Spain
- Some VAT rates can be fractional, so you can run into problems if you were using integer calculations in cents to prevent rounding errors (thankfully, for digital services all VAT numbers are round number starting this year, let's hope it stays that way)
- If you register for a MOSS then you pay VAT in euros, but you may have charged your customer in a local currency (GBP, DKK, CZK or SEK). You need to use the exchange rate at the day of the sale
This is just the top of my head, there are probably a bunch of minor issues I forgot.
- If you register for a MOSS then you pay VAT in euros, but you may have charged your customer in a local currency (GBP, DKK, CZK or SEK). You need to use the exchange rate at the day of the sale
I'm not sure this is exactly correct. For the UK, the guidance[1] at the moment says:
"If you charge or invoice customers in a currency other than the one used by the MSI and you record that price in your accounts in the foreign currency, you must:
- convert it into the MSI currency at the end of each quarter
- use the conversion rate published by the European Central Bank (ECB) on the last working day of the quarter
However, if to meet VAT invoicing or other accounting requirements you convert the foreign currency into the MSI currency using an agreed published daily or monthly conversion rate, you can use this converted figure when completing your quarterly VAT MOSS return."
In the above, "Member State of Identification (MSI) is the state in which you’ve registered for VAT MOSS."
So it looks as though there are three possibilities here:
1. If you charge customers in your own native currency, then you just have to apply their location's tax rate on the transaction, instead of applying your local tax rate as at present.
2. If you charge customers in their own currency (or any other that isn't your native one) then you have two options:
2a. You convert the amount charged to your native currency at the time of the charge, and use that figure and the customer location's tax rate to calculate the tax due.
2b. You record the transaction in its actual currency at the time of the charge, and then later you convert to your native currency according to the standardised exchange rate published by the ECB at the end of each quarter, use that figure to calculate the tax due, and use these figures when you file your MOSS return for the quarter that just finished.
But I'm not an accountant, and like many here I've spent too much time in recent weeks just trying to get straight answers and figure out what all the "guidance" really means, not to mention trying to find out minor details like what the current tax rates to use for each location actually are (including variations within individual member states) and how we're supposed to keep up with any changes in the future. So don't take my word for anything, I'm just trying to interpret some official guidance like everyone else...
[1] https://www.gov.uk/government/publications/vat-supplying-dig...
I'm not sure this is exactly correct. For the UK, the guidance[1] at the moment says:
"If you charge or invoice customers in a currency other than the one used by the MSI and you record that price in your accounts in the foreign currency, you must:
- convert it into the MSI currency at the end of each quarter
- use the conversion rate published by the European Central Bank (ECB) on the last working day of the quarter
However, if to meet VAT invoicing or other accounting requirements you convert the foreign currency into the MSI currency using an agreed published daily or monthly conversion rate, you can use this converted figure when completing your quarterly VAT MOSS return."
In the above, "Member State of Identification (MSI) is the state in which you’ve registered for VAT MOSS."
So it looks as though there are three possibilities here:
1. If you charge customers in your own native currency, then you just have to apply their location's tax rate on the transaction, instead of applying your local tax rate as at present.
2. If you charge customers in their own currency (or any other that isn't your native one) then you have two options:
2a. You convert the amount charged to your native currency at the time of the charge, and use that figure and the customer location's tax rate to calculate the tax due.
2b. You record the transaction in its actual currency at the time of the charge, and then later you convert to your native currency according to the standardised exchange rate published by the ECB at the end of each quarter, use that figure to calculate the tax due, and use these figures when you file your MOSS return for the quarter that just finished.
But I'm not an accountant, and like many here I've spent too much time in recent weeks just trying to get straight answers and figure out what all the "guidance" really means, not to mention trying to find out minor details like what the current tax rates to use for each location actually are (including variations within individual member states) and how we're supposed to keep up with any changes in the future. So don't take my word for anything, I'm just trying to interpret some official guidance like everyone else...
[1] https://www.gov.uk/government/publications/vat-supplying-dig...
Interesting. I got my information from calling the tax authorities and ask, but I'm based in the Netherlands so their guidance may be different from that in the UK.
Doesn't the Netherlands use the Euro? If so, then I think the information we have been given is consistent. For you, the MSI currency would be Euro, while for me in the UK, it would be GBP. Each of us would pay any tax due to foreign tax authorities via our own country's MOSS in our local currency, but if we charged a customer in a different currency then we would have to convert it in one of the two ways I mentioned before.
The really major f-up is that of online sellers ... who did absolutely nothing during the entire process of creating and implementing this change, and only now start to whine when it's way, way too late.
And what exactly do you think an affected seller should have done if they had no reason to know these changes even existed?
Certain government representatives have been claiming that they have provided information and notified businesses. However, right now the Internet seems to have no shortage of small businesses who claim they had never heard of this change until very recently. I can certainly understand that: I personally run two businesses that could potentially be affected by these changes, both already VAT registered, yet I have no indication that our government has made any attempt to notify either company in any way about these changes.
Even some on-line payment services and marketplaces appear to have had no idea, and it looks like some won't be able to support the required taxation and record-keeping in time. These are the very organisations that many people in governments seem to have assumed will fix the problem because according to them almost every micro-business uses one!
This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.
I'm not convinced it would have helped even then. This is the same EU that imposed those mandatory cookie notices. More recently, they pushed through consumer protection regulations that mean if someone wants to buy a digital download and gives you their money today, the default is that you must not actually provide the data to them for two weeks, among other similarly unhelpful-to-anyone measures.
No doubt some of these measures were promoted with genuinely good intentions, but it is clear that the people writing the laws and regulations are completely disconnected from the realities of running a small business. It will be literally impossible for a lot of small businesses to comply with the letter of the law under some of the new rules.
The biggest irony of them all is that the most likely beneficiaries of these changes are... big US businesses, specifically those which function as on-line marketplaces and have the resources no small business does to investigate and comply with all the new taxation and reporting rules and to put up a serious legal fight if they are formally investigated for failing to do the impossible.
And what exactly do you think an affected seller should have done if they had no reason to know these changes even existed?
Certain government representatives have been claiming that they have provided information and notified businesses. However, right now the Internet seems to have no shortage of small businesses who claim they had never heard of this change until very recently. I can certainly understand that: I personally run two businesses that could potentially be affected by these changes, both already VAT registered, yet I have no indication that our government has made any attempt to notify either company in any way about these changes.
Even some on-line payment services and marketplaces appear to have had no idea, and it looks like some won't be able to support the required taxation and record-keeping in time. These are the very organisations that many people in governments seem to have assumed will fix the problem because according to them almost every micro-business uses one!
This is one piece of legislation that could probably have been stopped or redirected quite early on, if those affected had just bothered to try.
I'm not convinced it would have helped even then. This is the same EU that imposed those mandatory cookie notices. More recently, they pushed through consumer protection regulations that mean if someone wants to buy a digital download and gives you their money today, the default is that you must not actually provide the data to them for two weeks, among other similarly unhelpful-to-anyone measures.
No doubt some of these measures were promoted with genuinely good intentions, but it is clear that the people writing the laws and regulations are completely disconnected from the realities of running a small business. It will be literally impossible for a lot of small businesses to comply with the letter of the law under some of the new rules.
The biggest irony of them all is that the most likely beneficiaries of these changes are... big US businesses, specifically those which function as on-line marketplaces and have the resources no small business does to investigate and comply with all the new taxation and reporting rules and to put up a serious legal fight if they are formally investigated for failing to do the impossible.
[deleted]
I run a VAT Registered business and we had one notification of the change of place of supply - despite the fact that we already do cross-border sales and allow our customers in the EU who have a VAT number to deal with VAT under the existing reverse charge rules. So we knew about it, but could have easily missed it.
The people who didn't know about it are those it is the worst for. Small traders who were not VAT Registered. There is no reason why someone below the VAT threshold should be poking around in VAT legislation just in case it will suddenly apply to them. When I wrote this post (http://rachelandrew.co.uk/archives/2014/10/13/the-horrible-i...) in mid-October, there was next to nothing online, other than in a few PDFs from tax experts. Certainly nothing that would have alerted non VAT registered individuals selling a few knitting patterns and so on. To blame those people, and suggest they were sticking their head in the sand is wrong. They didn't know.
The people who didn't know about it are those it is the worst for. Small traders who were not VAT Registered. There is no reason why someone below the VAT threshold should be poking around in VAT legislation just in case it will suddenly apply to them. When I wrote this post (http://rachelandrew.co.uk/archives/2014/10/13/the-horrible-i...) in mid-October, there was next to nothing online, other than in a few PDFs from tax experts. Certainly nothing that would have alerted non VAT registered individuals selling a few knitting patterns and so on. To blame those people, and suggest they were sticking their head in the sand is wrong. They didn't know.
>> "imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now."
You mean you have to pay VAT even if you earn under £69,000 (I think that was the threshold last I checked)?
You mean you have to pay VAT even if you earn under £69,000 (I think that was the threshold last I checked)?
Yes - if you sell these digital goods.
That's a great blog post, Major_Grooves - Thanks for shouting out!
I totally agree and addressed that in my other blog post which is targeted to EU folks: http://www.happybootstrapper.com/2014/eu-vat-changes-online-...
I hope lots of people read it and sign up the petition to set up a revenue threshold: https://www.change.org/p/pierre-moscovici-a-unilateral-suspe...
I totally agree and addressed that in my other blog post which is targeted to EU folks: http://www.happybootstrapper.com/2014/eu-vat-changes-online-...
I hope lots of people read it and sign up the petition to set up a revenue threshold: https://www.change.org/p/pierre-moscovici-a-unilateral-suspe...
This is effectively impossible to enforce though, at least for foreign sellers; is that a fair assessment? I'm really not seeing any mechanism whereby the EU could actually force them to pay their taxes when they're selling goods that don't physically exist. Small arts and crafts need to be shipped, software does not.
I guess they could pressure payment services (Paypal, Dwolla), but Bitcoin could always be used as a fallback- it's also VAT exempt or at least appears to be from my quick searches on the subject.
I guess they could pressure payment services (Paypal, Dwolla), but Bitcoin could always be used as a fallback- it's also VAT exempt or at least appears to be from my quick searches on the subject.
I could see tax authorities going after consumers that are not paying VAT - they reside in the EU and are easier to prosecute than foreign companies.
In the past in the United States, the providers (such as Amazon) have placed the burden of paying state taxes on the consumer - I wonder if they could, somehow, also make the consumer responsible in this case and thereby continue to operate in the same manner?
In the past in the United States, the providers (such as Amazon) have placed the burden of paying state taxes on the consumer - I wonder if they could, somehow, also make the consumer responsible in this case and thereby continue to operate in the same manner?
It's going to force people to use marketplaces/providers. Probably a startup opportunity.
In fact lots of people assumed that the marketplaces would take the heavy lifting here. However most of them are US-based and have said they won't be the ones to take care of this.
However, part of the problem is the authorities assuming that everyone sells through marketplaces, and that marketplaces would be the ones to tackle the issue. You'd be surprised how many people this is going to affect who are just selling a few items with PayPal - and PayPal cannot supply the required data to comply.
The people that got most vocal about this were mom solo entrepreneurs. I wrote a follow-up blog post about this: http://blog.satago.co.uk/2014/11/when-the-crafting-community...
