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Like most tax issues, this is likely to remain dormant until it gets closer to the July 1, 2003 start date. Then US businesses will suddenly take notice and there will be a great wailing and gnashing of teeth.
Plain and simple: pass it on to the consumer. That's how it generally works already.
At present, EU consumers can avoid paying VAT on many products by ordering them online from US-based e-commerce companies.
The cost of changing the various and assorted programs used to collect sales tax will run into the billion$. Then there's the administrative cost of oversight and compliance. Then there's the international mail.... or will it be by bank draft? Trust me, it's not as simple as slapping on another 15%.
However, any change to taxation structure would certainly be a nightmare for a large business. Good thing they're the ones most able to afford it... I have a bit of a hard time feeling too much sympathy in this case, if EU retailers have already had to implement similar changes. Why should non-EU retailers have a lower cost of entry into the EU market?
(Maybe larger companies could charge a 20% surcharge instead... ;) )
Actually, it's been my experience that small businesses bear the heaviest burden in sales tax code changes. You just hear about it less because they are, well, small and lack clout. The primary reason they suffer the most is because they tend to run software/hardware longer and do not have the finances/staff/knowledge to modify or upgrade. Many, many times it's more cost-effective to withdraw from the market rather than hit yet another tax compliance tripwire.
A very small US company is unlikely to do very much trade with EU customers in the first place, and since the smaller the business the fewer the orders, the easier it becomes to run the additional surcharge calculations by hand - simply because of lack of sales volume - until an upgraded version of their shopping cart software (or PayPal service) becomes available.
At the point at which running the surcharges by hand becomes a major burden, it seems the company should be doing a high enough volume of business to be able to afford having an extra tax zone added to their shopping cart (at that volume, I doubt they'd be using PayPal anymore...). (For us, it would probably cost about $100 to have the shopping cart company add a geographically-based surcharge routine to the checkout script, but it wouldn't be worth it with our EU order volume.)
Or am I totally missing something here? (I've never run my own business, so I happily admit that possibility.)
Two tips passed on to me from past accountants;
1. "Don't mess with the VAT man, they make the mafia look like the girl guides."
2. As tempting as it is do not write on your cheque stubs "robbing *******" in place of "VAT payment". As much as it ammuses you at the time it is nothing compared to the ammusement of the VAT man as he rips your company apart.
Let me see if I have this right. In B2B situations, VAT would be levied, but the business who paid the VAT would be able to get a "claim back."
Does this hold true if the purchasing business actually uses the good/service rather than resell them? For example, a company buys some computers for internal use. Would they get a VAT credit? :)
In answer to the question about "credits" (and I'm not an accountant!) the VAT I have charged on work during a certain period is set against the VAT I have paid during that period on business-related goods and services and the credit or debit comes from the plus or minus in that sum. If I have bought a micro-widget polishing machine and paid €100 in VAT for that in one month and sold 20 fluffy widgets and collected €200 in VAT on them in the same month, I owe €100 in VAT (Mwst over here) to the taxman.
That's the way it appears.
EMusic.com would have to determine electronically that the purchaser is located in Belgium. Using that information, EMusic's computers would add the appropriate Belgian sales tax to the purchase.
Under the measures, non-EU internet retailers wishing to sell within the bloc will be obliged to register for tax purposes in one of the 15 EU nations.
The online retailer - or 'e-tailer' - will levy VAT on all sales to EU customers at the rate applied by the country it is registered with.
That country will in turn divide the revenues between the other EU nations according to where the sales are made.
The fact that VATs are structured to be rolled into the price rather than shown as a tax line-item is one of the biggest taxpayer fears here (I'm not sure how the VAT is shown in practice). That provides a way for governments to distance themselves between the cause and the effect.
Looks like they will be the digital download taxation capital of Europe under that plan.
the proposed implementation of worldwide VAT should (in theory) create a level playing field and should help UK and EU businesses to compete with other businesses worldwide.
IMO, it won't work. it will either be a bureaucratic nightmare, or people will ignore the rules through ignorance or defiance.
in the UK, vast numbers of small business owners run websites in breach of the law - they don't provide legally required company information, they don't register with their tax offices, they don't declare the taxes they should be paying right now. i'd guess it's much the same in the US - people find they can set up a website and sell stuff and they just do it without realising they still have to register as a business and pay taxes in the same way as a bricks and mortar business does. so how can we expect small businesses outside the UK to implement VAT?
IMO, the best thing the EU can do is abolish VAT and increase income taxes - EU citizens will pay the same amount in taxes, the governments will have the same income, everyone everywhere will save on bureaucracy costs, and EU businesses will be able to compete fair and square with the rest of the world.
yep, although when i checked this with trading standards, they told me that if i provide a B2B service and it is possible that i could make a B2C sale (for example, direct sales via the internet) then i should treat the business as B2C and display pricing including VAT. as there is no physical way to prevent B2C sales from a B2B site, it's probably best to display both inclusive and exclusive pricing.
It's definately not acceptable for EU biznesses to be severely disatvantaged in their own countries compared to colleagues from outside the EU. (Yep, this is not a EU vs US thing, asian, african, russian companies - they are all facing this situation)
The practibality of this solution however is highly questionable.
Someone in the US could just as easily argue that a California retailer is in unfair competition with neighboring Oregonian businesses, because Oregon has no state sales tax while California does. But there hasn't been any move to force Oregon retailers to charge sales tax to California customers, because the Oregon businesses are not legally subject to California's tax laws.
To play devils advocate:
Why should non-EU business entities be subject to the laws and tax structures of the EU gov't, which they had no hand in implementing and no input in designing? Sounds a bit like the whole "taxation without representation" issue that started that tea-dumping fiasco in Boston harbor. ;)
(Oh, I've probably gone and started a mess now...)
<thought> will the US retaliate by insisting that european businesses selling to the US must charge US sales taxes at the rate in force in the purchasers state? </thought>
something not mentioned here so far is that people outside the EU (especially people in the US) need to understand what the EU is and what the EU do.
the EU is an organisation that sets the rules by which all europeans must play. the EU is effectively run by the member states, each of which has to pay vast sums of money for membership. the EU uses some of this money to fund itself, then dishes the rest out in EU subsidies to the member states and businesses or organisations within these member states.
if the EU creates a set of rules, they give all member states a time limit in which to implement these rules in their own laws. some EU laws are totally compulsory, others can be implemented partially or in different ways. in theory, this creates a level playing field for all member states - a United States of Europe as some like to think.
as examples of what the EU does:
they pay farmers not to farm their fields - i think this is supposedly to prevent overproduction and storage costs - meanwhile, the EU imports field crops and food stuffs from abroad and millions of people in the third world starve.
the EU decides on product specifications - a banana must be curved by a certain amount - if it's too straight, it's not a banana. yorkshire puddings must be made in yorkshire - if they are made elsewhere, they are not yorkshire puddings. i presume black pudding must be black - very dark brown isn't good enough.
the EU insists that all member states charge VAT on domestic fuel consumption (gas and electricity) - VAT is a tax on luxuries (things we can survive without) such as chocolate or a computer or a newspaper - things we need (ie food and clothes) are supposedly VAT free - however, it now appears that keeping warm in the winter is a luxury.
i'm not anti-EU, i just think it's a waste of time and money and restricts free trade.