Wednesday, 30 September 2015

Thoughts about the Survey.

I promised yesterday to write something about the issues I have with the survey.

I'm running late on my prep for the Nadelkunst fair, though, and I have to leave tomorrow to set up the stall - which means I have to pack today. So, as much as it would have delighted me to write a special post about the survey questions just for you, with a lot of lovely, lovely snark and links and weird references, I'm out of time for that, and the thing is too important for me to put it on hold until somewhen next week.

So you're not getting a blog post written specifically about this. Instead, I'll share with you the letter I wrote about the survey questions, sent off to the contact address listed with the survey (at least they had that!). I really hope that it will get read, and that it might do a little bit to help improve the situation.

Dear Sir or Madam,

I am one of the small business owners that has been hit by the changes in EU VAT law, and with the proposed extensions of these changes to all goods and services, I am very much afraid for the future of my business. I am running a tiny business with very specialised goods and services, and some of them used to be digital. I was also planning to do more digital content in the future, but these plans have been put on hold due to the VAT rules change.

The very specialised nature of my business, however, means that I am very reliant on getting customers from outside of Germany, which count for up to 60% of my turnover in the online shop. The size of my business means that I cannot invest in expensive shop software, legal counselling, an IT specialist or a tax assistant, and this effectively makes it impossible for me to sell digital content under the new rules. Similar problems would occur with an extension of the new rules to any goods and services, and would probably force me to shut it down entirely.

Hence I was very happy to hear about your survey for the open public consultation. After looking at the survey, however, I am even more concerned. Many of the questions you pose are hard to understand or unclear in their intent; the whole survey is written in a way and in a language that makes it necessary to already be very well informed about the VAT changes, both extant and planned. If the questionnaire were really intended to take in public opinion, the language alone would make that about impossible. The questionnaire gets even less inviting to be filled by the fact that there is no information on whether any of the fields are compulsory or not, and then asking for a name and contact data.

The questionnaire is also not stating anything about how the data will be used, by whom and for how long it will be stored, and whether it will be treated as confidential. If you were running a shop in Germany, this would be enough to serve you a notice for insufficient information about data security and privacy (incurring costs, of course, of at least a few hundred Euro).

There are even more issues in regard to the individual questions or wordings.

This already starts with the introductory texts.
"In parallel, a Mini One Stop Shop has been implemented to reduce the costs and administrative burdens for businesses concerned."

This sounds like the new legislation were entirely introduced to reduce burdens that were already extant for a long while. This, however, is not true. In many cases, the new system and the MOSS have not reduced the costs and burdens, but added to them considerably, even driving single entrepreneurs out of business entirely.

"The open public consultation will seek the views of business, the public and representative organisations [...]"
As stated above, it is a wonderful thing that everybody, including the public, is invited to have their say here. However, the explanations and the survey both are not accessible enough for the public - they are hard enough to understand even for educated people who are already familiar with the new rules for digital VAT.

Qu. 2 & 3 - Why are you asking for a name and email address? Is there any need for this? What will you do with this information? How will it be stored, where, and for how long? Every business has to inform their customers about how their personal data will be handled, and any such information is missing completely here.

Additionally, since you will be asking questions about how the changes have been handled by businesses, this is not conducive to getting straight, honest answers, since one might risk being lined up for an audit or being fined for non-compliance.

Qu. 4: If you are asking after the head office, shouldn't that be a BO question? Or should it be place of residence?

Qu. 5: There is no possibility to later change one's mind?

Qu. 11: Shouldn't that be a BO question? I also find unclear what you want to know here.

Qu. 12&13: You are asking about supplies not reported under MOSS. What about the extra burden added by registering and using MOSS? What about the burdens of extra work to try and comply with the new rules, only to spend many hours to file VAT to another EU country of under 1 €?

(By the way, the German wording implies that the question only asks after the calculation of the VAT of the other country, not the calculation and actual administration/payment to said country.)

Qu. 14 and other "please rate the difficulty" - the term "representing the most difficult" sounds like I am supposed to rate the individual answers from 1 to 5 in a hierarchy - which is technically not even possible in case all of them, including "other" applies, since there are 6 answers here. Or did you mean "scale of 1-5 with 1 representing not very difficult and 5 extremely difficult"?

Qu. 21: This is where having to state a name and email (or feeling that one has to, since there is no explanation on whether it's a can or must) will probably skew results. I also have a hard time understanding why "You also supply goods" would be a reason not to use the MOSS - as far as I understood, if I'd be selling digital goods and non-digital ones I would have to register for MOSS for the digital ones even while well underneath a threshold for registration in another country with my goods turnover. Or is that wrong?

Qu. 25: Does this question ask for my agreement with the objective to minimise burdens (including, or especially including, the burdens that have newly been added by the VAT rules in effect since January 2015)? Or for my agreement with the changes in VAT rules that are planned for the future, which might, according to the text in the intro, also be seen as "minimising burdens" even though it adds complications for small businesses?

Qu. 26: Are you asking for whether I would want all businesses to charge the same VAT rate throughout Europe? Or the same VAT rate when selling to one specific country? Or for my agreement that whatever the rule, there should be no exemption at all? What about an excemption not based on the price of one single small consignment, but based on the turnover of the company that is selling?

