For some time I entertained the idea of selling ebooks directly over this website. What follows is the story why I don’t. And, incidentally, how the EU’s attempts to stop tax evasion by large online retailers harms small businesses in the denationalized world of the internet, helping monopolies to rise and persist.
Come 2015, European law will change how VAT is calculated for customers buying virtual goods. Currently, when buying virtual goods, you pay VAT on whatever rate is applied by the country the vendor resides in. This being tax laws, it’s a little more complicated than that, but for the sake of my point we can keep it simple. Because VAT is very different across europe, that goes from 3% in Luxembourg to 27% in Hungary. So of course Amazon’s and Apple’s stores are located in Luxembourg, benefitting from lower VAT and their ability to keep prices low, to many a tax payers irritation in those countries with higher rates. Nobody wants a race to the bottom, so this is a tough situation to fight. However, European parliament decided to do something about the situation and so now VAT on virtual goods will be calculated by the nation the customer buys from or resides. So, say I buy an eBook off Amazon, January 1st onward I’d have to pay 19% VAT instead of 3%. 7% if Germany finally gets its shit together and puts eBooks at the same tax rate as paper books, but still more.
This law is mostly directed at big corporations like Amazon and Apple. In my humble opinion, it will only serve to cement their power, worsen what many already perceive as a monopoly. You know the gist of that discussion from half the rest of the internet and basically all the daily paper, I’m sure, so I’ll spare you yet another discussion on it.
Now, where lies the problem?
For some time I have thought about selling my ebooks directly on my site. It’s a valid addition to any author’s site, increasing control and independence against stores while increasing customer service. However, the internet knows no borders. Once I set up my storefront, anybody can buy my books. I’ve had sales outside of Germany before, every once in a while getting a book sold in Italy, Spain, France, or the UK, not to mention Brazil, India, and Japan. This is probably going to increase now that I started publishing more works in English.
I am going to assume that Amazon, Apple, Google et al. know how to handle this stuff and are able to afford it. They’ll pay a couple millions more per year and all’s well for them. No big deal.
I, on the other hand, am simply unable to handle the logistics of that. I’d have to ask every customer where s/he’s from and adjust VAT accordingly for every single sale. Oh, I’m sure there’s automation for that or at least there will be, but even then there’s still the process of filing all these taxes with whatever number of European countries I will have done sales.
Not to mention, I usually don’t even know the exact country my customers live in, because I sell virtual goods, they can go to the next house in the street or to Singapoore, it makes no difference. IP is unreliable, so I’d have to ask every customer and trust they tell the truth despite knowing many give a fake street address for the sake of privacy. Countries such as Luxembourg are so small, most people are bound to be in the IP range of a neighboring country, giving wrong results. Oh, and Europe has a couple of areas exempt from VAT, composed of a couple of exclaves and islands belonging to member states. Let’s just say lawyers in that field probably don’t have to worry about their jobs for quite some time.
So congratulations, Europe, you just decreased the likelihood of any European startup appearing to challenge Amazon’s monopoly by trying to fight them. As TV Tropes puts it: Nice job breaking it, hero!
Oh, if anyone wants to ask for a solution to the tax evasion problem, I see two options. Either no VAT on virtual goods (as is done with the similar sales tax in the US) or unified European VAT rates. Both would be met with fierce opposition, but there is no middle ground I can see that doesn’t hurt small businesses.