However, part of the problem is the authorities assuming that everyone sells through marketplaces, and that marketplaces would be the ones to tackle the issue. You'd be surprised how many people this is going to affect who are just selling a few items with PayPal - and PayPal cannot supply the required data to comply.
The people that got most vocal about this were mom solo entrepreneurs. I wrote a follow-up blog post about this: http://blog.satago.co.uk/2014/11/when-the-crafting-community...
[deleted]
It seems like this is actually a step in the proper direction. The removal of 'VAT based on seller country' from the system, standardizes now everything towards 'VAT in buyers country'
Now after talking with other SaaS owners it seems we're one of the 'few' non-EU companies that actually complies with this - however that choice is rather due to the provider we use.
We comply with the rules by using a payment reseller ( fastspring / saasy ) which allows us to reduce accounting ( only major payments are being sent from reseller ), and at a comparable rate to stripe ( 1-2% higher )
Since they specialise in regulations and payments, it's really a big headache off our shoulders - plus you reduce the invoices you have to handle. Also it removed that whole merchant account setup process etc, which was a bigger pain for a Hong Kong based company.
Now after talking with other SaaS owners it seems we're one of the 'few' non-EU companies that actually complies with this - however that choice is rather due to the provider we use.
We comply with the rules by using a payment reseller ( fastspring / saasy ) which allows us to reduce accounting ( only major payments are being sent from reseller ), and at a comparable rate to stripe ( 1-2% higher )
Since they specialise in regulations and payments, it's really a big headache off our shoulders - plus you reduce the invoices you have to handle. Also it removed that whole merchant account setup process etc, which was a bigger pain for a Hong Kong based company.
> It seems like this is actually a step in the proper direction.
No. A step in the proper direction would be admitting that VAT is a regressive hidden tax on employees, and abolish it or replace it with more transparent taxation of real wealth.
Until that happens, we're all just jumping through hoops so that European politicians can tax the working man while hiding behind meaningless "consumption" codewords.
No. A step in the proper direction would be admitting that VAT is a regressive hidden tax on employees, and abolish it or replace it with more transparent taxation of real wealth.
Until that happens, we're all just jumping through hoops so that European politicians can tax the working man while hiding behind meaningless "consumption" codewords.
Many essentials like food and bus tickets have lowered (or zero) tax rates, and it's printed on every receipt you get. Not really regressive or hidden.
Taxing wealth has big problems with transparency and evasion.
Progressive taxation is not a means to an end, just one mechanism to implement income redistribution. See eg basic income proposals with flat income tax.
But a worrying trend in EU lately has been to cut payroll taxes and raise VAT and other consumption taxes without compensating them in transfers, a combination which does hurt income equality.
Taxing wealth has big problems with transparency and evasion.
Progressive taxation is not a means to an end, just one mechanism to implement income redistribution. See eg basic income proposals with flat income tax.
But a worrying trend in EU lately has been to cut payroll taxes and raise VAT and other consumption taxes without compensating them in transfers, a combination which does hurt income equality.
> Many essentials like food and bus tickets have lowered (or zero) tax rates
That's charity, not progressive taxation. Besides, VAT is fixed-rate, which makes it regressive in practice.
> it's printed on every receipt you get
But nobody is taught how it works, in school or elsewhere, and unless you run your own business you'll never find out. Also, because it's segmented, atomic changes to different segments are usually reported under "business news" (unless it's for stuff like petrol and tobacco), the sort of thing most readers will skip. Honestly, the more you look into VAT, the more you see how it's always been used to raise taxes on employees without making them aware.
> Taxing wealth has big problems with transparency and evasion
Preying on the weak is obviously easier, that's always been the case. It doesn't make it right.
> a combination which does hurt income equality.
Amen.
That's charity, not progressive taxation. Besides, VAT is fixed-rate, which makes it regressive in practice.
> it's printed on every receipt you get
But nobody is taught how it works, in school or elsewhere, and unless you run your own business you'll never find out. Also, because it's segmented, atomic changes to different segments are usually reported under "business news" (unless it's for stuff like petrol and tobacco), the sort of thing most readers will skip. Honestly, the more you look into VAT, the more you see how it's always been used to raise taxes on employees without making them aware.
> Taxing wealth has big problems with transparency and evasion
Preying on the weak is obviously easier, that's always been the case. It doesn't make it right.
> a combination which does hurt income equality.
Amen.
It's not possible to tax wealth. Unless you want to tell me how many Bitcoins I own.
I'm a State actor. I can hire detectives that will go through the blockchain and monitor your traffic, and I'll likely get a fair approximation of how many bitcoins you have. Or you can just tell me when asked, as a good law-obeying citizen should do.
This is how all tax works, btw. Income tax is nothing but a wealth tax limited to wealth accumulated over a certain period. There is nothing impossible about it.
This is how all tax works, btw. Income tax is nothing but a wealth tax limited to wealth accumulated over a certain period. There is nothing impossible about it.
What traffic? They're stored on my hard drive. I don't fire up the client. I don't buy things with them. I just sit on them.
Ok, I'll make it easy then and just sequester your hard drive. Oh, it's encrypted and you won't give me the key? I'll throw you in jail.
How is VAT regressive or hidden? For a start, I'd say that just about every EU citizen is aware of it. Plus, prices in shops have to show VAT-inclusive prices to end customers, unlike some states in the USA where sales taxes can get magically added on to the final bill.
Secondly, it's not regressive because the more goods and services you buy, the more you get taxed. If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat. Same tax rate despite the increased bill.
Now, rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT...
Secondly, it's not regressive because the more goods and services you buy, the more you get taxed. If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat. Same tax rate despite the increased bill.
Now, rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT...
I'd argue that showing pre-tax prices and charging tax at checkout makes the tax burden much more obvious to most consumers. Showing only the post-tax price on the tag hides the proportions of the tax vs item cost.
I was super-annoyed when first time in USA to find out I had to pay more at the cashier. Also it makes products seem cheaper than they really are - it's a cop-out to display pre-tax prices if you're billing more at the counter.
Are people shopping with a calculator?
Are people shopping with a calculator?
At the end of the year why does it matter what my VAT burden is anyway? As long as I have enough cash in the bank to pay for the things I need, and my bank account isn't negative at the end of the year, then I'm fine right? What behaviors are you trying to support?
Obviously. It also means you can't just sum together the prices of the stuff to get the total. It annoys me seriously every time.
> For a start, I'd say that just about every EU citizen is aware of it.
They know it exists, they don't know how it works or why (unless they run a business).
> Plus, prices in shops have to show VAT-inclusive prices to end customers
... which is exactly what I mean by "hiding it". You'll hardly ever see "€ 4.00 + € 1.00 vat" when going through shelves; you'll always see "€ 5.00". You have no idea how that price is calculated, what is tax and what is not, until after you've paid -- and even then you'll see an aggregated total, so if your basket included stuff that was taxed in different ways, you'll likely never know. Which nobody cares about, because we don't know how VAT works, for us it's just a random pricing element like the cost of materials. Except it's not: when it's said and done, it's a tax on fixed-income employees who can't justify a VAT return.
The american approach to sales tax, which seems complicated and "magic" at first, is actually much more transparent.
> Secondly, it's not regressive because the more goods and services you buy, the more you get taxed.
Nope. It's regressive because it's flat rate. A millionaire buying a dishwasher will pay the same amount of tax as a regular joe buying the same dishwasher, in practice penalising the poorest of the two. That's the definition of regressive taxation.
The theoretical notion that this is evened out by millionaires buying dozens of dishwashers versus joe's single one, is just that: theoretical. In practice, it does not happen: consumption levels are basically the same across most of the population.
> If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat.
If you buy a luxury yacht, it's likely not owned by you; it's owned by You™ Ltd, and filed as asset for this or that reason. You™ Ltd will diligently file its VAT forms, of course, and in the end it will get that VAT money back. Of course there are rules and enforcement etc etc, but in practice that's how it works for everything but the most outrageous items.
> rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT
No, but VAT makes it trivial to game the system in practice, which is why businesses are fine with it. Note how there are constant attempts at abolishing "pesky" laws like inheritance tax or stamp duty, which touch very few individuals but are hard to game; whereas VAT involves everything and everyone but it's just accepted as part and parcel of doing business, because in the end it's paid only by fixed-income n00b employees who can't justify a VAT return.
They know it exists, they don't know how it works or why (unless they run a business).
> Plus, prices in shops have to show VAT-inclusive prices to end customers
... which is exactly what I mean by "hiding it". You'll hardly ever see "€ 4.00 + € 1.00 vat" when going through shelves; you'll always see "€ 5.00". You have no idea how that price is calculated, what is tax and what is not, until after you've paid -- and even then you'll see an aggregated total, so if your basket included stuff that was taxed in different ways, you'll likely never know. Which nobody cares about, because we don't know how VAT works, for us it's just a random pricing element like the cost of materials. Except it's not: when it's said and done, it's a tax on fixed-income employees who can't justify a VAT return.
The american approach to sales tax, which seems complicated and "magic" at first, is actually much more transparent.
> Secondly, it's not regressive because the more goods and services you buy, the more you get taxed.
Nope. It's regressive because it's flat rate. A millionaire buying a dishwasher will pay the same amount of tax as a regular joe buying the same dishwasher, in practice penalising the poorest of the two. That's the definition of regressive taxation.
The theoretical notion that this is evened out by millionaires buying dozens of dishwashers versus joe's single one, is just that: theoretical. In practice, it does not happen: consumption levels are basically the same across most of the population.
> If I buy a luxury yacht, I'll end up paying more VAT than someone buying a toy boat.
If you buy a luxury yacht, it's likely not owned by you; it's owned by You™ Ltd, and filed as asset for this or that reason. You™ Ltd will diligently file its VAT forms, of course, and in the end it will get that VAT money back. Of course there are rules and enforcement etc etc, but in practice that's how it works for everything but the most outrageous items.
> rich individuals may well try out all kinds of tax avoidance schemes but that's not a problem specific to VAT
No, but VAT makes it trivial to game the system in practice, which is why businesses are fine with it. Note how there are constant attempts at abolishing "pesky" laws like inheritance tax or stamp duty, which touch very few individuals but are hard to game; whereas VAT involves everything and everyone but it's just accepted as part and parcel of doing business, because in the end it's paid only by fixed-income n00b employees who can't justify a VAT return.
They know it exists, they don't know how it works or why (unless they run a business).
What? It's just a percentage. You don't need to be a business to understand that.
...which is exactly what I mean by "hiding it". [...]
That's not hiding it. Companies can (broadly speaking) also show ex-VAT prices, should they choose, they are just obliged to show the inc-VAT ones more prominently. People care about the end cost, I'd guess if you polled people, they'd overwhelmingly choose the inc-VAT display over ex-VAT.
Also, in the UK, your receipt will show the breakdown of tax and may also highlight tax-exempt items, so if you really care for the details, you can see them.
The american approach to sales tax, which seems complicated and "magic" at first, is actually much more transparent.
Again, I'd wager that the actual costs are the ones that consumers want to see, not the pre-tax prices. Do US customers really sum their trolley of goods in their heads and add on the exact tax % to know how much they are spending before they hit the tills? Which is more convenient?
Nope. It's regressive because it's flat rate
Um, I'd suggest that you look up the definition of a 'regressive tax', you appear confused. 'flat rate' or 'proportional tax' is _not_ regressive, again by the very definition!
