LONDON — The European Union has dramatically altered rules for collecting value-added taxes on digital goods, placing the burden on companies to determine and report taxes based on where consumers are located.
The E.U. VAT rule change, which was effective Jan. 1, affects all sorts of digital goods, including streaming video content.
The change covers all “e-services which that are automatically delivered over the Internet … where there is minimal or no human intervention” and “content downloads onto the consumer’s device.”
Previously, E.U. companies reported VAT based on their physical addresses, and large global companies had the financial clout to shop around for the lowest tax rate, particularly in countries like Luxembourg and Ireland where the VAT rates are as low as three percent. Countries, such as the U.K., charge VAT taxes of 20 percent.
“You need to identify the place where your consumer is based, has their permanent address, or usually resides,” according to the U.K. government’s HM Revenue and Customs website. “This will be the member state where VAT on the digital services supply is due.”
“The changes will create a level playing field for U.K. businesses by removing the current competitive advantage of E.U. member states with lower rates of VAT.”
Payment processors, however, are exempt from the new VAT rules.
“If your only role in the supply is to provide for the processing of payments you are not regarded as a digital platform and you do not have to account for the VAT,” HM Revenue and Customs stated.
Adult industry attorney Lawrence Walters said that he’s been warning clients since learning of the change. But because he is not licensed in the E.U. and not a tax attorney, he’s been referring them to contact tax consultants.
“On the face of it, this policy looks like it applies to anyone selling digital goods to consumers in the E.U., not just E.U. websites,” Walters told XBIZ over the weekend.