
1. What has changed?
Among the complexities of the new VAT law, the central change made is relatively simple. Before this year, VAT in the EU was calculated in the country of the seller, rather than the country of the buyer. However, this is no longer the case. Now, a seller of an electronic service must charge VAT in the EU country where the customer is, not where the business is based. For businesses operating from an EU member country with an already high VAT rate, the effects of the new law could therefore be beneficial. However, for many companies tax liability and, significantly, compliance costs have increased substantially.2. Which businesses are affected?
The change in the VAT law has left many businesses confused as to whether they are affected or not. In short, any business-to-consumer (B2C) digital delivery transitions in the EU; specifically, telecoms, broadcasting and electronic services, are affected. The EU provides many different ways to help you work out whether these new laws affect you or not. However, by answering these three questions, you can quickly figure out if the VAT scheme applies to you.- Is your business transacting related online sales to consumers located in the European Union?
- Does your business offer digital, broadcasting or telecom services online?
- Are you the Seller of Record?
3. Pricing adjustments
Careful consideration needs to be applied to merchants pricing strategy when responding to the new VAT law. Businesses will have three options moving forwards:- Absorb the increased costs and leave VAT-inclusive prices as they were in 2014, without passing on new costs to customers;
- Increase prices for all customers to adjust for average increases in VAT liability;
- Implement net pricing to adjust prices according to each customer’s location.
4. Implement the change with VAT MOSS
5. Rule the new age
So far, the response and uptake of this new law from European businesses has been mixed, with many companies still struggling to come to terms with what the changes are, and how it affects their business. In some cases, digital businesses are so overwhelmed by the new law they are simply ignoring it completely – a risky approach to say the least. The new VAT has been implemented and it is here to stay. Every business has the chance to respond to its challenges more quickly and intelligently than the competition. James Fredlund is vice president of tax at Digital River, a leading global provider of Commerce-as-a-Service solutions. Image sourceShare this story