[yacht ownership discussion snipped]
because in the end it's paid only by fixed-income n00b employees who can't justify a VAT return.
VAT return? End customers have no VAT to claim back. They are people that pay it! Now if you are running a business, and so have business purchases, then obviously you need to be aware of tax regulations. If you are a 'n00b' employee then you pay it.
What? It's just a percentage. You don't need to be a business to understand that.
...which is exactly what I mean by "hiding it". [...]
That's not hiding it. Companies can (broadly speaking) also show ex-VAT prices, should they choose, they are just obliged to show the inc-VAT ones more prominently. People care about the end cost, I'd guess if you polled people, they'd overwhelmingly choose the inc-VAT display over ex-VAT.
Also, in the UK, your receipt will show the breakdown of tax and may also highlight tax-exempt items, so if you really care for the details, you can see them.
The american approach to sales tax, which seems complicated and "magic" at first, is actually much more transparent.
Again, I'd wager that the actual costs are the ones that consumers want to see, not the pre-tax prices. Do US customers really sum their trolley of goods in their heads and add on the exact tax % to know how much they are spending before they hit the tills? Which is more convenient?
Nope. It's regressive because it's flat rate
Um, I'd suggest that you look up the definition of a 'regressive tax', you appear confused. 'flat rate' or 'proportional tax' is _not_ regressive, again by the very definition!
[yacht ownership discussion snipped]
because in the end it's paid only by fixed-income n00b employees who can't justify a VAT return.
VAT return? End customers have no VAT to claim back. They are people that pay it! Now if you are running a business, and so have business purchases, then obviously you need to be aware of tax regulations. If you are a 'n00b' employee then you pay it.
> It's just a percentage. You don't need to be a business to understand that.
What you have to understand is the process to claim it back, i.e. the fact that businesses and business owners effectively don't pay it.
> the actual costs are the ones that consumers want to see
Of course, which is why VAT is so clever: effectively, it's so easy to ignore that most people do just that and don't realise that they're paying a tax that businesses and rich people simply don't pay. It's the best type of hiding: in plain sight.
The American approach is more annoying, yes, but it's also more transparent: the consumer is forced to feel the full weight of tax, and can perceive how businesses are completely unaffected by it.
> 'flat rate' or 'proportional tax' is _not_ regressive
In practice, it is. If I pay the exact absolute amount of tax on a transaction for the same good, regardless of my wealth, then in practice it's regressive because it will weight more on the less wealthy. A flat rate is less regressive when transactions differ (the same percentage of a bigger transaction will result in more tax), but this is not the case with VAT. As I said, the theory that this is compensated by rich people buying more expensive goods is just that, a theory; in practice, this does not happen n any significant scale.
> End customers have no VAT to claim back. [...] Now if you are running a business
Of course. My point is, most wealthy people will be running businesses, and hence will not pay tax on pretty much anything except the most outrageous items. Most of those Porsches and BMWs you see on the streets of London are not bought by individuals, but rather by (shell) companies such people run. They're still managed exactly like they were an individual's private property, but on paper they're not and so there won't be any VAT paid by such "end customers".
> If you are a 'n00b' employee then you pay it.
yup. And that's my point: it's a tax on n00b employees who cannot afford good accountants and shell companies. They're the only ones who really pay it all.
What you have to understand is the process to claim it back, i.e. the fact that businesses and business owners effectively don't pay it.
> the actual costs are the ones that consumers want to see
Of course, which is why VAT is so clever: effectively, it's so easy to ignore that most people do just that and don't realise that they're paying a tax that businesses and rich people simply don't pay. It's the best type of hiding: in plain sight.
The American approach is more annoying, yes, but it's also more transparent: the consumer is forced to feel the full weight of tax, and can perceive how businesses are completely unaffected by it.
> 'flat rate' or 'proportional tax' is _not_ regressive
In practice, it is. If I pay the exact absolute amount of tax on a transaction for the same good, regardless of my wealth, then in practice it's regressive because it will weight more on the less wealthy. A flat rate is less regressive when transactions differ (the same percentage of a bigger transaction will result in more tax), but this is not the case with VAT. As I said, the theory that this is compensated by rich people buying more expensive goods is just that, a theory; in practice, this does not happen n any significant scale.
> End customers have no VAT to claim back. [...] Now if you are running a business
Of course. My point is, most wealthy people will be running businesses, and hence will not pay tax on pretty much anything except the most outrageous items. Most of those Porsches and BMWs you see on the streets of London are not bought by individuals, but rather by (shell) companies such people run. They're still managed exactly like they were an individual's private property, but on paper they're not and so there won't be any VAT paid by such "end customers".
> If you are a 'n00b' employee then you pay it.
yup. And that's my point: it's a tax on n00b employees who cannot afford good accountants and shell companies. They're the only ones who really pay it all.
if you are running a business, and so have business purchases, then obviously you need to be aware of tax regulations.
It's very common among people who have their own company to buy things like TVs and computers as business purchases and then just kind of end up keeping them in their living room.
It's very common among people who have their own company to buy things like TVs and computers as business purchases and then just kind of end up keeping them in their living room.
If you're worried about regressive taxation, offset it with standard deductions, minimum income, or earned income tax credits. Distorting tax codes to accommodate social goals creates information disparities and, indirectly, justice issues.
It's like the discussions people have around here about how keeping salaries secret only helps employers. Keeping tax codes byzantine is good for corrupt politicians and special interest groups.
It's like the discussions people have around here about how keeping salaries secret only helps employers. Keeping tax codes byzantine is good for corrupt politicians and special interest groups.
With 'step in the proper direction' I was referring to the table showcasing how calculations from 2014 to 2015 are now even further simplified.
VAT in itself is another debate. However, as many others have commented on this in this thread already, I don't have to go into specifics too much.
VAT in itself is another debate. However, as many others have commented on this in this thread already, I don't have to go into specifics too much.
VAT is pretty dumb, but at least now it's applied fairly.
>"[...] would be admitting that VAT is a regressive hidden tax on employees"
Could you elaborate a little more on that? I'm curious of your reasoning.
Could you elaborate a little more on that? I'm curious of your reasoning.
Also, the higher the VAT, the higher the tax evasion in those countries. One reason this happens is because many businesses are at the limit of survival and cannot afford to pay.
One would think that somebody would get a clue that reducing the VAT would make it more affordable to more companies, but unfortunately law makers are clueless.
One would think that somebody would get a clue that reducing the VAT would make it more affordable to more companies, but unfortunately law makers are clueless.
That's not really how it works. Tax rate and tax evasion aren't really linked. It's about culture and enforcement.
Anyway, if your business can't pay tax it should close and you should find something more profitable to do. I guess you can argue that some businesses of cultural or otherwise non-monetary worth should have some subsidies, but as long as the company goal is to "bring in the dough", then that's the dumbest excuse I've heard. On par with "just because".
Anyway, if your business can't pay tax it should close and you should find something more profitable to do. I guess you can argue that some businesses of cultural or otherwise non-monetary worth should have some subsidies, but as long as the company goal is to "bring in the dough", then that's the dumbest excuse I've heard. On par with "just because".
> Tax rate and tax evasion aren't really linked. It's about culture and enforcement
And how does that culture happen? Do you think people just get up one morning and decide to do tax evasion?
Of course they are linked - especially in countries in which the private sector is underrepresented and overwhelmed compared to the retired, the unemployed and the ones in the public sector, all of them assisted socially.
In a country in which 60-70% of a company's revenue goes to taxes, such that the government can deliver their electoral alms, it's not so much about bringing in the dough, but more about surviving for one more year with food on the table.
And how does that culture happen? Do you think people just get up one morning and decide to do tax evasion?
Of course they are linked - especially in countries in which the private sector is underrepresented and overwhelmed compared to the retired, the unemployed and the ones in the public sector, all of them assisted socially.
In a country in which 60-70% of a company's revenue goes to taxes, such that the government can deliver their electoral alms, it's not so much about bringing in the dough, but more about surviving for one more year with food on the table.
>And how does that culture happen? Do you think people just get up one morning and decide to do tax evasion?
No, they get brought up by their parents to do it, usually. The justification is that the government will just waste it anyway, which can be true. Of course, the culture that breeds tax evasion is the same one that breeds poor government. Happily I don't have to deal with it.
No, they get brought up by their parents to do it, usually. The justification is that the government will just waste it anyway, which can be true. Of course, the culture that breeds tax evasion is the same one that breeds poor government. Happily I don't have to deal with it.
The correlation is almost the exact opposite: https://ideas.repec.org/p/ces/ceswps/_431.html
It's cultural, tax evasion is higher in countries which were recently dicatatorships (Spain, Portugal, Greece) or never developed a strong central government (Italy.)
It's cultural, tax evasion is higher in countries which were recently dicatatorships (Spain, Portugal, Greece) or never developed a strong central government (Italy.)
Tax rate and tax evasion aren't really linked.
Do you have any sources that support that assertion? Increasing tax rates increase the incentive to avoid said taxes. If I'm going to go to jail for tax fraud, I'm not going to that if the rate is 2%, but I might if it's 50%.
Do you have any sources that support that assertion? Increasing tax rates increase the incentive to avoid said taxes. If I'm going to go to jail for tax fraud, I'm not going to that if the rate is 2%, but I might if it's 50%.
I don't have sources, but I do think it depends a lot on culture. For example, in Europe (WARNING: sweeping generalizations ahead) the northern countries do not have lower taxation rates than the southern ones, but shadow economies are smaller.
Part of that is that many people in the north consider a welfare state (http://en.m.wikipedia.org/wiki/Welfare_state) worth paying higher taxes for. "I'm a happy taxpayer" is not an unheard of statement, and said without a grain of irony.
Another part is that it is harder to evade taxes in a culture where people are more honest. If the typical accountant complains if you have money you cannot account for, and cannot be bribed, it is more of a hassle to find one that complies with you (conversely, if your accountant suggests ways to evade taxes, more people will be inclined to do it)
Historically, many consider that culture to be the result of Protestantism. Many Protestants consider democratic government to be the will of god (http://en.m.wikipedia.org/wiki/Protestant_culture#Government). That makes any form of revolt against government a sin.
Part of that is that many people in the north consider a welfare state (http://en.m.wikipedia.org/wiki/Welfare_state) worth paying higher taxes for. "I'm a happy taxpayer" is not an unheard of statement, and said without a grain of irony.
Another part is that it is harder to evade taxes in a culture where people are more honest. If the typical accountant complains if you have money you cannot account for, and cannot be bribed, it is more of a hassle to find one that complies with you (conversely, if your accountant suggests ways to evade taxes, more people will be inclined to do it)
Historically, many consider that culture to be the result of Protestantism. Many Protestants consider democratic government to be the will of god (http://en.m.wikipedia.org/wiki/Protestant_culture#Government). That makes any form of revolt against government a sin.
Companies don't pay VAT.
I think parent is referring to the classic "VAT advance": in most countries, after a business registers for VAT, after 12 to 24 months the State will calculate your "expected VAT turnout" for the following 1 or 2 years, and demand advance payment. This is because some 80% of businesses don't survive the first 24 months anyway, so the State tries to collect every penny before they go bust. Ironically, that advance payment (which is invariably too high) is often a nail in the coffin...
