2015 EU VAT changes for electronic services should be a blessing for small companies. Legislation has introduced, into European law, a new mechanism...
Why VATlib is moving from Freemium to FREE!
April 9, 2014
When I had the opportunity to create VATlib, my aim was to issue my Apps as quickly as possible and I focused on the content, design and functionalities. As a tax adviser, I did not forget my potential tax liabilities. I asked around me and the answer was, it’s not very clear but we issue invoices to the Platform provider for the amount received as per the advice of our accountant. Some said they'd had VAT inspections and it was fine. As I did not have immediate income (and, therefore, no tax liability) I satisfied myself with this until 1st February 2014 when it was time to do my first VAT return with income deriving from my Apps. It was important, with potential income increasing, to fully analyse the VAT treatment of income deriving from Apps and the results surprised me.
Let’s start with Google, they have a very simple, clear and short contract that states they are just an agent. The Google Play distribution agreement state that the “developer is responsible for determining if a product is taxable and the applicable tax rate to be collected for each taxing jurisdiction where products are sold. The developer is responsible for remitting taxes to the appropriate taxing authority. The same contract adds that the developer is solely responsible for the support and maintenance of the products. This is also concordant with the receipt received by the user upon purchase, that indicates the name and contact of the seller (e.g. the developer) to be contacted for any questions/complaints. This seems simple and easy but while reading this, I struggle with three points... How do I issue an invoice to the end user when I only know where the customer is based? Why do I not receive an invoice from Google for their commission? How am I going to know my tax obligations in all the countries where I sell an App?
As a small developer with almost no resources, it is very risky.The legislation on this subject changes very quickly and the administrative burden in some countries can be huge. Off course, there are solutions but you need resources. If you are not sure to reach a certain level of income it may be safer to issue the App for free.
The Apple contract is quite different to the Google one, although the service provided is similar. Articles and blogs may suggest that Apple deals with your tax and is a principal. I think it is a misconception and it is only partially true. Apple deals with your tax only in EU, US, Australia, Canada, Norway & Switzerland. What does it implies for these countries? You are dealing with a business (i.e. one of the Apple entity) and you do not have to look at the location of the end user and the potential tax consequences in its country of residency. For example, in the case of a sale to someone in the EU, you just have to send an invoice to iTunes Sarl Luxembourg for the amount of income received from your app. However, Apple does not deal with the taxes in other countries. So there is still the same issue, how I am going to manage the taxes in all the countries I sell the App?
One solution may be to limit the access to the app at the beginning to Europe & US (One stop shop to be introduce in Europe as of 1st January 2015 & no sales tax in the US on electronic services). But it is too frustrating. Developing a useful App is not easy and is very time consuming. The magic and the reward is the worldwide access. In a click everyone can access to your work/creation at no additional cost. Limiting the access is limiting its potential development and success. It is a difficult choice but I am not prepared to reduce the impact and limit the access. I prefer to have a free App and focus on building a name and a brand rather than having a potential short term profit. However, I need to live and recoup the costs so it is now necessary to find new way to obtain an income. One of them is advertising. Personally, I will not choose this option but I now understand the need for the advertising on Apps and websites and I do click on them from times to time.
Finally, I wonder about the rationale behind the Google and Apple contracts. For, while the service provided is largely the same (a platform to distribute the Apps), their contracts are very different. Google makes very clear that it is not a principal and its documentation supports this (e.g. the receipt sent to the user). Apple's is less clear and can be principal or agent depending on the countries of the end user.
Please feel free to contact me if you have more information, solutions or questions.
Iman Ben Abbes Deschâtres
This is not a tax advice and it is only my personal view on the current system and this may be incorrect.
Out of curiosity, I have also looked at Facebook's terms & conditions; it seems that their position is similar to that of Google. They do not deal with the taxes, but their documentation seems not as clear as Google's one.