Taxing Crowdfunds: Canary Wharf Hack Moot In The Face of Brussels Butchery of EU VAT Laws

European Market Fruit

EU Poised to Tax Crowdfunding Campaigns Potentially Killing Off Source of SME Funding

Will Crowdfunders from the US and across the world be caught in the crossfire as the EU quietly prepares to declare war on the Internet’s behemoths? Gunther Oettinger

The European Union is considering the creation of a new regulator with the explicit remit to oversee internet firms such as Google and Facebook, according to a leaked internal document prepared in February.
The Guardian

As a ‘hack’ session is prepared for tomorrow evening in London’s Canary Wharf – home to many of the world biggest corporate banks, and to KPMG who’re hosting the ‘VAT MOSS HACK’ – details are emerging of the depth of the problems they face and the implications for crowdfunding as well as startup and micro businesses more generally.

Euros Money House of CardsEmerging too the red tape created by the EU and how damaging it is proving and, crucially, how it unintentionally ensnares crowdfunders and erects trade barriers – at a time when the EU are at pains to open up a single EU digital market.

Moves to levy VAT on purchases (rather than sales) of digital products, and at the purchaser’s VAT rate, designed to pin down the likes of Amazon and Google and prevent their ‘tax tourism’, are backfiring as the effects on SMEs, micro businesses, and even small rewards crowdfunds become clear.

Clare JosaWhile Clare Josa and her EUVATaction team have been left to point out just how badly the problems created have been underestimated, endangering just those kinds of startups and micro businesses the EU claims to be wanting to foster it was not until Crowd Economy expert Tim Wright of consultancy twintangibles pointed out that the effective removal of any VAT threshold means that even small crowdfunds delivering electronic rewards, such as ebooks, music or other audio files for training etc, had been drawn into the net and unintentionally placed on the wrong site of this new law that barely anyone is aware of.

“This legislation runs counter to the EU’s stated ambition of a single digital market, and is anti small business. The threat it poses to crowdfunders is very real and was not understood by the authorities until we pointed it out. The EU needs to recognise it has got this very wrong and act quickly to resolve it,” stated Tim Wright, from twintangibles.

Nor is this just an EU problem. It affects crowdfunders delivering electronic rewards from the USA and elsewhere into the EU making them technically obliged to, collect, account for and pay VAT to each of the 28 national VAT authorities in which sales are made at the appropriate rate – or to register for the VAT MOSS (Mini One Stop Shop) beforehand. Hardly practical for a small crowdfund in London or York, let alone Idaho or Wisconsin.

Kickstarter and IndiegogoLittle wonder that the practice of Geoblocking is fast on the rise, according to stats compiled by EUVATaction, with US companies increasingly declining to take orders from EU residents. How long will it be before the major Crowdfunding platforms such as Kickstarter and Indiegogo are obliged to follow suit in order to protect shield their clients from the complexities or jeopardy?

“It’s certainly true that significant numbers of businesses are taking themselves out of the scope of this legislation via geoblocking, use of 3rd parties, increasing manual intervention and/or removing digital products. While all these strategies will damage their prospects for income and growth, these businesses consider this option is the lesser evil.” EUVATACTION

Disaster Thud KaboomHowever this runs into a further roadblock as the EU have now begun moves to effectively outlaw Geoblocking. How this might be enforced on individual crowdfunders in the USA for example is difficult to imagine but given Brussels seemingly hostile approach to the likes of Google and Facebook it’s not difficult to imagine how they might react to such a move by one of the major Crowdfunding platforms now that Crowdfunding is firmly on their radar given it’s rapid growth and significance, especially in the UK.

The ‘hack’ event being held in London’s Canary Wharf is clearly a well intentioned effort to alleviate the worst effects of a problem rooted in the butchery in Brussels of well established and workable practices, with many EU states operating significant VAT threshold over many decades to avoid these kind of problems and red tape. But it’s misleading to think that any tech hack can provide anything better than sticking plasters to this systemic problem, nor should techies be asked to solve problems created by policymakers. The only real answer is at source, a policy that’s still in their hands.


 

barry-jamesBarry James is the co-founder of TheCrowdfundingCentre and the Social Foundation. Founded in 2012, the organization was created to further research, education and policy initiatives into the new, post-crash economy and “Crowdnomics”. James also created “Crowdfunding: Deep Impact”, the UK’s first national conference held in February 2013 which led to the influential Westminister Crowdfunding Forum. James is a frequent speaker on crowdfunding, entrepreneurship and innovation. He has recently created CrowdPowerTools and VentureFundingHubs.

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  • Clare Josa ૐ

    Thank you for writing about this Barry.

    And, building on what you cover here, here’s our response to why the hope for a ‘simple tech solution’ for #EUVAT has become the Emperor’s new clothes – and why time is running out to save micro businesses.

    http://euvataction.org/2015/05/14/eu-vat-tech-solution-hackathon/

  • The issue of VAT is a contentious issue and as such small businesses are naturally irritated by the whole issue. We allow these companies to handle the differing VAT rates for different EU countries which ensures compliance with legal requirements.

    There’s more information at goo.gl/JJoSRr which shows how you can also handle the application and reporting for VATMOSS as well as SAFMOSS in case of audit.

    goo.gl/WxB76f

    • Barry James

      Contentious does not even begin to cover the needless chaos created here. It’s not really about VAT but bad lawmaking.

      I suppose the sticking-plaster industry might quietly cheer the outbreak of hostilities in a war zone as good for business – but that’s hardly the point.

      If we all look first and only to ‘compliance’ we’d still have corporeal punishment – not to mention slavery of course,

  • taxamo1

    The issue of a zero threshold is a moot point when you consider that other regions have or will implement similar changes. For example, Australia this week announced that it expects to recoup $350m from a new 10% digital services GST introduced in their budget (due to be implemented on July 1, 2015, more here: https://www.taxamo.com/australia-digital-services-gst/) – with a zero threshold attached to the new taxation rules. Switzerland has the same rule change coming into effect on January 2016, and other nations such as Japan (new rules kick in on October 1, 2015) and Canada are to follow suit. This means that digital merchants selling into these regions will have to account for VAT / GST. Our position, as a provider of technical digital tax solutions is that even if all 28 EU member states were to agree on a minimum threshold for these rules (which is probably the way to go to safeguard start-ups), in all reality it is likely to be so low that it will only benefit extreme micro-earners. Remember, the original rules were altered numerous times to cater for the individual needs of certain Member States. For example, the requirement to store transaction data for 10 years was included because ONE Member State insisted on it. Agreeing a pan-EU zero threshold will be an extremely difficult task.

    • Barry James

      Not remotely moot – it is entirely unnecessary. I don’t think this is so much a revenue opportunity for Taxamo as a source of unnecessary friction for everyone.

      You’re right though in one thing – it is intriguing that these governments seem to be herding in the same direction, trying to erect what amount to digital trade tariffs at the same time. Good luck with that, no matter how well co-ordinated. Wasn’t the internet designed to enable us to localise and route around such damage?

      I’m certain that there will be a unified minimum VAT threshold given time – and that it will be substantial. There is no reason however why member states should be prevented from setting theirs higher in order to support startups and entreprenurship. RIght now it’s about the chaos and damage being done in the meantime.