That sounds nuts, but it's nothing like how the system works in the UK. As a small business you complete your VAT return and pay your balance at the end of each quarter. A large business (turnover > £2M) will make payments on account more frequently so they don't get to keep hold of the VAT that has been paid to them as long.
I believe it often happens here in the UK as well, although it does not involve 100% of businesses like in some other countries. It's also a one-off, whereas elsewhere it can, in some circumstances, become a recurring request.
Can you point me to any examples? I ran a small business in the UK for several years and never heard of anything like it. The closest would be the Windfall Tax, but that targeted a small number of privatised utilities that were sold off on the cheap by a previous government. http://en.wikipedia.org/wiki/Windfall_Tax_%28United_Kingdom%...
Apologies, I got slightly confused with the "payments on account" scheme, which does not involve VAT in the UK. Elsewhere (I believe in Italy and France), the same approach is used for VAT as well.
They can take the customer's VAT payment and stuff it in their pocket, though. A win-win for everyone except everyone who's not that business.
"The change was made because EU wants to get more money from American companies"
That is not true - VAT is and has always been a tax for the buyer, not the seller. Of course, having VAT is awful for us - in my country it's an astronomical 24%. But that's besides the point.
That is not true - VAT is and has always been a tax for the buyer, not the seller. Of course, having VAT is awful for us - in my country it's an astronomical 24%. But that's besides the point.
The point of the changes is to prevent large non-EU companies from going "VAT-shopping": like a certain well known advertising company claiming to sell all their services from a low VAT country when in fact all the business dealings are done in a tower block in the centre of London.
Now they have to charge whatever VAT rate each country within the EU thinks is appropriate for their citizens & there's no "race to the bottom" effect where Google, Apple, Amazon et al try to play different countries off against each other to get the lowest possible VAT rate.
The next stage is going to be tax changes to try and eliminate the profit shifting that all the non-EU companies do by setting up subsidiaries in different EU countries and "licensing" their IP to them at prices that just happen to match the profits made in that country.
Unfortunately, small online businesses are collateral damage in this particular fight.
Now they have to charge whatever VAT rate each country within the EU thinks is appropriate for their citizens & there's no "race to the bottom" effect where Google, Apple, Amazon et al try to play different countries off against each other to get the lowest possible VAT rate.
The next stage is going to be tax changes to try and eliminate the profit shifting that all the non-EU companies do by setting up subsidiaries in different EU countries and "licensing" their IP to them at prices that just happen to match the profits made in that country.
Unfortunately, small online businesses are collateral damage in this particular fight.
This. It was about time they got started.
Does placing advertising on web property count as a digital good?
Yes, as said, they have pretty much covered everything.
You can find some more detailed information here: https://www.gov.uk/government/publications/revenue-and-custo...
You can find some more detailed information here: https://www.gov.uk/government/publications/revenue-and-custo...
"VAT is and has always been a tax for the buyer, not the seller"
Does this distinction actually mean anything material?
Buyers start with all of the money, and it ends up split between the seller and the government. From the buyer's perspective, it doesn't really doesn't matter if this is an income tax on the seller, or a VAT tax on the transaction.
Does this distinction actually mean anything material?
Buyers start with all of the money, and it ends up split between the seller and the government. From the buyer's perspective, it doesn't really doesn't matter if this is an income tax on the seller, or a VAT tax on the transaction.
> it's an astronomical 24%
That's lower than the income tax rate for a middle class American. Why is this rate astronomical? Are there also high property and income taxes?
EDIT: It's an honest question. I know what a VAT is, but I have no frame of reference for how the overall tax scheme is especially egregious for the individual taxpayer. Some other tax rates (income, property, etc.) are surely relevant. A 24% VAT with absolutely no other taxes sounds nice, for example.
That's lower than the income tax rate for a middle class American. Why is this rate astronomical? Are there also high property and income taxes?
EDIT: It's an honest question. I know what a VAT is, but I have no frame of reference for how the overall tax scheme is especially egregious for the individual taxpayer. Some other tax rates (income, property, etc.) are surely relevant. A 24% VAT with absolutely no other taxes sounds nice, for example.
You're comparing income tax with sales tax.
In the UK, on a salary of £40k (i.e. professional mid-career engineer), before you touch the money, the government takes about 25% for income tax and national insurance. Then, they take 20% of everything else that you spend unless it's non-luxurious foodstuffs, children's clothes or paper books. And, of course, if what you're buying is fuel, they actually take 85% of the price.
In addition, you'll pay approximately 2% of the purchase price of a house to the government, and you'll pay approx. one day a month in after-tax income to the local council as a property tax.
US has a 30% tax burden, UK has a 40% tax burden. France and Germany have >50% tax burdens. The last three have some form of nationalised healthcare though, which the US does not.
In the UK, on a salary of £40k (i.e. professional mid-career engineer), before you touch the money, the government takes about 25% for income tax and national insurance. Then, they take 20% of everything else that you spend unless it's non-luxurious foodstuffs, children's clothes or paper books. And, of course, if what you're buying is fuel, they actually take 85% of the price.
In addition, you'll pay approximately 2% of the purchase price of a house to the government, and you'll pay approx. one day a month in after-tax income to the local council as a property tax.
US has a 30% tax burden, UK has a 40% tax burden. France and Germany have >50% tax burdens. The last three have some form of nationalised healthcare though, which the US does not.
> The last three have some form of nationalised healthcare though, which the US does not.
Plus a much better retirement plan. In the US you can wake up in a hospital after someone rear-ended you, to find you are bankrupt and going to become homeless, even when you had the best insurance. And unless the stock market returns 8% most people are going to have a rough retirement.
In the US you're lucky to get 3 weeks vacation a year. More than that, you need to quit your job. In EU countries it's generally 6 weeks by gov't mandate.
The greater taxes are probably a good deal.
Plus a much better retirement plan. In the US you can wake up in a hospital after someone rear-ended you, to find you are bankrupt and going to become homeless, even when you had the best insurance. And unless the stock market returns 8% most people are going to have a rough retirement.
In the US you're lucky to get 3 weeks vacation a year. More than that, you need to quit your job. In EU countries it's generally 6 weeks by gov't mandate.
The greater taxes are probably a good deal.
Things which aren't true:
>In the US you can wake up in a hospital after someone rear-ended you, to find you are bankrupt and going to become homeless, even when you had the best insurance.
>unless the stock market returns 8% most people are going to have a rough retirement
Your health and car insurance covers exactly what it says it covers, and retirement plans aren't a mystery. In America you take personal responsibility for things which are done for you in Europe; you can make the wrong choices, but you're allowed to _make_ choices.
Vacation doesn't have much of anything to do with taxes.
>In the US you can wake up in a hospital after someone rear-ended you, to find you are bankrupt and going to become homeless, even when you had the best insurance.
>unless the stock market returns 8% most people are going to have a rough retirement
Your health and car insurance covers exactly what it says it covers, and retirement plans aren't a mystery. In America you take personal responsibility for things which are done for you in Europe; you can make the wrong choices, but you're allowed to _make_ choices.
Vacation doesn't have much of anything to do with taxes.
Taking personal responsibility sounds all very well (leaving discussion of the impossibility of meaningful free will for another occasion), but private health insurance is a special kind of stupid. For example, some people are born with diseases or disabilities that we can say with certainty will cost millions in care over their lifetimes. Those people are obviously uninsurable. So health systems that don't leave people to die must involve an element of the collectivisation of risk.
>Those people are obviously uninsurable.
...if they were born to parents who had insurance they would have been covered.
>So health systems that don't leave people to die must involve an element of the collectivisation of risk.
...insurance is all about collectivisation of risk, is it not? You are paying in, hoping to never collect, and the money you pay in is used to cover those who did need it.
...if they were born to parents who had insurance they would have been covered.
>So health systems that don't leave people to die must involve an element of the collectivisation of risk.
...insurance is all about collectivisation of risk, is it not? You are paying in, hoping to never collect, and the money you pay in is used to cover those who did need it.
This is very explicitly incorrect.
In America as of 2014 you cannot be denied coverage, charged more, or denied treatment based on health status.
There is no longer an "uninsurable" American citizen.
In America as of 2014 you cannot be denied coverage, charged more, or denied treatment based on health status.
There is no longer an "uninsurable" American citizen.
Brit here. I like to take personal responsibility for choices like career path, holidays, hobbies, where to put down roots, whether to have a family, who to love, who to have sex with, how much to drink, what books to read, what religion to follow or not follow, what to have for dinner. As for how I subsist when I'm too old or sick to work, or when I wake up in hospital after an accident ... those sorts of choices I'm more than happy for the government to make, in general they do a great job all things considered.
Your health insurance doesn't cover non-covered expenses.
That retirement plans aren't a mystery doesn't negate needing 8+% returns to comfortably retire.
That retirement plans aren't a mystery doesn't negate needing 8+% returns to comfortably retire.
Investment return is always a problem. Pension funds don't magically create money!
The EU countries don't need 8+% returns to provide their citizens with comfortable retirements. One major reason is that in the US you need to save for living to an age much greater than the average life expectancy.
That's only as sustainable as demographic trends and economic success allows.
In New York State, the pubic employee fund is arguably fully funded, and most employees are eligible to retire at 55 with 2/3 of their salary as a pension. That fund requires a 7% annual return to avoid additional employer contributions.
In New York State, the pubic employee fund is arguably fully funded, and most employees are eligible to retire at 55 with 2/3 of their salary as a pension. That fund requires a 7% annual return to avoid additional employer contributions.
Those EU countries don't need to achieve 7% annual returns because they won't pay as much as 2/3, nor allow retirement as soon as age 55. Their models are much more sustainable.
It's going to get interesting in the US, as an increasing percentage of private sector retirees are scraping by on an average $1K a month whilst public sector retirees are enjoying cruises and taxes are being raised (or services reduced) to fund them.
It's going to get interesting in the US, as an increasing percentage of private sector retirees are scraping by on an average $1K a month whilst public sector retirees are enjoying cruises and taxes are being raised (or services reduced) to fund them.
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No country mandates 6 weeks. The highest is Austria with a total of 38 days between paid vacation and holidays. Most of Europe is around 30 days. See http://www.bostonglobe.com/business/2014/08/13/one-few-count.... Scroll about halfway down for a nice infographic.
The only important number is government spending as % of GDP. US ~38%, UK ~42%. However the UK has universal heathcare where US simply mandates health insurance making the effective tax burden lower in the UK.
In either case the US tax burden is close enough to EU levels not to make a significant difference.
In either case the US tax burden is close enough to EU levels not to make a significant difference.
> The only important number is government spending as % of GDP.
Globally. Still here might be cases where a particular group funds an unproportionally high part of the spending. And you might be the edge case where you earn the money in country A to save and retire on it in country B, so A's sales tax doesn't affect you this much.
Globally. Still here might be cases where a particular group funds an unproportionally high part of the spending. And you might be the edge case where you earn the money in country A to save and retire on it in country B, so A's sales tax doesn't affect you this much.
The US does have medicare and medicaid, which aren't universal but still are nationalized healthcare for a lot of people.
Nationalized health insurance, which is a little different.
I live in Quebec and technically I don't have nationalized healthcare but rather health insurance. It doesn't change the fact that I don have to pay anything out of pocket at any hospital I go to here.
An itemized and detailed claim will be made on my behalf to the insurance agency to get everything paid.
