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back to article VAT's all folks: Telecoms and services tax to be set at consumer's homeland rate

VAT relating to cross-border business-to-consumer transactions will be charged at the rate in the country where the customer is based, rather than that of the supplier, under new EU rules to take effect in 2015. Explanatory notes on new VAT rules for telecoms, broadcasting and electronic services have been published by the …

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What has the EU been smoking?

There appears to be a wave of common sense flowing over the EU at the moment...please stop, it's messing with my prejudice.

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Re: What has the EU been smoking?

They're still hammering everyone with VAT though. You read it - 15% is the lowest national VAT rate permitted by the EU. 21% is the agreed target rate.

Why?

Well, because VAT is regressive and hits poor people higher than rich people, obviously. EU commissioners make way too much money to be bothered by VAT but they'd notice if progressive income-based taxation were more prevalent.

/sigh

It'd be okay if there was anywhere in the developed world where the 1% weren't making all the rules to suit themselves and fuck everyone else over but alas, there is no such place.

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Re: What has the EU been smoking?

"VAT is regressive and hits poor people higher than rich people, obviously."

Is it? I thought VAT would scale directly with one's purchasing power? I am no taxation/poverty expert though.

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Re: What has the EU been smoking?

"Well, because VAT is regressive and hits poor people higher than rich people, obviously!"

Really, so a £200,000 Ferrari incurs a lower tax rate than a £200 banger?

20% is 20% no matter how much you pay.

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Re: What has the EU been smoking?

Indeed it is, but the poor have to spend *everything*. The rich have a lot of discretionary spending.

Nonetheless, and much as I hate sales taxes, there's a lot to be said for the proposal (made here, I believe) of doing away with company tax completely and putting it all on VAT paid in the country of purchase. The purchaser pays either way, and it does away with opportunistic tax avoidance by moving artificial IP around to a cheap company tax locale.

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Re: What has the EU been smoking?

Because there's a limit on how much you can (physically) spend.

Let's take an example, just to see how this works.

I need to buy a new towel. I buy a new towel. For the sake of argument, it costs me £10.

Assume I am on minimum wage, that towel just cost me nearly two hours work. (And half an hour of that went to the government who graciously allow me the freedom to dry myself provided I do not offend them while doing so).

Now let's say Alan Sugar needs a new towel. He buys a new towel. It might be a bit more expensive than my towel but not much because a towel is a fucking towel.

The odds on it costing him more than seconds of his time are so small that I can't even begin to calculate them.

Being rich doesn't mean you buy more. Somebody on a comfortable income might buy £100 worth of ebooks per month. Somebody on an obscene income is unlikely to read more than that or to watch more films (regardless of how expensive their telly is) or even drink more beer.

As a proportion of income, the poor pay many times in VAT what the rich do, which is exactly how the rich like it.

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Anonymous Coward

Re: What has the EU been smoking? / 20% is 20% no matter how much you pay.

"hitting harder" is about the pain, i.e. allegedly you feel less pain (note: define pain) when you spend 200K + tax, than those unfortunate ones paying 20% extra tax, who can't afford anything better, because they need to stuff their bellies at McDonalds.

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VAT regression

It's regressive because a poor person pays bigger share of their income in VAT than a stonkingly rich one. And that's because consumption doesn't scale in proportion with income; e.g. a CEO on £10,000,000 doesn't use 1000 times more energy than someone on £10k. Or if the car example was more realistic—a £2000 second hand car—then the CEO would only be paying 100 times more for the car, rather than 1000 times more. This is also true for clothes and everything else that attracts VAT. And while a CEO might buy more luxuries, they still end up with heaps of left over money which are put into investment vehicles that don't attract VAT.

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Joke

Re: What has the EU been smoking?

"The odds on it costing him more than seconds of his time are so small that I can't even begin to calculate them."

But Alan Sugar pays a lot, lot more income tax; so it all works out.

Why yes nurse, I do believe it is time for my pills....

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@The BigYin - Re: What has the EU been smoking?

VAT is regressive because everyone gets taxed at the same rate, but the poorest have to pay a bigger proportion of their income and are thus left with less left over.

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Re: What has the EU been smoking?

That depends a bit on how VAT is applied. In theory it could be set up so that basics or special items such as food or schoolbooks are zero-rated or have a lower rate, and luxury items have a higher rate. In practice the extra paperwork and complexity required to determine which items get which rate make it too much overhead / bureaucracy to run, so things are mostly taxed at a flat rate.

