2015 EU VAT Changes could they be a blessing?
2015 EU VAT changes for electronic services should be a blessing for small companies. Legislation has introduced, into European law, a new mechanism for collecting VAT whereby large companies that facilitate electronic commerce in Europe will be responsible for accounting for VAT due under a non-refutable presumption which makes the facilitator the deemed supplier for VAT purposes.
My view is that this legislation does not follow the general definition of a supplier in EU VAT law but has been introduced to force portals to manage the VAT on the sale of mobile applications to ensure VAT is accounted for on such supplies. Indeed, pre January 2015, portals for mobile applications had different approaches to this issue, while some collected and remitted the VAT on the sale of mobile applications to the relevant tax authorities, the majority of them considered that the owner of the mobile application needed to manage the VAT themselves (i.e. set up the VAT rate to apply, register for VAT, collect and remit the VAT in each relevant country). This led to a high incidence of non-compliance which is contrary to the design and intention of the law and difficult for the tax authorities to combat (suppliers being abroad, too small, etc…).
The EU law* did not limit the application of the presumption to the sale through a portal (e.g. marketplace) but it also included the sale through an interface (e.g. a website).
Indeed, if you buy a music track on the website of the musician and pay via a payment processor then, in practice, it is the same as a sale through a portal as there is a platform (e-commerce service provider) and a payment processor. Instead of dealing with one party (the marketplace), you have the e-commerce service provider and the payment processor (two parties - that you do not necessarily see). However, the process is the same, you just put your service on the platform owned by somebody else to reach a maximum number of customers. The owner of the electronic services has to deal with the constraints/limits introduced by the e-commerce service provider and the payment processor.
It is now necessary to think about the role of the payment processor. Is the payment processor just performing an administrative function or are these activities essential to the process of the carrying out of the service? This should be reviewed on a case-by-case basis. The checkout process is, of course, essential for the sale to take place and I guess one of the questions will be does the payment processor chosen help to reduce the cart abandonment rate? Do they own the customer data? If yes, the non-refutable presumption will apply so that, according to the law from 1 January 2015, the payment processor will have to collect, manage and remit the VAT in the same way as the market places.
2015 EU VAT changes for electronic services could be a blessing for payment processors too. 2015 is the year of the payment processor battle. In this hugely competitive market, I look forward to seeing who will be the first to stand out, recognise their obligations and take the market share. There is a benefit in doing this before the European tax authorities try to force them to do so.
* Art 9a Council Implementing Regulation (EU) No 1042/2013 of 7 October 2013