From a user pov it makes no difference how the system works.
An itemized and detailed claim will be made on my behalf to the insurance agency to get everything paid.
From a user pov it makes no difference how the system works.
Quite the contrary, the level of service can vary wildly in nationalized health care, where the state runs the hospitals. There are pluses and minuses -- you can get much better health care at a much cheaper price to the tax payer, but with all the problems you see in any government bureaucracy.
Nationalized insurance on the other hand is pretty much the system any American would be used to, except the government pays and you have long queues.
Nationalized insurance on the other hand is pretty much the system any American would be used to, except the government pays and you have long queues.
Isn't that the case in Germany as well?
Health insurance is not payed with collected taxes in Germany. You are paying for it seperately.
> US has a 30% tax burden, UK has a 40% tax burden. France and Germany have >50% tax burdens. The last three have some form of nationalised healthcare though, which the US does not.
As a US citizen, I'm happy to have an increased tax burden for legislated vacation/holiday days and 20% of the population not having medical bills they can't pay for.
As a US citizen, I'm happy to have an increased tax burden for legislated vacation/holiday days and 20% of the population not having medical bills they can't pay for.
It's more like 80% of the population, when considering expenses not covered by insurance. A hospital can charge you for anything and you're legally obligated to pay it.
> A hospital can charge you for anything and you're legally obligated to pay it.
Categorically, unequivocally wrong.
Hospitals cannot just make up charges. They cannot bill you for procedures/tests/services you did not receive (and if they do, you are not "legally obligated to pay it").
I know the anti-US healthcare circle jerk is pretty strong here, but we don't need to just make things up in order to prove a point.
Categorically, unequivocally wrong.
Hospitals cannot just make up charges. They cannot bill you for procedures/tests/services you did not receive (and if they do, you are not "legally obligated to pay it").
I know the anti-US healthcare circle jerk is pretty strong here, but we don't need to just make things up in order to prove a point.
It's true that they can't just make up services, but they can do a pretty wide range of things and bill you for them, without giving you the price in advance. My dad was in the hospital once, and got something like 20 separate bills, for different services he had no idea he had received (and had no way to verify if he had even received). And my mom actually did get a half-dozen or so bills for services she definitely didn't receive. She went to the ER, checked in, but ended up leaving before getting any services whatsoever: after >1hr waiting in the ER's waiting room, she started calling around to see if she could be seen somewhere else, and left when she found a nearby urgent-care clinic that could see her. They still billed her for a "standard" ER work-up, including line items for a blood test and lab work! She had not had blood drawn, and clearly no lab work was done. Obviously she didn't pay that bill, though: if you really have good evidence that the service was not performed, you can challenge it.
Honestly I'd be shocked if an ER doctor knew the price of a service before doing. They probably know a general range (give or take a few hundred dollars?) for a given test, but even that I'm mostly guessing on.
Unless they're a small operation, I don't know that they'd have any direct visibility into the billing/insurance/finance side of the operation. Maybe that is the issue? I don't know how to combat that in a large hospital setting.
The one time I had surgery I ended up getting 3 separate bills for varying amounts, but any time I asked for documentation about a given procedure or test it was provided in writing well before the due date of the bill.
Unless they're a small operation, I don't know that they'd have any direct visibility into the billing/insurance/finance side of the operation. Maybe that is the issue? I don't know how to combat that in a large hospital setting.
The one time I had surgery I ended up getting 3 separate bills for varying amounts, but any time I asked for documentation about a given procedure or test it was provided in writing well before the due date of the bill.
I once asked the financial adviser for a hospital, how much the CAT scan will be. He said $1700. On the bill it was $4500. Here's how it really works, according to a relative of mine who works in the billing dept. of a major hospital: each month they decide how much to charge patients for services already rendered, so they can meet their monetary goals for that month.
> Categorically, unequivocally wrong
Hyperbole much?
They can charge you for services / products rendered and which aren't covered by insurance, and they can charge any price they want and you're legally obligated to pay it. Of 3 times I helped my parents with processing their hospital bills, it was over $10K in non-covered expenses each time.
Hyperbole much?
They can charge you for services / products rendered and which aren't covered by insurance, and they can charge any price they want and you're legally obligated to pay it. Of 3 times I helped my parents with processing their hospital bills, it was over $10K in non-covered expenses each time.
Is your complaint that a hospital can charge you for a service that was rendered, that they perform services you might have to pay for, or that they assume you're not interested in rate-shopping your surgeon?
Yes, you are legally obligated to pay for services rendered. I think you'll be hard pressed to find someone to argue the opposite, though.
Yes, you are legally obligated to pay for services rendered. I think you'll be hard pressed to find someone to argue the opposite, though.
The problem isn't that you have to pay for services rendered. The problem is the pricing and service system is extremely opaque. You can receive services without ever having an opportunity to know what those services are or how much they will cost. And that's not restricted to high emergency care its everything. It's not comparable to paying for services in other industries where pricing is presented up front or at least before services are rendered. The opaqueness leads to price inflation as well so service prices aren't regulated by the consumer market.
For example once my wife had to go to the er and we'd taken great pains to know ahead of time what hospital was covered best under our insurance. Yet the bill contained test services performed in he hospital that were not covered because a room in the hospital was operated by a separate lab company that didn't accept our insurance. There was literally no way for us as consumers to know that one type of blood test regularly covered by our insurance in a covered facility would go through the magic door into an uncovered facility. Price inflation and surprise bills are emergent properties of the system and that needs to change.
I am all for consumers having choice and taking personal responsibility for their care but our healthcare system makes that effectively impossible.
For example once my wife had to go to the er and we'd taken great pains to know ahead of time what hospital was covered best under our insurance. Yet the bill contained test services performed in he hospital that were not covered because a room in the hospital was operated by a separate lab company that didn't accept our insurance. There was literally no way for us as consumers to know that one type of blood test regularly covered by our insurance in a covered facility would go through the magic door into an uncovered facility. Price inflation and surprise bills are emergent properties of the system and that needs to change.
I am all for consumers having choice and taking personal responsibility for their care but our healthcare system makes that effectively impossible.
The observation is, in EU countries with nationalized healthcare you don't get a hospital bill. In the US you can have good health insurance and still get a bill that bankrupts you and leaves you homeless. You can't rate shop in advance of getting rear-ended.
You previously said "charge you for anything" which is substantially broader than "charge you for services/products rendered."
Reading your previous statement literally (and I saw no reason to read it in any other way), it meant that a hospital could charge you for buying an elephant and you'd be legally obligated to pay.
And you're complaining about other people using hyperbole?
Reading your previous statement literally (and I saw no reason to read it in any other way), it meant that a hospital could charge you for buying an elephant and you'd be legally obligated to pay.
And you're complaining about other people using hyperbole?
They can charge you for some pretty ridiculous things, though. My mom got charged $175 every time an assistant nurse checked on her, 4 times a day. It wasn't reduced by insurance; instead they didn't cover it at all, so she was obligated to pay the $5000 charge.
The working poor get shafted in America, but the middle class gets a better deal. They hardly pay taxes, get employer paid health insurance and vacation.
Germany doesn't have nationalised healthcare. It's just mandatory for most of the population and the health maintenance organizations are extremely regulated (how much money they should take, in what cases they have to pay how much, ...)
> You're comparing income tax with sales tax.
For the purposes of personal budgeting, I don't see why the comparison is unfair. I'm trying to discuss taxation levels, not tax schemes as such.
> US has a 30% tax burden
That's more on point. That's also low. It doesn't include state and local income taxes. It also ignores other kinds of taxes like property and sales taxes. The U.S. has state-level taxes, which complicate things but they definitely affect the individual taxpayer.
For the purposes of personal budgeting, I don't see why the comparison is unfair. I'm trying to discuss taxation levels, not tax schemes as such.
> US has a 30% tax burden
That's more on point. That's also low. It doesn't include state and local income taxes. It also ignores other kinds of taxes like property and sales taxes. The U.S. has state-level taxes, which complicate things but they definitely affect the individual taxpayer.
Your original comment was questioning why a 24% VAT is considered to be outstandingly high. It's the highest rate of VAT in the EU, and broadly speaking taxes in the EU are already higher than in nations of equivalent technological and economic development. So, it's not an unreasonable feeling that a 24% VAT rate is high.
That 30% tax burden for the US is from the same wikipedia page as the European tax burdens. I am assuming that the methodologies used to arrive at the figures are broadly comparable.
That 30% tax burden for the US is from the same wikipedia page as the European tax burdens. I am assuming that the methodologies used to arrive at the figures are broadly comparable.
[deleted]
That will be in addition to income and property taxes.
By way of example, UK taxes look like:
* ~40% income tax, first £10k untaxed.
* 20% VAT on most goods (food, books, children's clothes are untaxed, heating fuel is taxed at 5%)
* Annual property tax of around £1000 on the typical dwelling.
* 28% capital gains tax, first £10k untaxed in any 1 year. Dividends are effectively taxed as additional income.
In reality UK taxes are of course much, much more complicated than the rough outline above :)
By way of example, UK taxes look like:
* ~40% income tax, first £10k untaxed.
* 20% VAT on most goods (food, books, children's clothes are untaxed, heating fuel is taxed at 5%)
* Annual property tax of around £1000 on the typical dwelling.
* 28% capital gains tax, first £10k untaxed in any 1 year. Dividends are effectively taxed as additional income.
In reality UK taxes are of course much, much more complicated than the rough outline above :)
Worth noting that if you sell shares in your own company (e.g. your start-up is acquired) you probably won't pay 28% CGT as you will qualify for some kind of tax relief - I paid 10% CGT on the sale of our company ~12 years ago because of Taper Relief, this has apparently been replaced by Entrepreneurs' Relief:
https://www.gov.uk/entrepreneurs-relief/eligibility
https://www.gov.uk/entrepreneurs-relief/eligibility
> food, books, children's clothes are untaxed
Some food is untaxed. For example, cakes are untaxed but biscuits are taxed (or maybe it's the other way round). There was a court case to decide whether Jaffa Cakes were cakes or biscuits for the purposes of VAT: the court ultimately applied the principle that cakes were soft when fresh but hard when stale, while biscuits started off hard and then went soft; hence Jaffa Cakes were officially cakes.
Some food is untaxed. For example, cakes are untaxed but biscuits are taxed (or maybe it's the other way round). There was a court case to decide whether Jaffa Cakes were cakes or biscuits for the purposes of VAT: the court ultimately applied the principle that cakes were soft when fresh but hard when stale, while biscuits started off hard and then went soft; hence Jaffa Cakes were officially cakes.
This is exactly why the tax should be flat and other programs should counteract regressive effects. Well, it's one of the reasons.
Minor correction on income tax:
0-10K: Untaxed,
10-40K: 20%,
40K+: 40%,
No, because I'm including National Insurance (both employers and employees) under income taxes. Employers NI is 14% of headline salary, so the effective tax rate for high earners is more like 50% than 40%. Meanwhile middle income people pay 12% NI on top of their income tax and 14% employers national insurance so the real rate of tax on the cost to their employer is about 40%.
Go do the sums & you'll see. Like I said, the reality is much more complicated, but the figures I gave are roughly in the right ballpark.
Go do the sums & you'll see. Like I said, the reality is much more complicated, but the figures I gave are roughly in the right ballpark.
