Just finished reading up a good piece written by the folks at Taxamo who had been discussing the upcoming changes to the VAT reporting rules that will take affect from 1 January 2015. It only seems like yesterday that we had the changes for non-EU suppliers of most digitized products come into effect, but it was a lengthy 12 years ago on 1 July 2003. Those 2003 changes really only helped one EU country – Luxembourg – as all of the larger retailers (Amazon, Apple etc) simply moved their sales operations to the country with the lowest standard rate of VAT in the EU (15%). It was the VAT mecca in the same way Ireland was for income tax.
With other reduced rates and the ability to work with a very friendly tax authority, this created a lot of VAT wealth in Luxembourg, but not really anywhere else in the EU. With the huge level of non-compliance for those companies who stayed outside of the EU, I never really saw that the 2003 changes could have been classified as a success in terms of what the EU had originally set out to achieve.
As such, I look at the changes for 2015 and the still relative uncertainty around some of the specific rules and wonder if this change should really have been implemented back in 2003 so that all sellers (EU and non-EU) used the customers country location for calculating the VAT due. We have had 12 years of relatively low VAT rates (3% for example on some Kindle books) that come 1 January 2015 will mean EU consumers paying up to 25% more for the same products – products that are a huge part of people’s day to day lives compared to 2003.
The recent news out of Japan who went from a 5% to 8% JCT rate shows the dramatic effect that tax driven, consumer price rises can have on the totality of an economy. The rate changes EU consumers will be forced to accept in higher pricing (assuming the full rate is passed along) will be significantly higher that those faced in Japan – which I will admit was for all goods and services. However, I believe it is right to ask that by February or March of 2015, sales of e-books, games and other similar items may have taken a sharp knock back as consumers see prices increase.