Qu. 27: If I answer with "I agree" to this question, it could be equally interpreted as my agreement to: a) the MOSS needs to be improved; b) the current Digital VAT rules need to be expanded to physical goods, c) a single registration and payment mechanism has to be set up so that registration when exceeding the turnover limits for VAT registration in another country can happen at the MOSS.

Qu. 28: It is difficult enough to find out, in some cases, what VAT to apply under domestic rules. How is it supposed to be technically possible to tax according to the customer's country? Most of the companies do not have their own law department that could spend a lot of time looking into this. There is not even an official reference list stating all the different tax percentages of VAT on the EU website (the list that is there is full of disclaimers that it may be wrong, or not up-to-date, and thus cannot be used as a legal basis for taxing). Am I supposed to learn Hungarian to find out what has to be taxed at which level in case some Hungarian customer orders a 5 € item from me? How is shop software going to handle the fact that an ebook in one country might not use the reduced tax level, but the higher one, and maybe super-reduced in a third country?

Qu. 29: This question is hard to answer without more context. It sounds as if the current rules would allow every single country in the EU that one has sold something to, no matter how small, would be entitled to do an audit. Now, apart from hoping I'd never have to deal with an audit in, say, French (which I can understand a little, and speak a little, but far removed from anything suitable to do Legalese with) - how is that supposed to function? How can a French auditor deal with my all-German book-keeping documents? Or do the rules mean that I will have to do multilingual book-keeping from now on? And will somebody from France come over to me in Germany to do the audit? Or am I supposed to ship copies of all my documents to France? Or go to France myself? Who will pay the expenses for this? What about the data security when my documents are sent somewhere out of the country? Whose rules about customer data confidentiality would then apply? German rules? French rules? An entirely different third set of rules?

Qu. 30: Again - how is this supposed to be enforced? If the EU hasn't managed to even tell their own citizens and businesses in time, and clearly enough, about the changes in VAT rules (see awareness level estimates in the full report available at, how are you going to communicate to the myriad of kitchen-table entrepreneurs and microbusinesses in the US, Australia, New Zealand, the Philippines, South America, ... that they are now supposed to follow different, much more complicated rules and pay taxes to a multitude of different countries within the EU? The results, should it be possible to actually tell them about it to raise levels of awareness to somewhere of, say, 50%, will either be that a) these microbusinesses will ignore the new rules or b) stop selling to customers within the EU. Already businesses in the US have stopped providing services such as software updates to EU customers - even to EU businesses because making a distinction there would be too much of a paperwork/shop software change burden.

Qu. 31/32: This is unclear on whether the threshold would apply to a certain amount per parcel/consignment/sale, per turnover of a business, or per sales made in a specific country. (Well, Qu. 32 makes it clear it probably does not mean amount per sale.) It's impossible to properly answer a question on the appropriate level of a threshold without knowing what the threshold will be based on!

Qu. 33: Does "easier management for tax administrations" mean easier management of tax issues for businesses, or are you actually asking businesses and members of the public whether they think a threshold would make internal administration in the tax departments of the individual member states easier?

Qu. 34: How is "uncertainty on whether a business will exceed the annual threshold" a risk of cross-border thresholds? Whenever there is a threshold, there's always a risk that if a business does well, it might be crossed. However, usually this is considered a good thing as it means business growth. This question sounds as if what lies beyond that threshold is so hard to handle and so difficult to navigate that a business would be happy to curtail its own growth just to keep beneath it. Which is, in fact, a very fitting description of the actual situation for digital micro-businesses right now, only that there is no threshold below which they could still prosper.

Qu. 35: Again, two questions rolled into one. Do I agree that any threshold needs to be harmonised? Do I agree that any threshold should apply to both goods and services? Also: any threshold in connection with VAT? Or also any internal threshold in connection with commerce and business within a member state? How about the thresholds for complete VAT exemption for supermicrobusinesses like it exists in Germany? What about differences in the size and annual turnover from member state to member state, are these going to be taken into account, or is every country now supposed to work the same way, instantly?

Qu. 36: Thank you for including an open text box in the survey so that survey takers can tell you what they actually think. This is, for me, the only thing redeeming the whole survey, and I do hope that you will get a lot of input through this text box.

I was very excited to hear about a survey that would allow micro-business owners like myself and my customers to chime in and help find a better way for the VAT issue in the EU. I do realise that VAT is an important income for every single state, and that the EU wishes to spread the earnings fairly. But this survey has questions that can be interpreted in many different ways, and you might thus get answers that were the actual opposite of what the person filling out the questionnaire actually wanted to say.

So now I am very deeply concerned about this survey. As so many of the questions are so unclear or so open to interpretation, it does not matter what the actual opinion and actual answers of those filling out the survey are – the survey can serve as a carte blanche for any end result desired.

I still hope that there will be instant action to relieve the incredible burden on microbusinesses that are caused by the new EU VAT rules, and that there will be no extension on physical goods and non-digital services until there are workable solutions and sensible thresholds for the EU VAT. I still hope that there is a future for my business – but the way this survey is built up and worded has dampened my hopes considerably.


Katrin Kania

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