That's the VAT tax, comparable to the sales tax in the US, so this compares as 24% vs ~6% or so in most of the US. Income tax is separate from that, and depends on country to, but seems to work out to quite similar percentages, at least between Germany and the US.
http://en.wikipedia.org/wiki/Value-added_tax#Comparison_with...
VAT taxes sale, but it's not the same as a "sales tax". The rates don't mean the same thing, and it doesn't make sense to compare them directly without taking that into consideration.
VAT taxes sale, but it's not the same as a "sales tax". The rates don't mean the same thing, and it doesn't make sense to compare them directly without taking that into consideration.
>Are there also high property and income taxes?
Yes - this is on top of (high) income tax/capital gains tax, etc.
Yes - this is on top of (high) income tax/capital gains tax, etc.
Good to know. Since I don't know what country you're talking about, can you give me some percentages to help me understand better?
"[24% is] lower than the income tax rate for a middle class American."
Do you have a source for that?
(I ask because I'm definitely upper middle class or possibly lower upper class and I'm only paying ~25% (and I'm in no way tax efficient). Everything I've seen puts the middle class income tax rate below 15%.)
Do you have a source for that?
(I ask because I'm definitely upper middle class or possibly lower upper class and I'm only paying ~25% (and I'm in no way tax efficient). Everything I've seen puts the middle class income tax rate below 15%.)
Not the person you're replying to, but maybe these numbers will help:
- The median household income for 2013 was just under $52,000 [1] - For that same year, the marginal tax rate for a single person making that income was 25% [2] - If the household is married that drops to 15%.
Most Americans on HN are very likely upper-middle class in income, since that generally means $62,500+ in personal income and a six-figure household income [3]
I think these income stats are incredibly interesting. I never would have considered my wife and I to be upper-middle class either in wealth or income, but according to every set of figures I can find we're pretty solidly in the top 5-8% range nationally. It can be misleading what "middle," "upper middle," and "upper" really mean if you're strictly speaking about gross income.
[1] https://en.wikipedia.org/wiki/Household_income_in_the_United... [2] https://en.wikipedia.org/wiki/Income_tax_in_the_United_State... [3] https://en.wikipedia.org/wiki/Upper_middle_class#Income
- The median household income for 2013 was just under $52,000 [1] - For that same year, the marginal tax rate for a single person making that income was 25% [2] - If the household is married that drops to 15%.
Most Americans on HN are very likely upper-middle class in income, since that generally means $62,500+ in personal income and a six-figure household income [3]
I think these income stats are incredibly interesting. I never would have considered my wife and I to be upper-middle class either in wealth or income, but according to every set of figures I can find we're pretty solidly in the top 5-8% range nationally. It can be misleading what "middle," "upper middle," and "upper" really mean if you're strictly speaking about gross income.
[1] https://en.wikipedia.org/wiki/Household_income_in_the_United... [2] https://en.wikipedia.org/wiki/Income_tax_in_the_United_State... [3] https://en.wikipedia.org/wiki/Upper_middle_class#Income
There's a ~15% payroll tax (income tax by another name) for social security and medicare. The bulk of the median household's remaining income will be taxed at 15%. There's some fudging for deductions, I suppose, but that's also leaving out state and local income taxes.
The point was that a 24% VAT doesn't mean much to me when other major taxes are left unmentioned. It actually sounds like a great deal if income and property taxes are only nominal.
EDIT: You're likely neglecting to include both halves of your payroll taxes.
The point was that a 24% VAT doesn't mean much to me when other major taxes are left unmentioned. It actually sounds like a great deal if income and property taxes are only nominal.
EDIT: You're likely neglecting to include both halves of your payroll taxes.
VAT varies from 10% to 25% in most countries of the world [1]. There is an income tax in _addition_ to it. I've calculated a total of net income/turnover rate as low as 34% in my country (France), albeit including all mandatory spending and not only taxes, and the detail is in my blog post [2].
[1] http://en.m.wikipedia.org/wiki/Value-added_tax
[2] http://adrien-ragot.me/why-i-say-70-percent-tax-in-france/
[1] http://en.m.wikipedia.org/wiki/Value-added_tax
[2] http://adrien-ragot.me/why-i-say-70-percent-tax-in-france/
So Finland is one country that has 24% VAT (most are lower.) They have very low property taxes but very high income taxes (up to 30% federal + 20% local.)
You can't compare VAT to income tax, they are very different beasts. And yes, although I can't speak for the GP, in Finland (and other Nordic countries) other taxes are high as well. Not that I'm necessarily complaining, although VAT as a concept certainly has its problems.
For the purposes of comparing the effects on the individual taxpayers, it seems fair to me. Structural differences aside, a 24% VAT sounds great if there are no other taxes and there is some deduction or subsidy to counteract its regressive effects.
All taxes are astronomical in most of the EU, but with national differences.
In Denmark, in addition to a 25% VAT, there's an 8% payroll tax and a 40%-56% income tax, property taxes, huge environmental taxes, etc.
In Denmark, in addition to a 25% VAT, there's an 8% payroll tax and a 40%-56% income tax, property taxes, huge environmental taxes, etc.
> Are there also high property and income taxes?
Isn't that usually the case? High VAT, high income taxes.
Isn't that usually the case? High VAT, high income taxes.
VAT is essentially a sales tax. Sales taxes in the US are usually 5-10%.
because it's much bigger than sales tax in any of the us states?
[deleted]
True, it should say: "EU wants to get more money from transaction for American companies."
I would say it's something different yet:
EU wants to hinder rascal states that make money at the expense of the rest of the union taking advantage of their small size: they won't be able to collect VAT for business made in the whole EU just because they offer a lower rate. (I mention the size because the deal is convenient for the state only if its economy would be otherwise very small).
It does not matter if the company is American or European, I could have made a Luxembourg subsidiary of an Italian company and paid Luxembourg VAT rates.
Of course, this is a very stupid way of doing it: it works only for VAT, while the countries can still be fiscal havens for any other tax, and moreover it makes life hell for small B2C business.
The proper way would just agree on a uniform tax policy. Never going to happen.
EU wants to hinder rascal states that make money at the expense of the rest of the union taking advantage of their small size: they won't be able to collect VAT for business made in the whole EU just because they offer a lower rate. (I mention the size because the deal is convenient for the state only if its economy would be otherwise very small).
It does not matter if the company is American or European, I could have made a Luxembourg subsidiary of an Italian company and paid Luxembourg VAT rates.
Of course, this is a very stupid way of doing it: it works only for VAT, while the countries can still be fiscal havens for any other tax, and moreover it makes life hell for small B2C business.
The proper way would just agree on a uniform tax policy. Never going to happen.
I agree that the proper way would be unification, but that's impossible - the UK would be the first one to say no.
They should "just" add a size limit or at least make it much simpler for companies to comply with the law.
They should "just" add a size limit or at least make it much simpler for companies to comply with the law.
Hitherto, the UK has had a threshold for mandatory VAT registration: if your VAT-able turnover (sales within the EU) exceed the threshold, you must file a VAT-1 and register, but if your VAT-able sales are below the threshold (e.g. you do B2B sales to customers outside the EU -- which aren't VAT-able -- or your turnover is just plain low) you aren't required to register. As of the current time, the threshold is £81,000 per annum turnover: arguably, if you're turning over that much, you can bloody well afford the bookkeeping costs.
Unfortunately not all EU countries have a lower threshold and the new arrangements have a lower threshold for mandatory VAT registration of any amount -- a single €0.99 sale in Estonia and whoops, you need to be registered to collect and pay VAT in Estonia or via your own tax authority's One Stop Shop.
If the £81,000 threshold applied to the new arrangement, nobody would be shouting. But as it is, this will kill a huge number of spare bedroom businesses and start-ups.
Unfortunately not all EU countries have a lower threshold and the new arrangements have a lower threshold for mandatory VAT registration of any amount -- a single €0.99 sale in Estonia and whoops, you need to be registered to collect and pay VAT in Estonia or via your own tax authority's One Stop Shop.
If the £81,000 threshold applied to the new arrangement, nobody would be shouting. But as it is, this will kill a huge number of spare bedroom businesses and start-ups.
In the UK at least it's not difficult or expensive to register for VAT, but it is yet another barrier. Bear in mind that registering a company is trivial in the UK compared to some other countries.
I registered my small business for VAT voluntarily when I was bringing in much less than 81k since I found that larger companies wouldn't deal with me if I wasn't VAT registered. Since I already had an accountant and used software for my bookkeeping the effort and increase in costs was negligible.
What is difficult is charging a different VAT rate for every non-VAT registered individual in every country you sell to.
I registered my small business for VAT voluntarily when I was bringing in much less than 81k since I found that larger companies wouldn't deal with me if I wasn't VAT registered. Since I already had an accountant and used software for my bookkeeping the effort and increase in costs was negligible.
What is difficult is charging a different VAT rate for every non-VAT registered individual in every country you sell to.
"a single €0.99 sale in Estonia"
Would of course be done through a service. Maybe it's time for these "innovative" payment processor to actually be innovative and provide this service.
"£81,000 threshold applied to the new arrangement"
It can't apply to the new arrangement since you are now paying taxes in the customers country.
It seems that you would just either do your local sales as before and your international sales through a service or start two companies. That why you should be able to keep your threshold for domestic business. (Don't quote me on this though since I'm not in the UK)
Would of course be done through a service. Maybe it's time for these "innovative" payment processor to actually be innovative and provide this service.
"£81,000 threshold applied to the new arrangement"
It can't apply to the new arrangement since you are now paying taxes in the customers country.
It seems that you would just either do your local sales as before and your international sales through a service or start two companies. That why you should be able to keep your threshold for domestic business. (Don't quote me on this though since I'm not in the UK)
It is definitely a lot harder to use this kind of tax avoidance if you are a European company.
Thanks for the correction, I updated the blog post.
jkulmala, the other part of your claim is wrong: "The change was made [...] to force them to move more operations to EU to get VAT reductions". After Jan 1, 2015, there will be zero VAT-related incentive to move to the EU, because any company (EU or non-EU) will get the same VAT reductions: the VAT in the customer's country.
Edit: yes, I meant VAT "reductions" not "payments". My point holds though: there won't be any more VAT incentives to move.
Edit: yes, I meant VAT "reductions" not "payments". My point holds though: there won't be any more VAT incentives to move.
It's not what they pay, it's what they get to reduce. If you purchase supplies etc. you get to reduce the VAT you've paid.
So if you have $0 VAT from EU purchases, but $40 VAT from sales, you pay $40. But if you paid $40 VAT from EU purchases, and have $40 VAT from sales, you pay out $0.
So if you have $0 VAT from EU purchases, but $40 VAT from sales, you pay $40. But if you paid $40 VAT from EU purchases, and have $40 VAT from sales, you pay out $0.
The main problem with these changes is that they require the seller to collect information about the buyer's location. It makes all the sense for physical goods, but it is nigh impossible for digital ones, and pretty much misses the whole point of online economy.
In my opinion, the VAT should be charged based on the delivery address; for digital goods, it would be ideal that all purchases are considered local, and the countries could have an option to introduce a separate "digital VAT rate" that would apply to such purchases.
In my opinion, the VAT should be charged based on the delivery address; for digital goods, it would be ideal that all purchases are considered local, and the countries could have an option to introduce a separate "digital VAT rate" that would apply to such purchases.
