I’m not sure if Osborne has the power to do this, does he?

George Osborne’s latest budget could spell an end to 99p song downloads by closing a tax loophole that meant consumers were paying VAT at very low foreign rates on online purchases of books, music and apps.

The chancellor will bring in new laws making sure that internet downloads are taxed in the country where they are purchased, meaning web firms such as Amazon and Apple will have to charge the UK’s 20% rate of VAT. At the moment they are allowed to sell digital downloads through countries such as Luxembourg, where the tax rate is as low as 3%.

Given that intra-EU VAT rules are a matter of EU law I’m not certain that Osborne has the power to decide this unilaterally.

However, rolling around at the back of my mind is the thought that the EU had already decided to change this. Anyone know?

22 thoughts on “I’m not sure if Osborne has the power to do this, does he?”

  1. Like you, I’ve seen something somewhere to vat effect, but only the one report in passing. It was reported as a done deal,and as individual member states are desperate for income could be the case I look upon it as a hopeful sign of another crack in the monolith.

  2. I believe it is a VAT concession on goods brought into the UK from countries within a European trading sphere but not the EU proper. E.g. Channel Islands, Switzerland, the Canaries and so on. What’s supposed to happen is import duty is charged equal to 20% but – as a concession, not a right – HMRC allowed small purchases under a tenner to enter un-dutied.

    No great expense when it was only holiday souvenirs, but I guess with online greeting card companies, song sellers and so on gaining a 15%+ tax advantage over their UK rivals the loss of tax is getting significant.

  3. It’s an EU change that’s due to kick in from January 2015: a change to place of supply rules for business-to-consumer intangible services. It’s been known of for a couple of years.

    It’s a tax change that’s coming in, but it’s not a “George Osborne has decided to…” change: as you say, he doesn’t have the power to change place of supply rules unilaterally (if anything in VAT needs to be multilateral, those rules do).

    The big thing is that it gives e-retailers a VAT presence in every country they sell to, which is a logistical nightmare. So they’re bringing in a Mini One Stop Shop so you just have to do one return to cover the whole non-UK EU (but charge the right amounts of VAT per country). On paper, this solves the problem perfectly.

  4. This is confusing. Books are zero rated in UK but when I buy from amazon UK I pay 5.5% VAT on top. Presumably that’s French VAT? Already.

  5. Do people really pay for music downloads? They haven’t heard of Pirate Bay?
    Oh well. If government wants to increase the price of legal downloads to encourage more music lovers to head the illegal route, I expect it knows what it’s doing.

  6. Pellinor has it covered. it is strange that this gets dressed up as a budget matter.

    However, I have a technical question for IT literate people (not me). if my wife and I move to France, or more likely Italy, keep our email addresses and then start purchasing items via Amazon, where are we and why? How do the UK and Italian tax authorities know where we are?

  7. I’m not too IT literate, but I believe that Amazon knows where you are by (broadly) following back the IP addresses of the chain of computers you are using to get to it. If the first computer in the chain (closest to you) is in Italy, then it will count you as Italian. The tax authorities will believe Amazon’s records unless they have reason to investigate them.

    You can cover your tracks to an extent, if you know what you’re doing (which I don’t), by essentially using a service whereby a computer claims to be somewhere it isn’t. The amount of such spoofing is (or so I believe) assumed to be immaterial compared to the difficulty of doing anything about it.

  8. @Pellinor, yes the EU is basically cracking down on Luxembourg’s favourable VAT rate, it’s either abusive or healthy tax competition to benefit consumers (or both), depending on your personal prejudices. Note that those selling physical goods or providing certain services at the customer’s location across the EU already need a VAT presence in every country they hit the threshold in. Usually an agent, and yes it is a logistical nightmare that causes disproportionate compliance costs. But we all suffer for it equally. Also Luxembourg basically means “Amazon” and they already have the VAT setup everywhere to charge the customer’s domestic rate for physical deliveries.

    I don’t know how the new rulez are going to be enforced on companies trading from outside the EU. Companies, even big ones, in Switzerland for example are happy to cock snooks at EU VAT laws, when you are sending data across the internet for 99p there is no prospect of taxing that “import” if the government of the place you are importing from isn’t playing.

  9. @Ironman and Pellinor II, for physical deliveries VAT is due at the place of delivery, so if you get your book delivered to Italy Amazon will charge Italian VAT on it. Your IP, email address and so on have nothing to do with it.

    Once the rulez on donwloads change I suppose you could provide a fake address in Luxembourg. Maybe some entrepreneur will set up a maildrop company targeting Amazon customers. But that would be tax evasion, and probably attract the attention of non-Luxembourg taxmen. And assumes Luxembourg will retain its favourable VAT rate.

