The Shadow over Cyber Monday

by Diane Duane


Tomorrow’s one of the big days in the marketing year for anybody who (like us) sells ebooks. But this year, for many of us, there’s a nervous feeling about the event that hasn’t been there before: because this Cyber Monday could very well be our last.

Here’s the deal, in very broad strokes (because it’s really complicated). Beginning on January 1, 2015, small business people in the European Union who produce and sell digital products directly — downloads of ebooks, music, courses, and so forth — are going to find themselves dealing with a profound change in the way they do business. Once upon a time, if someone in Great Britain bought an ebook from a provider, say, in Germany, they paid the German rate of VAT (that’s Value Added Tax for those of you not familiar with the term: think of it as sales tax) to the seller, and the seller passed that tax payment to their own national revenue service when tax-return time rolled around, and that was it.

Numerous companies, usually large ones, turned this situation to their advantage by setting up shop in countries like Luxembourg (where the VAT was lower than elsewhere in the EU) and selling to other EU countries from there. The law now coming into effect was meant to eliminate that advantage. From January 1st, within the EU, if a UK person buys an ebook from a German ebook producer, the purchaser pays UK-level VAT on it. And the German ebook producer must now remit that collected VAT to the UK tax authorities. The legislation sets up a body in each EU country called MOSS (sometimes VAT MOSS or VATMOSS), short for Mini One Stop Shop. (The link is to the Irish version.)

Rosie Slosek over at One Man Band Accounting has the closest I’ve been able to find to a “master post” on the MOSS / VATMOSS legislation: I recommend you have a look at it, as she lays more of the details of this situation out unusually clearly.

I’m not going to say anything here about whether this change in how things are handled really  makes any sense or not (partly because I haven’t had enough time to look into the history of the legislation as yet). Especially since big companies have the money and resources to get around this new situation as they got around the old one. That said, in the meantime, MOSS is the law: right now it simply has to be dealt with. But here are the major problems that come with it:

Many small businesses — the very businesses that European national governments have been touting as the solution to recent economic woes, the way to drive recovering economies back into growth from the bottom up — will be driven to the wall by this change, especially in countries like the UK where there has been a “VAT registration threshold” for income under which one did not have to register unless one made the choice to do so. Many people already working hard to run little digital businesses out of their dining rooms or garages or sheds won’t be able to handle either the expense of the mandatory VAT registration that ensues the very moment you sell something of even €1.00’s value outside your own country, or the burden of keeping (for ten years) the definitive documentation — “two pieces of non-contradictory commercial evidence” for every single sale — to prove that you haven’t sold anything into a region you shouldn’t (with all the craziness that always attends a negative proof), or the increased costs of bookkeeping that are going to accompany compliance with this law.

Additionally, the law as presently framed is insanely unclear in many important areas — possibly because it was framed before many of the present day’s commonplaces regarding internet sales became widespread.  Here’s an example for you to start with, from an article in City AM:

“On board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the place of departure for the consumer’s journey.”


This means a French person travelling from London to Paris by train, having passed through the Channel Tunnel, could purchase an online subscription, connecting to the French mobile network, with a French IP address, and using a French credit card, but it would be correct for VAT purposes to show this as a UK customer. Getting this wrong risks an unlimited fine, [Boldface mine. DD] even though the VAT rate in both countries is 20 per cent.

Change this just a little — make the purchaser German, with a German smartphone instead of a French one — and add to this the fact that the  German SIM in the smartphone is liable to be used as evidence that Germany was the country of sale. Now imagine the joys of explaining this — not just to your local tax authority — but to the two other tax authorities involved, each of whom is empowered by the new regulations to come after you demanding their bite of the cherry. You’re supposed to have “two pieces of non-contradictory commercial evidence”. What happens when all the ones you do have contradict one another?

There are numerous other problems. Who holds the confirming data? How? Where, and in what form? How will problems concerning its authentication be resolved? As matters stand, it’s a nightmare. (ETA: see also Rachel Andrews’ blog post on the merry hell that VATMOSS in its prent state is going to play with the customer experience.)

Soozi Baggs’ Huffington Post article sums things up nicely:

1. This only applies to digital products, so it won’t affect businesses delivering physical products or live services. Which means digital businesses get penalised while other types of small businesses are completely unaffected.


2. This will make building a business incredibly difficult. The current UK threshold allows businesses to grow to a point where they can make an income and afford to take on specialist financial staff before dealing with things like VAT. Many digital entrepreneurs will tell you that they only made a few quid in the first few months. It takes time and traction to build an audience and get your products out there. If you’re liable for VAT and the administrative activities that go with it from day 1, you’re never going to be able to get past those low earning few months – to be able to smash through that VAT threshold and deal with your taxes accordingly.


3. Many low earning digital entrepreneurs are mums who are trying to contribute to the family pot by earning money from sales of digital items, whilst caring full time for their pre-school age children. Or they’re fully intending to build a bigger business, but are doing it slowly – over years rather than months, because they have the childcare responsibility and can only work a few hours a week. Because of this, I firmly feel that this Directive will negatively impact on women who are mothers more than any other type of entrepreneur out there.