This suggestion, in practice, would not stop Amazon and Google siphoning VAT money form around the EU through Luxembourg, Jersey or Ireland. If I settle in a country with low "digital VAT rate", I'll still hold an advantage over EU companies based elsewhere: I can charge lower prices, or I can charge regular prices and pocket the difference. This is exactly what happens today.
Nope -- what happens today is paying Luxembourg VAT for physical goods delivered from UK to UK, which would be prevented this way. Digital goods have no "location", so the only way to charge VAT is to assume it was a "local" purchase. And what is wrong with countries competing with VAT rates?
Alternatively, a pan-EU VAT rate for digital goods only might be a better approach, and probably easier to implement than a universal VAT rate.
Alternatively, a pan-EU VAT rate for digital goods only might be a better approach, and probably easier to implement than a universal VAT rate.
> what is wrong with countries competing with VAT rates?
it's a race to the bottom that destroys tax revenues. It benefits small "pirate" countries to the disadvantage of large ones that are actually responsible for creating the large markets where real profits are generated. Tax-rate competition has always existed, but globalisation and technology now make it too easy to exploit it in a way that only benefits big business and screws entire populations.
> pan-EU VAT rate for digital goods only might be a better approach
Pan-EU rates for most things would be a better approach. VAT is just the most egregious example. If we have a single market, we should have a real level playing field, including things like taxation, workers rights and environmental standards. We're getting there in a number of areas, but it's hard to make progress on tax because of political implications (and because of pressure from businesses who benefit from the current state of affairs).
it's a race to the bottom that destroys tax revenues. It benefits small "pirate" countries to the disadvantage of large ones that are actually responsible for creating the large markets where real profits are generated. Tax-rate competition has always existed, but globalisation and technology now make it too easy to exploit it in a way that only benefits big business and screws entire populations.
> pan-EU VAT rate for digital goods only might be a better approach
Pan-EU rates for most things would be a better approach. VAT is just the most egregious example. If we have a single market, we should have a real level playing field, including things like taxation, workers rights and environmental standards. We're getting there in a number of areas, but it's hard to make progress on tax because of political implications (and because of pressure from businesses who benefit from the current state of affairs).
This sentence is wrong
"The change was made because EU wants to get more money from transactions for American companies – or to force them to move more operations to EU to get VAT reductions."
and it can be understood by just comparing the table right above, where you can see that for an American company based in the US (last three Non-EU rows) nothing will change, so no American company would be forced to move to EU.
What's true, on the other hand, is that this law would not allow some companies, including some big American ones (like Amazon) to take advantage of putting their European HQ in countries with lower VAT rate, like Luxembourg (15% til this year[1]), and so selling (invoicing) products to endusers for a lower price.
Same can be said for right after about this exact part "a perfectly legal strategy to pay less taxes". VAT is not paid by the company but by the private user that buys the product/service. So they didn't pay less taxes thanks to this, but probably sold more product. If we want to discuss about saving taxes, we can discuss about tax rulings for this companies, though...
I am not a fiscal/economic guy but this girl got it all wrong...so I stopped reading at this point.
[1] due to this law, Luxembourg will raise its VAT from 15% to 17% trying to compensate the money loss caused by this change (afaik it won't be enough)
"The change was made because EU wants to get more money from transactions for American companies – or to force them to move more operations to EU to get VAT reductions."
and it can be understood by just comparing the table right above, where you can see that for an American company based in the US (last three Non-EU rows) nothing will change, so no American company would be forced to move to EU.
What's true, on the other hand, is that this law would not allow some companies, including some big American ones (like Amazon) to take advantage of putting their European HQ in countries with lower VAT rate, like Luxembourg (15% til this year[1]), and so selling (invoicing) products to endusers for a lower price.
Same can be said for right after about this exact part "a perfectly legal strategy to pay less taxes". VAT is not paid by the company but by the private user that buys the product/service. So they didn't pay less taxes thanks to this, but probably sold more product. If we want to discuss about saving taxes, we can discuss about tax rulings for this companies, though...
I am not a fiscal/economic guy but this girl got it all wrong...so I stopped reading at this point.
[1] due to this law, Luxembourg will raise its VAT from 15% to 17% trying to compensate the money loss caused by this change (afaik it won't be enough)
"If you ask me – YES it is crazy. There are 28 member states and over 75 different VAT rates – which I should all know and create different invoices for."
If only we had some sort of programmable calculating device to automate this kind of drudgery.
If only we had some sort of programmable calculating device to automate this kind of drudgery.
The seller is also supposed to collect evidence of the location of the purchaser (billing addresses, IP addresses, etc.). By the time you're required to collect private data for each transaction, it becomes more than simply the kind of drudgery you can automate away and becomes a burden that is a bit too much for one-person entreprises.
Purchaser inputs details in online form, tax is applied by location, purchaser buys thing. What am I missing here?
At least in the UK, you'll be required to keep such private data for 10 years, which also means registering as data processors and controllers with the Information Commissioner's Office. See this: https://www.gov.uk/government/publications/revenue-and-custo...
Also, try explaining how simple all this is to the self-employed women selling crafts online using PayPal.
Also, try explaining how simple all this is to the self-employed women selling crafts online using PayPal.
If you are selling crafts online, you have to take a purchasers location in order to deliver stuff. If you are doing this through your own shop, then all the decent ecommerce backends have plugins for eu vat stuff and if you are doing it through an existing marketplace the same applies. And I don't think whether they are women really affects this.
What you are overlooking is that the vast majority of these people (and women are disproportionately represented, including many stay-at-home mums doing this in their spare time) did not have to deal with VAT _at all_ previously because they never came anywhere near the VAT threshold. They have never had to apply for it. Suddenly, they have to register and comply with not one but two government bureaucracies, and submit quarterly statements on the VAT collected. (By the way, the rules affect the sale of digital items, like knitting patterns and ebooks, rather than physical goods like crafts because the VAT threshold is being abolished on digital goods.)
Or annually with your other tax affairs if your income is less than £1.3 million.
Which means that while it has to be taken into consideration it does not really affect stuff that much.
It is a cost of doing business in the EU and it does make things more complex, but nowhere near as complex as before the EU came into effect.
Which means that while it has to be taken into consideration it does not really affect stuff that much.
It is a cost of doing business in the EU and it does make things more complex, but nowhere near as complex as before the EU came into effect.
No, VAT MOSS Return periods are calendar quarters, so you need to submit quarterly statements: https://www.gov.uk/government/publications/revenue-and-custo... This has nothing to do with income. This is because anyone who supplies digital services to other EU countries is considered a business. Registering with a couple of government bureaucracies (as an aside, let's see how well they can handle about a million new registrants in 2015 assuming everyone tries to follow the new rules) and completing quarterly VAT returns might be completely normal for small businesses of more than a few people, but for the millions of self-employed people who have never had to deal with any of this (and who are finding out about the rule change only in the last few weeks) this is a nightmare.
I got the annual thing from here, I got it a bit wrong as the threshold is turnover, not income - https://www.gov.uk/vat-annual-accounting-scheme/overview
VAT Annual Accounting Scheme
You can join the scheme if your estimated VAT taxable turnover is £1.35 million or less.
VAT Annual Accounting Scheme
You can join the scheme if your estimated VAT taxable turnover is £1.35 million or less.
I see. This is a scheme you can apply for once you are VAT registered and are up to date with your VAT returns. I'm not sure how that changes things for first-time VAT registered businesses. For businesses that have not been registered for 12 months or more (i.e. everyone who is applying for the first time), they can still apply but HMRC will advise the amount of the instalments to be paid (monthly by default, quarterly also available) which are usually supposed to be estimated based on the last year's liability. I'd be curious to see how HMRC will react to getting applications for the VAT Annual Accounting Scheme from all the first-time VAT registrants with very little to base their VAT estimates on, but that wouldn't happen unless all these self-employed people had any idea that the scheme existed.
Nothing. This really is a storm in a teacup.
More info here: http://rachelandrew.github.io/eu-vat/
So how would this enforcement look in practice if a US company does not have any business location within the EU? Up until now I was under the impression that this wouldn't matter as long as you don't violate US law.
Also why should the EU be treated differently than any other of the approx. 200 other foreign countries? I'm sure lots of them have similar tax codes that require tax payment at the location of the customer. Are those countries able to enforce any tax payments from US businesses?
Also why should the EU be treated differently than any other of the approx. 200 other foreign countries? I'm sure lots of them have similar tax codes that require tax payment at the location of the customer. Are those countries able to enforce any tax payments from US businesses?
>Are those countries able to enforce any tax payments from US businesses?
Basically no unless the companies has assets where the tax is due.
Basically no unless the companies has assets where the tax is due.
I'd imagine for small companies in the US, if they ignore VAT nothing will happen. There is no way the US courts will get involved with enforcing EU taxes and EU enforcement is fairly laid back in that they are not going to arrest you if you go on hols. If the company has assets in the EU however the courts can go after them so Google, Amazon etc will have to pay. I fear Digital Ocean are going to start charging me VAT which they have not so far.
If you are concerned with this, you may want to investigate if basing your company in Switzerland offers more advantage than in EU : its at the center of Europe but doesn't belong to EU.
If a company does not sell to EU citizens, then yes, being based outside in the EU will let you avoid these rules. But if your goal is to sell to EU consumers, basing the company in Switzerland as your European base doesn't help, because for non-EU sellers (and from 1 January, for all sellers), VAT is charged based on the location of the customer; the location of the company is irrelevant. And Switzerland will generally enforce tax judgments of EU member states, so if you violate German law in your dealings with German citizens, being based in Switzerland isn't going to shelter you. If you sell services to a German, you'll be required to charge German VAT rates, regardless of whether the company is based in Germany or Switzerland.
Some larger Swiss-based companies were actually in favor of this change, because in some cases they have been at a VAT disadvantage relative to some EU-based companies, who were previously allowed to charge "source country" rates rather than "destination country" rates for digital services. Therefore Swiss providers selling to Germans were at a disadvantage to Luxembourg-based providers selling to Germans, because the Swiss provider had to charge German VAT, while the Luxembourg provider could charge the lower Luxembourg VAT. With the new "destination location" rules being applied across the board, including to EU-based companies, Luxembourg will lose its advantage vis-a-vis Switzerland there.
See: http://www.kpmg.com/global/en/issuesandinsights/articlespubl...
Some larger Swiss-based companies were actually in favor of this change, because in some cases they have been at a VAT disadvantage relative to some EU-based companies, who were previously allowed to charge "source country" rates rather than "destination country" rates for digital services. Therefore Swiss providers selling to Germans were at a disadvantage to Luxembourg-based providers selling to Germans, because the Swiss provider had to charge German VAT, while the Luxembourg provider could charge the lower Luxembourg VAT. With the new "destination location" rules being applied across the board, including to EU-based companies, Luxembourg will lose its advantage vis-a-vis Switzerland there.
See: http://www.kpmg.com/global/en/issuesandinsights/articlespubl...