  10. @Pellinor
    Interesting thought, that.
    So it looks like there’s a market niche opening for a service, spoofs one’s IP address to look like it’s located in a specific low tax area. Wonder how long that’ll take to fill?

  11. @BiG: It’s not just Amazon – the Microsoft Office bill I’ve just paid has Luxembourg VAT on it too.

    Physical deliveries I was taking as read: it’s not hard to find the physical location of someone who gives you their physical address 🙂

    @BiS: those servces exist already. I have no idea how much they’re used for this sort of thing: probably not at the moment, as the VAT wouldn’t change, but they could become very popular in future.

    Although to be honest I’d have thought that 99p including Luxembourg VAT at 3% is more likely to change to 99p including UK VAT at 20% than to say £1.19 inc VAT. Price points are more important than tax, and if that happens then the only benefit of spoofing would be to rob the UK exchequer to pay Amazon and Luxembourg.

  12. @Pellinor
    I was wondering about moving the point of sale out of Europe, altogether. Or at least, the EU infested part of it.
    Does anyone know or a specific country IP re-routing service? Tor will have you showing up as anywhere, if i understand it correctly. Not quite what’s needed.

  13. Pellinor is correct.

    just search for internet proxy. Whether your ISP or the retailer will allow connections to/from a given internet proxy is another matter. As is whether you will put up with the inevitably slower connection.

  14. Isn’t it already the case that physical media below €22 are exempt, hence why most CDs are dispatched individually and priced just below that.

    The problem is “purchased from”, in the global village has no meaning. You can initiate the payment from a foreign non-domiciled server, and download to another, then download/stream to your home PC or mobile device.

    Physical things can easily be taxed ad they enter the country, but digital traffic you might as well forget it.

    bloke in spain, you can try using Hola, a browser extension, to spoof your location, popular amongst Netflixers.

  15. Proxy and VPN would both work if simply based on IPs.

    VPNs generally let you choose your exit country. Many of them regularly add / change IPs as well, so it can be difficult for e-retailers to blacklist them, assuming they even wanted to…

    (And good for basic privacy too.)

    But your electronic payment ID may position you elsewhere?

  16. I’ve been paying VAT – presumably UK – on purchases on Amazon.co.uk from outside the EU for years; now I’m in the EU, I’m still paying VAT.

  17. “bloke in spain, you can try using Hola, a browser extension, to spoof your location, popular amongst Netflixers.”

    That was fun. Went to the Hola site & the demo video is “not available in my country” Presumably, now I have the Hola extension, it now is.

  18. Bloke in Germany:
    @Ironman and Pellinor II, for physical deliveries VAT is due at the place of delivery, so if you get your book delivered to Italy Amazon will charge Italian VAT on it. Your IP, email address and so on have nothing to do with it.

    Actually no. For B2C supplies, VAT on physical goods is charged in the country of the supplier at the VAT rate of that country.

  19. @BraveFart, no it ain’t. Each EU country has a “distance selling threshold”, usually €100,000 IIRC, above which forrin businesses are obliged to register for VAT in said country, and charge consumer-customers the VAT rate applicable in the country of delivery. That’s why Amazon.co.uk sticks German VAT on top of books I order from the UK.

  20. @BraveFart: generally, B2B/B2C isn’t relevant for physical goods, you look at where the ownership changes in either case. Where the supplier is responsible for shipping (as with Amazon) they change hands where the customer is.

    But as BiG says, distance selling rules kick in, and if you’re under the threshold then you’re right, you charge at your own VAT rate because it’s just too much hassle to make you register everywhere for such a small figure.

    The threshold has to be set at either €35k or €100k, which is why the UK threshold is £70k (a euro being worth 83p… I haven’t dared ask ).

  21. EU VAT is a huge clusterfuck. Popular with politicos as it’s a great way of hiding how much money you are actually givint them.

    The conspiracy theorist in me, despite being the resident federast, thinks it is deliberately so, such that the EU can say what a clusterfuck it is and introduce a single European VAT, with the proceeds going to Brussels. Which might make more sense than the current levies on national governments, except it’s orders of magnitude more money than they are spending at the moment (the EU being by some distance the cheapest level of government we have).

    The desolate verges of our gilded streets are littered with Amazon and Ebay resellers who have blithely ignored distance selling VAT, only to get a letter asking for information from some tax office or other, in Czech or Cypriot Greek, or whatever.

  22. @Pellinor @Bloke in Germany

    Ah yes, you’re both right of course re the distance selling. I had forgotten that.

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