Everything taxed at a flat rate is not "regressive". ("Regressive" would be if the tax only applies to items up to £10000 for example, as opposed to "progressive" which means more expensive items taxed at a higher rate). However that's just a technicality. Flat rate does hit poor people more, because much of their expenses are non-discretionary and they work paycheck to paycheck so 100% of their purchases are subject to VAT.

Richer people have a lot more disposable income that can usually be invested, with financial transactions not subject to VAT. I'm not sure of exact national VAT regimes, but I believe real estate is usually not subject to VAT and richer people own much more property.

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Re: What has the EU been smoking?

There appears to be a wave of common sense flowing over the EU at the moment...please stop, it's messing with my prejudice.

You seem to have been hit by something though. Better have your head examined.

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Re: What has the EU been smoking?

> As a proportion of income, the poor pay many times in VAT what the rich do

"Many times" is a bit of an exaggeration; try "twice as much". See http://www.bbc.co.uk/news/business-15519727 and http://www.bbc.co.uk/news/business-12111507 . The latter article makes the interesting observation that defining the poor as those with low incomes includes wealthy people loving off their savings, which skews this particular analysis.

For examples of really regressive taxes, look at national insurance and the council tax.

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Re: What has the EU been smoking?

No, Zero is lowest,

I think

Children's clothes, Children's shoes, Food (cake not biscuits though!).

Not sure about books and magazines.

Varies from country to country.

eBooks have full VAT though usually.

Is there VAT on house rent?

So not entirely regressive.

Extra duty on Petrol & Diesel? Why?

Toll roads when Car Tax (not been Road fund for years) is nearly 40% cheaper to collect is madness.

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Re: What has the EU been smoking?

"Extra duty on Petrol & Diesel? Why?

Toll roads when Car Tax (not been Road fund for years) is nearly 40% cheaper to collect is madness."

Except the car tax/road fund is flat rate. It's actually "better" to levy the fuel. Those who drive more, drive faster or drive less efficient cars pay more. Only that last one would hit the poor who can't afford efficient hybrids.

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Re: What has the EU been smoking?

> Only that last one would hit the poor who can't afford efficient hybrids.

And who tend to drive cheap old cars inefficient cars which cost more money, all of which is liable for VAT.

If you buy a brand new car, you don't even need an MOT for three years. Your fuel bills could reasonably be expected to be lower.

If you buy a car for £2K, you can expect to spend at least £200 every year on getting the bloody thing through an MOT (plus forty quid for the certificate itself) and the emissions are likely to be higher meaning they'll hit you for more road tax.

Basically, rich people spend less.

“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness.” - Terry Pratchett

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Re: What has the EU been smoking?@Neil Barnes

"Nonetheless, and much as I hate sales taxes, there's a lot to be said for the proposal (made here, I believe) of doing away with company tax completely and putting it all on VAT paid in the country of purchase."

Not how I read it. It talks about VAT at the *rate* prevailing in the country of the purchaser, it didn't say their national government get paid it. What this will mean is that VAT tourism is stopped, but corporate tax inequalities become relatively more important. The French will be lobbying to stop that next, whilst the Irish will be lobbying to preserve it.

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Anonymous Coward

Re: @The BigYin - What has the EU been smoking?

The poor dont have to buy cars, MACBooks Ipads etc and there's no vat on most basice foodstuffs (yes I know there's VAT on the fuel to transport it but .GOV hopes you dont notice the price increases there)

so the car analogy and percentage of income is crap, 20% VAT is always 20% VAT, no more or less EXCEPT if you are rich enough to use a company to claim the VAT back

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Re: @The BigYin - What has the EU been smoking?

> The poor dont have to buy cars

You live in a big city with public transport, then. That's nice for you.

My best mate is a farm worker. He earns £8.68 per hour and has two small children to support. In order to afford the rent, he has to live in a small town 8 miles from his job. Rich people from cities bought up all the farm workers' cottages for holiday homes. Are you suggesting he get on his bike?

Easy to rant when it's not you, isn't it Mr Anonymous Fuckwad? Or shall we just call you Norman Tebbit?

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Anonymous Coward

Re: What has the EU been smoking? @dogged

>As a proportion of income, the poor pay many times in VAT what the rich do, which is exactly how the rich like it.

As a proportion of income the less well off will always pay more for something than what the better off will do; it's a simple function of number - get used to it...

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Re: What has the EU been smoking?

