Experts warn over VAT digital services rules 

Businesses who make and sell apps or provide digital services to consumers in the European Union will see their paperwork increase in January due to new legislation to counter tax avoidance, experts have warned.

Currently VAT on digital services is charged at the national rate where the supplier is. Providers of electronic services such as Amazon have been criticised for basing their European headquarters in countries such as Luxembourg where VAT rates used are much lower than the UK.

From the 1 January 2015, businesses supplying broadcasting, telecommunications and digital services to consumers will have to charge customers VAT at the rate of the country where the customer buys the service from.

So a UK business selling an app to a customer in Luxembourg, will have to charge VAT at 15%, but at 27% for same app if the customer lives in Hungary.

“There are 28 countries in the EU with 30 different VAT rates [which] creates a high administrative burden, plus enormous potential for mistakes,” said Ruth Corkin, VAT senior manager at accounting firm James Cowper.

Tax rules on digital transactions are further complicated because different technology platforms are categorised differently by the new tax rules.

Apple’s App Store, for example, is considered a marketplace with purchasers buying directly from Apple, and Apple automatically accounting for the VAT, Corkin said.

In contrast, Google Play acts as an agent taking a commission on sales, leaving the retailer having to account for the VAT themselves.

“A business selling the same app from both Apple’s app store and Google Play will have to account for VAT in completely different ways,” Corkin added.

The online registration will start on 1 January but businesses can register to use it from October. HMRC consulted on the registration service over the summer.

Businesses will have to submit separate VAT returns for their cross-border digital services and pay tax due every three months.

 

Source: accountingweb-Experts warn over VAT digital services rules

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