EU VAT and Etsy

Update 2/9/15: Etsy will be taking care of VAT

On the Facebook group Digital VAT 2015, one member posted this response from the HMRC (Her Majesty's Revenue and Customs), kind of like the IRS.

I sell digital items on Etsy and emailed HMRC with this question:
"Assuming Etsy meets the conditions of a marketplace as described above, if they continue to deny responsibility will I be responsible at any point? And also if later on Etsy were to appeal and found not responsible for collecting EU VAT, will I then be responsible for back-dated EU VAT?"
The email I received back is:

"Thank you for your e-mail.
Whilst we regard Etsy as responsible for the VAT on any sales we will pursue the matter with them and not the individual sellers. If our view of their position should change, I would not expect any adjustment to be retrospective and the matter to be clearly communicated to all those affected.
I hope this is helpful
Your sincerely

Desmond Farndell
VAT Supply Team/ Indirect Tax Directorate/HMRC/100 Parliament St/London/SW1A 2BQ"

So for UK buyers, Etsy is responsible in the eyes of the HMRC.  I suspect this will take a while to shake out, but it is great news so far for micro businesses.

A Tangle of Knots: The EU, VAT and Digital Pattern Sellers

image from euvataction.org

While I was celebrating New Years with friends, I got an email.  Then another.  And another.  All about VAT and digital sellers, and sites are working on this issue.
Needless to say I was confused, so I ordered another cocktail.

But once I looked into the situation, a crazy mess unfolded.
In a nutshell, starting January 1, 2015, if you sell any digital patterns to a consumer in the European Union, you must charge and collect the Value Added Tax for the country of the buyer and then report and pay the VAT to that country.  There are no exemptions or thresholds.

Here are the EU countries and their VAT rate:

Country	VAT		Country	VAT		Country	VAT
Austria	20%		Germany	19%		Poland	23%
Belgium	21%		Greece	23%		Portugal	23%
Bulgaria	20%		Hungary	27%		Romania	24%
Croatia	25%		Ireland	23%		Slovakia	20%
Cyprus	19%		Italy	4%		Slovenia	22%
Czech Republic	21%		Latvia	21%		Spain	21%
Denmark	25%		Lithuania	21%		Sweden	25%
Estonia	20%		Luxembourg	3%		United Kingdom	20%
Finland	24%		Malta	5%
France	20%		Netherlands	21%

28 countries with 28 different VAT charges and different interpretations of the law.

Ok, so EU buyers have to pay a tax on digital items, but who should really collect it?  That is the million dollar question right now.  The UK HMRC (kind of like the US IRS) published this flowchart.  However, major selling platforms and marketplaces are not ready to collect and report VAT.

Interesting, because if I were to buy something online from the UK, I am not charged MA sales tax, the seller is not required to collect it and send it to the Massachusetts Department of Revenue.  However this is exactly what the EU wants non-EU countries to do.
Um, no.  The last time my people were taxed like this, we dumped a bunch of tea in our harbor.

So what's a pattern seller to do?  There are several sites which offer digital downloading service, right now some are in compliance, some are not.  Most are just as confused as we are.  I know there are more sites, but these are the ones I have read the most about.

Etsy: Update 2/9/15 Etsy is responsible for VAT

Currently, they are stating that sellers are responsible for collecting and reporting this tax, but are not offering a clear way for us to do this.  Nor can we block sales to the EU so we don't have to deal with it.  On their blog they have stated that they hear our concerns and are working on a solution. You can read their updates here.  Currently to list a pattern on Etsy it is 20 cents and a 3.5% transaction fee.
An update from HMRC in regards to Etsy can be found here.

Ravelry: In the final hour, they came through with a few options. You can read all of them in detail here.  But they even acknowledge that if I chose to do nothing, they do not know who is liable for collecting the tax.  But there are choices available.  Currently it is free to list and a minimal fee once you pass a threshold in transactions.

Craftsy: Last year I made most of my sales here, but they have said nothing, nada, zip.  They can collect VAT on their classes and videos, but have done nothing for pattern sellers.  Some shops have already closed up.  However, it is important to note that it is currently free to list and sell on Craftsy.

Update: Craftsy's Response, not very helpful, is it?

LoveKnitting: This is Ravelry's option.  You can integrate your patterns here, and the first 6 months are free.  They will collect and handle VAT, but in June 2015 they will charge 20% commission and a 20p listing fee.

Patternfish: I have not sold on here, but they do handle VAT.  It looks like a lengthy process to have your patterns on here. According to their site, there is a $6.00 fee to list a pattern, and a 60%-70% commission, but you are not charged the 2.9% PayPal fee.  They do hold your money until you reach $20 and then you receive it at the end of the month.

Zibbet does not offer digital downloading.  You can list 10 items for free.

iCraftGifts does not offer digital downloading.  There is a monthly fee to list items.

From my reading, emailing the pattern might be a loophole, it might not.  In the UK, for now, it is not subject to these new laws, but other countries in the EU might have different ideas.

For further research:
euvataction.org: an excellent grassroots campaign to give information and fight this law

European Commission: the official government website detailing the new laws