When the EU's tax rules changed at the beginning of the year, many ecommerce platforms (including Paypal, Etsy, Gumroad, and Patreon) were caught flat-footed. They weren't prepared to help sellers collect VAT based on a buyer's location in the EU, as required by the new rules, but now a couple platforms are finally getting their act together.
I've just learned that Gumroad, the digital marketplace for indie creators, and Etsy, a marketplace for handmade or vintage items (including digital), are now helping to collect the correct VAT.
Etsy announced earlier this month that they will "collect and remit VAT on behalf of all Etsy sellers providing digital goods to buyers in the EU by automatic download, whether or not the seller is based in the EU". From what I can see, they're still working on it, but they are promising that soon sellers "won’t have to process VAT returns on automatically downloaded digital items sold on Etsy to buyers in the EU".
That's a good start, but they've been one-upped by Gumroad. According to its CEO, this digital marketplace was also caught unprepared for the change, but they've now caught up. "The new rule was suggested over 5 years ago, but it was kind of one of those things where everyone was in disbelief that it would actually happen, because it seemed absurd," says Sahil Lavingia, CEO of Gumroad.
He goes on to add that Gumroad is now collecting and remitting VAT in compliance with the rules, and making the difference clear to both sellers and buyers. "Instead of saying, ‘Okay, the creator’s now charging $12 instead of $10,'" Lavingia says, "It’s like, ‘The creator’s charging $10, Gumroad’s charging $2.’ We handle the remittance. We take full responsibility."
That's good to hear, but I do wish they had anticipated this problem and prepared for the new VAT rules in advance. European regulators decided a full 5 years ago to change the tax rules, and that's plenty of time for ecommerce platforms to have updated their systems.
Under the old rules, sellers of digital content had to collect VAT based on their location. That is a relatively simple process to understand, but under the new rules sellers have to collect VAT based on a buyer's location in one of the dozens of countries in the EU.
Given that sellers rely on ecommerce platforms to process payments for them, you'd think that collecting VAT would be one of the obvious steps, but apparently that didn't occur to any of said platforms until after the rules changed.
That is beyond the abilities of most sellers; why do you think they were using an ecommerce platform in the first place?
Sadly, this thought hadn't occurred to some ecommerce platforms, including Paypal and Patreon. The latter has already announced that collecting VAT is the responsibility of the artist which is being supported by their fans.
According to Heather Burns, a web designer and Internet law blogger, this puts an onerous burden on artists which effectively puts Patreon effectively off limits for digital creators within Europe:
Those who choose to use it will have to personally query each European patron for their tax status, VAT number, IP address, and/or any of the information required to substantiate the proof of supply. They will be responsible for issuing their own tax invoices to their patrons. They will have to supply the invoice and proof of supply data with their VATMOSS return. They will also, of course, have to store this information in a secure format on an EU-based and data protection compliant server for ten years.
Frankly, that policy is not unreasonable so much as it is utterly stupid.
Yes, I know I'm supposed to use my grown up words, but it is just straight up and down stupid for a platform to require its users to maintain a complete second set of records when said platform is being paid to process payments and keep records.