"15% is the lowest national VAT rate permitted by the EU. 21% is the agreed target rate.

Why?

Well, because ..." .... because theft is legally endorsed by governments and the EU. 21% target rate is taking the *, a target rate of 2.1% would be more reasonable ..

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Def
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Re: What has the EU been smoking?

It's actually "better" to levy the fuel.

It used to be. Unfortunately, as far as taxation is concerned, that argument is beginning to wear a little thin now that more and more people are buying hybrids and electric cars.

Thinking about it, the fairest way to tax car usage is to tot up the amount owed according to the roads travelled (I.E., tracking where you drive), where the amount each car owner pays is based on the type of car (so if you're already paying fuel duty, you pay less, for example), and (perhaps) the time of day the journey was made (pay more during rush hour, etc).

The privacy nut-jobs will have a field day if that were ever suggested though, so we're stuck with the current unfair systems of taxation.

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Anonymous Coward

Please extend this

to physical goods delivered to the consumer. That would end the "Oh no, Amazon doesn't do anything in the UK, everything happens in Luxembourg" stupidity at one stroke.

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Re: Please extend this

> physical goods delivered to the consumer

VAT has been applied at the rate in the customer's country for physical products for many years now.

The stupidity you refer to is related to corporation tax, not VAT.

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Re: Please extend this

> > physical goods delivered to the consumer

> VAT has been applied at the rate in the customer's country for physical products for many years now.

What? For goods sold to consumers in another EU country "you must charge VAT at UK rates in the normal way" says HMRC.

Personally, I'm looking forward to managing umpteen different VAT rates for selling the occasional PDF. Not.

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Go

Makes sense

And it will still be simpler to implement than the absolute clusterfuck that are US sales tax.

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Re: Makes sense

The US doesn't have a sales tax. That's assessed at the state level and depends on the state. Oregon, for example, doesn't have a sales tax (Oregon's more of a "settle down" state, so they get you with the income tax and other fees instead), while New York and Florida have historically high sales taxes (due to high levels of tourism and/or visiting traffic--you can nail out-of-staters with a sales tax).

Besides, one key difference between sales tax and VAT is the point of application. VAT is applied at the wholesaler level (it's the retailer and any middlemen that are charged the tax--they just pass the cost down). Sales taxes are applied at the retail level (the customer gets hits for the tax and the retailer has to report and pay that tax to the government). I've noted that one advantage to a VAT is that it encourages honesty since anyone trying to evade the tax is likely to get reported by the next higher link (lest they get caught up in it).

PS. As of present, states lack the authority to force a business to charge a sales tax for its residents unless the business has a brick-and-mortar presence in that state, as that runs into the Commerce Clause, meaning they can't do it without authorization at the federal level. Congress has yet to pass an act providing such authorization, and they're pressured by e-tailers like Amazon to not pass one. Some states like New York can pressure some firms like Amazon by targeting affiliations established within the state, but not every state can use that angle.

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Re: Makes sense

> The US doesn't have a sales tax. That's assessed at the state level and depends on the state.

Ooooh no! Wow, it would be a dream if it were that simple! There are sales taxes which depend on the county, on the town, sometimes even on the part of the town, or the side of the street.

Witness the complexity of this booklet, enumerating the different sales tax rates for Kansas alone!

That is even without counting the different sales tax rates which apply to different types of products, or the special tax rates which only apply to certain seasons of the year.

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Administration knightmare

Okay, so now we can't provide pricing to European citizens without knowing which country they are in - and then knowing the VAT rates of that country and when they change and what VAT band that country deems product/service X to be in...

It'll just be easier for all the countries to have the same VAT rules.

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Re: Administration knightmare

> It'll just be easier for all the countries to have the same VAT rules.

21%, according to the EU agreement.

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Re: Administration knightmare

It will be an admin nightmare for small businesses. I don't think it's so much knowing the VAT rate of all countries (I mean, all you need is a table with 27 entries!), or knowing where your customer is from (which you still need for delivery / billing).

But the point of VAT is the selling company is collecting it on behalf of the government, and then passes the VAT collected on. So in theory a business with EU-wide customers needs to be sending VAT receipts to 27 different tax authorities.

I hope that as part of the process they also simplify teh rules so businesses only have to deal with tehir 'home' country's tax department (which probably can be enough of a nightmare anyway))

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Re: Administration knightmare

21%, according to the EU agreement

It's time to the kill the EU dead like roadkill.

Even 15% VAT is already stupid beyond words.