In short, this new ruling will be devastating for many people already in business who are not yet making the kind of money to be able to afford to register for VAT. And worse still, it sets the barrier to entry to business very high, which is likely to put off a lot of potential entrepreneurs – especially women who want to start a business on maternity leave and grow it slowly while their kids are young.

So. What to do (besides contacting one’s TDs or MPs or MEPs and trying to get them to bring what pressure to bear on this situation that they can, and signing petitions to help get this issue up onto the mainstream radar)?

Obviously Ebooks Direct — which is based in Ireland — is going to be affected by this situation, and there are a number of things that have to happen before Peter and I come to a decision as to whether we can continue running an online business at all. We have to crunch some numbers from the last few years’ sales to determine exactly what percentage of our sales come from inside the EU, to determine whether it makes most sense to simply stop selling into the UK and other EU countries. We have to talk to our accountants to figure out which of the ways to register for MOSS would be most logical for us, should we decide to go that route. (You can either register with your own home country — who collects all the VAT you collect from EU sales and passes them to the other VAT authorities concerned — or register individually with each of the EU countries into which you’ve sold digital items.) We have to have a talk with the people who run our present shop platform, Shopify, to find out exactly what changes they’re getting ready to enable in the platform to help their EU sellers keep doing business. If they won’t have VATMOSS support in place in time, we’ll also have to start investigating other platforms to see if they’ll have measures in place, for time is getting short. And then finally — like many others in our position — we’re going to have to look at whether compliance is going to make sufficient inroads into our creative time, our actual work as writers, for us to be forced to decide it’s simply not worth it to try to keep running a digital business at all.

Meanwhile, like many other digital booksellers, and as in previous years, we’re having a Cyber Monday sale at Ebooks Direct. (In fact, it’s already on.) If you see something in our store that you like the look of, it seems only sensible to say that this would be a good time to buy it. First, well, it’s a sale, and everything’s 50% off. 🙂  But also — depending on the answers we get from our accountants and so forth — after January 1, you may not be able to buy ebooks directly from us any more. Our store’s continuation is not a “given.”

And this goes not just for us, but for our many other colleagues online, both in Europe and elsewhere in the world, who’re involved in digital startups of one kind or another: they too will suffer. So will our fellow authors who’ve been delighted to find a customer base online for books from their backlists — ebooks their publishers haven’t been interested in bringing out — but now may be forced to abandon that very welcome income stream due to an unclear and unnerving regulatory burden. (Unlimited fines? Really??)

I urge you, whether you’re in Europe or not, to find out how the VAT MOSS issue will affect you (because if you buy digital goods from anyone but the biggest European companies, it will) and to take action now to help — among many others — the authors whose work you enjoy. Follow the or #VATMESS tags on Twitter, and help get the hashtags trending: sign the online petitions to uphold the present small-business-protecting VAT threshold in countries that have them (such as the UK): on platforms like Tumblr, reblog this post and others like it when they come up: and just plain talk to other people online and off about what’s happening.

And for your assistance in this, thanks in advance, from both of us.

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twobitcoder December 2, 2014 - 12:47 am

I’m not sure this is a bad thing at all. Hear me out. In the U.S., we pay a massive amount of income tax–and then sales tax for the state, county, and city in many cases! A usage tax is a lot more sensible for an umbrella government.

Michael Dolbear December 2, 2014 - 2:43 pm

There may be a different answer depending on difference between pay for e-book and be given download link (Baen, DD) and buy
e-book immediate download (Kindle store) when you were on holiday in a different
EU country.

The EU has VAT anyway and mail order sellers have to charge the rate at the customer’s address right now (once they pass the country threshold). All that is changing is making ‘Electronically supplied services’ the same which requires defining where a customer is located for weird cases.

Under Article 63, the chargeable event takes place when goods or services are supplied.

These subsequent services (for example downloads made over the Internet) referred to as ‘over the top’ services (see the glossary under point 1.6) are not covered by the presumption.

Billing address
IP address
Bank details
SIM card country code
Location of fixed land line
Other commercially relevant information

This does not change the basic rule by which these services are taxable at the place where the customer is established, has his permanent address or usually resides.
And it’s not the download, it’s the sale.

John Nemesh December 2, 2014 - 7:35 pm

I think Dr. McCoy said it best: “The only constant in the Universe is the bureaucratic mentality.”

Jon Niehof December 24, 2014 - 12:29 am

*headdesk* I swear, the one good thing about the European Parliament is that it makes the US Congress look a little less dysfunctional. Well, I missed the sale, but bought the Christmas novelette while I could…I warn you, my girlfriend used to live in Belgium, so maybe that has to be counted? Since it appears everything up to and including the phase of the moon does.

(Incidentally, would you be able to sell Games anyhow?)

Comments are closed.

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