I run a small software development shop, registered in Switzerland. We sell installable software in productized form. We also employ a local accounting firm to handle our accounting and advise on taxation matters. At the moment the state of affairs is such that we do NOT need to charge or to report VAT on any sales unless it's a sale to a Swiss customer. I had them double-check this and I also got a second opinion from another company. Not Swiss = No VAT, period. So, this -
a Swiss supplier must charge the VAT rate of the EU
Member State where EU consumers are domiciled or the
services are used and enjoyed
Telecommunications and broadcasting companies, as
well as providers of electronic services to consumers
Yet it's forced to implement most of the EUs rulings whilst having no say on said rulings. Same for Norway and Iceland.
That's said rather often, but I'm not at all certain that it's true.
http://blogs.telegraph.co.uk/news/danielhannan/100194407/out...
http://blogs.telegraph.co.uk/news/danielhannan/100194407/out...
> Switzerland signed up to the EU’s customs union in 1972, which abolished subsidy and tariff barriers. Since then, it has also decided to sign up to the majority of the single market: it is a full member of the single market for goods, a signatory to the Schengen agreement, and it has signed up to most of the single market for capital. In many areas, therefore, Switzerland is effectively a member of the single market. But like Norway, it does not have the ability to affect the rules that govern it. [1]
Just because the Swiss are not in the EEA doesn't mean they aren't force to adopt EU policy. Their exports depend on it.
[1] - http://centreforeuropeanreform.blogspot.co.uk/2012/07/britai...
Just because the Swiss are not in the EEA doesn't mean they aren't force to adopt EU policy. Their exports depend on it.
[1] - http://centreforeuropeanreform.blogspot.co.uk/2012/07/britai...
Same as Norway, indeed. But Norway has implemented just 5,000 pieces of EU legislation in the last 22 years, whereas the UK has, on average, implemented 3,000 pieces per year. [I'm sticking to Norway, because it is the region that I have facts and figures for - I don't know the figures for Switzerland.]
The claim the Norway and Switzerland are governed remotely by the EU is therefore not true - either that, or the Norwegian law somehow pre-empts EU law, and thus complies with it before it is passed? (Which makes it sound like Norway governs the EU, and not the other way around :p).
I'm not claiming that Norway is de-coupled from the EU, just that the claim that it is governed remotely by a body in which it has no say is false.
The claim the Norway and Switzerland are governed remotely by the EU is therefore not true - either that, or the Norwegian law somehow pre-empts EU law, and thus complies with it before it is passed? (Which makes it sound like Norway governs the EU, and not the other way around :p).
I'm not claiming that Norway is de-coupled from the EU, just that the claim that it is governed remotely by a body in which it has no say is false.
If you didn't know Daniel Hannan is a /very/ partisan politician, who is incredibly anti-European.
Well, he would claim that he was anti-EU, and not anti-European. But if he has the figures wrong, you should tell him (and me!)
What does the "Reverse Charge" refer to?
I explain that in this other post for EU guys: http://www.happybootstrapper.com/2014/eu-vat-changes-online-...
Reverse charge moves the VAT-paying responsibility from you to your customer in another EU country. The responsibility can only be moved from business to business.
You’ll write an invoice/receipt without VAT (or 0% VAT) and include a text “Reverse charge, VAT directive art. 44” and you are done. In practice the text is often missing, as people re-use the same invoice format they use for non-EU sales.
Reverse charge moves the VAT-paying responsibility from you to your customer in another EU country. The responsibility can only be moved from business to business.
You’ll write an invoice/receipt without VAT (or 0% VAT) and include a text “Reverse charge, VAT directive art. 44” and you are done. In practice the text is often missing, as people re-use the same invoice format they use for non-EU sales.
Some basic examples.
My British corporation pays an American company for Web hosting. However, the US company does not charge us VAT, so we have to charge ourselves ("reverse charge") the VAT at UK rates and then immediately claim back the VAT as it is used in our VATable supplies. The net result is zero but reverse charging means they get VAT revenue for situations where VAT is not reclaimable (many exist).
Another example is that my British corporation sells services to a, say, French corporation. We charge no VAT on this sale but the French corporation has to then "reverse charge" French VAT on the sale within France (and then claim it back, if valid). We then also have to file this transaction on an "EC Sales List" so that the various authorities can check that the reverse charge did occur.
My British corporation pays an American company for Web hosting. However, the US company does not charge us VAT, so we have to charge ourselves ("reverse charge") the VAT at UK rates and then immediately claim back the VAT as it is used in our VATable supplies. The net result is zero but reverse charging means they get VAT revenue for situations where VAT is not reclaimable (many exist).
Another example is that my British corporation sells services to a, say, French corporation. We charge no VAT on this sale but the French corporation has to then "reverse charge" French VAT on the sale within France (and then claim it back, if valid). We then also have to file this transaction on an "EC Sales List" so that the various authorities can check that the reverse charge did occur.
This: http://www.hmrc.gov.uk/manuals/vatpossmanual/vatposs14100.ht... I think. Essentially you can push the responsibility for paying the VAT from the vendor to the consumer in B2B transactions if I understand things correctly.
Would it be easier if there was a single EU wide VAT rate?
Just so you aren't confused, there is no VAT in the US, and sales tax is set by states, not cities.
More information:
https://www.sba.gov/content/collecting-sales-tax-over-intern...
More information:
https://www.sba.gov/content/collecting-sales-tax-over-intern...
To further eliminate the possibilities of confusion, at least in Washington state, there is a state-wide retail sales tax, and there are additional sales taxes based upon the city or county where the transaction occurs. There are over 400 different taxing regions in Washington state.
http://dor.wa.gov/Content/GetAFormOrPublication/FormBySubjec...
http://dor.wa.gov/Content/GetAFormOrPublication/FormBySubjec...
Yes. But at least its not as bad as the US where each city seems to have its own VAT rate...
There is no VAT in the US.
Even if you mean sales tax, that's set on a state-by-state basis, and you only have to collect sales tax in a state if you have a physical presence there:
https://www.sba.gov/content/collecting-sales-tax-over-intern...
Even if you mean sales tax, that's set on a state-by-state basis, and you only have to collect sales tax in a state if you have a physical presence there:
https://www.sba.gov/content/collecting-sales-tax-over-intern...
Sorry, I did mean sales tax. Here in CA it is set per city: http://www.boe.ca.gov/sutax/pam71.htm
In the US it seems the onus is put on the consumer rather than the business. We should all be declaring our out of state purchases on our tax returns... http://en.wikipedia.org/wiki/Use_tax
In the US it seems the onus is put on the consumer rather than the business. We should all be declaring our out of state purchases on our tax returns... http://en.wikipedia.org/wiki/Use_tax
Without abolishing VAT, what would be a way to ensure that it is properly collected by the buyer's country without putting undue stress on small sellers?
One thing I can think of is that you could target the payment processors. They already have personal data about the buyer, so they should know where they are located. Most transactions are going to be done by a credit card processing company, or something like PayPal. In either case, the EU could deal with those sorts of companies directly.
In that case, merchants could sell their goods without worrying about tax at all. You buy something at a listed $100, you have 22% local tax, the credit card company charges the buyer $122, seller doesn't have to worry about it. Now, the seller could program some option that could estimate VAT based on geolocation with some disclaimer that the customer will be charged for VAT by the payment processor and are responsible for their own charges. But that would be a courtesy of the seller, the buyer should be aware of their own VAT.
Some things are excluded from VAT, but they are the exception, and in that case, the seller could jump through some small hoops to register with the payment processors to allow those goods to exclude VAT.
There are still other methods of collecting payment, like bitcoin, like money orders, whatever. In those cases, the law should require the buyer to self-assess. In reality the self-assessment would be rarely followed, and honestly nobody would care if it were small purchases. But the self-assessment rules would mean that anyone seriously gaming the system by avoiding compliant payment processing options could be punished, while still both avoiding an less enforceable situation like trying to punish a foreign company for failure to charge local tax, or limiting the payment options that foreign companies can provide.
This could also solve problems with collecting VAT purchases made from foreign entities (instead of just companies from other EU states) and could even be extended further (You are a resident of Luxembourg, you travel and shop in France, you pay with a credit card, you are charged less VAT on the purchase rather than having to claim the difference when you return.)
In short, compel large payment processors to verify the home of buyers when the account is created, compel them to have some checks to avoid fraud. Allow sellers to not charge VAT if the buyer is either using an approved payment processor, or if the buyer is from another country. If you are accepting payment by cash or money order from someone local, then you must charge VAT at the local rate. But if you are accepting a credit card through an approved processor, whether the buyer is local or foreign, you charge the rate pre-tax, and the processor is required to A) add the appropriate VAT, and B) verify that the buyer is not lying about their home country. If you accept a money order from a foreign country, you do not charge VAT, and the buyer self-assesses.
Alternatively, you could say that all purchases that do not go through an approved processor have the local VAT added to them, and the buyer is compelled to self-asses for the difference, it's just a matter of how much you are willing to inconvenience non-EU foreign countries.
But I don't think the seller should be required to ensure that the buyer abides by their local tax rules. I do think that's a task that can be handled by large banks or payment processors.
One thing I can think of is that you could target the payment processors. They already have personal data about the buyer, so they should know where they are located. Most transactions are going to be done by a credit card processing company, or something like PayPal. In either case, the EU could deal with those sorts of companies directly.
In that case, merchants could sell their goods without worrying about tax at all. You buy something at a listed $100, you have 22% local tax, the credit card company charges the buyer $122, seller doesn't have to worry about it. Now, the seller could program some option that could estimate VAT based on geolocation with some disclaimer that the customer will be charged for VAT by the payment processor and are responsible for their own charges. But that would be a courtesy of the seller, the buyer should be aware of their own VAT.
Some things are excluded from VAT, but they are the exception, and in that case, the seller could jump through some small hoops to register with the payment processors to allow those goods to exclude VAT.
There are still other methods of collecting payment, like bitcoin, like money orders, whatever. In those cases, the law should require the buyer to self-assess. In reality the self-assessment would be rarely followed, and honestly nobody would care if it were small purchases. But the self-assessment rules would mean that anyone seriously gaming the system by avoiding compliant payment processing options could be punished, while still both avoiding an less enforceable situation like trying to punish a foreign company for failure to charge local tax, or limiting the payment options that foreign companies can provide.
This could also solve problems with collecting VAT purchases made from foreign entities (instead of just companies from other EU states) and could even be extended further (You are a resident of Luxembourg, you travel and shop in France, you pay with a credit card, you are charged less VAT on the purchase rather than having to claim the difference when you return.)
In short, compel large payment processors to verify the home of buyers when the account is created, compel them to have some checks to avoid fraud. Allow sellers to not charge VAT if the buyer is either using an approved payment processor, or if the buyer is from another country. If you are accepting payment by cash or money order from someone local, then you must charge VAT at the local rate. But if you are accepting a credit card through an approved processor, whether the buyer is local or foreign, you charge the rate pre-tax, and the processor is required to A) add the appropriate VAT, and B) verify that the buyer is not lying about their home country. If you accept a money order from a foreign country, you do not charge VAT, and the buyer self-assesses.
Alternatively, you could say that all purchases that do not go through an approved processor have the local VAT added to them, and the buyer is compelled to self-asses for the difference, it's just a matter of how much you are willing to inconvenience non-EU foreign countries.
But I don't think the seller should be required to ensure that the buyer abides by their local tax rules. I do think that's a task that can be handled by large banks or payment processors.
[deleted]
imo the major f-up is removing the tax threshold for selling digital goods - even if you sell a £1 kintting pattern you have to register for VAT now.