Luxembourg has not managed to rein in its cancer of overpaid state employees (overpaid AND with benefits AND hardly working), so they are upping the max. VAT rate to 17% in january 2015. I guess they don't have enough jobless yet (most of which are hidden in the statistics).

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Re: Administration knightmare

> But the point of VAT is the selling company is collecting it on behalf of the government, and then passes the VAT collected on

Correct. The point of VAT is to turn business into unpaid tax farmers.

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Re: Administration knightmare

When you say a table of 27 entries, you mean a table with 27 countries. But then each country has a set of VAT rates (e.g. utilities, childrens clothes, cultural items....). Note that the VAT rate per category may vary by country; printed books are 0% rated in UK, but 21% rated in Spain. Theatre tickets 8% in Spain, but not in UK.

Also B2B may be VAT free or not, depending on the country you are supplying to, and how the company is registered (including what categories it is registered for).

It is true; for a small company VAT is a nightmare.

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Re: Administration knightmare

You already have to do this with the physical goods you described.

Now you just have to do it with stuff you download - instead of pretending that all your business is in a lawyers office in Luxembourg

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Anonymous Coward

2008.... 2015

they sure have had enough time to save a bob or two. But hey, they've also had plenty of time to come up with plans how to go round this "drain to profits", and I'm sure they didn't waste this time. Watch this space, new smart ways to go round new regulations to save a bob or two should appear as of the day one.

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Glad I live in Switzerland...

VAT here is only 8% (and a mere 2.5% on food), and when I stroll over the border to go shopping in Germany, I can import up to 300 CHF worth of goods without having to declare them or pay Swiss VAT at all (but I can reclaim the German VAT!)

VAT-free shopping, in other words, unless you order/import something really big.

The EU's rules and regulations seem to be most useful when you live outside.

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Re: Glad I live in Switzerland...

And Toblerone, Salami, Cheese and Swatch Watches etc are Cheaper in UK and Ireland.

I do like the trains there though.

Nice scenery, but cheaper to look at in EU (Austria). A Swiss guy told me.

I do like the lack of street rubbish, the lack of big billboards etc too in Switzerland. But there is a reason why a lot Swiss shop in France, Austria, Italy, Germany ...

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Anonymous Coward

Re: Glad I live in Switzerland...

Yes Switzerland, a country that is a TAX haven for wealthy individuals and companies that wants all the benefits of being in the EU but doesn't actually pay a bean.

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Re: Glad I live in Switzerland...

Which also has to abide by many EU regulations in order gain these benefits, but has no say in their formulation.

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Re: Glad I live in Switzerland...

I live next to Germany in Denmark. In Denmark the VAT rate is 25% on everything. While it is only 7% on food and 19% on everything else in Germany. The price is also lower in Germany then in Denmark.

There is however no limit on how much I can take with me over the border. Unless its soda (coca-cola and such) or beer. Since that is limited to 250 Liters on person according to EU rules. If it goes over that you have to pay toll of it and maybe VAT. For normal person it is not an issue since most people don't shop that much. But there are people how buy way more then the rules allow and if they get stopped by customs they loose everything they bought and get a fine here in Denmark (a big one).

EU rules also allow VAT free shopping for up to 300€ from none-EU countires that have borders with it. I checked the rules some time ago.

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Rol
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Next year, I will mostly be living in Luxembourg

Well, not me personally, but my IP address will from time to time, at those most convenient moments in a purchase, move to a more preferable geo-location for VAT purposes.

Assuming I have the same rights as a big corporate like Google, then I am just avoiding tax, not evading it.

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Re: Next year, I will mostly be living in Luxembourg

I rather think they won't be relying on your IP address to locate you, but details from your credit card, bank account or other payment method.

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Re: Next year, I will mostly be living in Luxembourg

Next year, the standard rate of VAT in Luxembourg is going up to 17%. Guess what: it's to make up for the shortfall resulting from not being able to collect the tax on all those services currently nominally sold from the country. But don't despair: for some reason (strong lobby maybe), the VAT rate on meals in restaurants will remain at just 3%. So, should you actually visit the place, you'll be able to get a cheap meal. Although, as prices are high nevertheless, I should take that back: let's say that you'll be able to stuff your face without stuffing the government's coffers.

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It's not just Switzerland

If I lived in the Channel Islands I'd be looking for an angle here. They did it with CD deliveries, for a while, and I'm sure they'll try and do it again.

VAT doesn't apply there - they're not in the EU.

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