A few words on VAT and pricing

As you may or may not know, from January 1 on, the European Union has changed the way that VAT (value added tax, similar to sales tax in the US) is calculated for cross-border transactions, including online sales. Previously, VAT was charged according to the applicable rate in the seller’s country, now it’s charged according to the applicable rate in the buyer’s country.

Now this change does not affect the average consumer (and indeed this very long lists of German laws changing on January 1, 2015, never once mentions the VAT changes), but it is a big deal for online vendors, freelancers and any business trading across European borders, because it makes online sales a lot more complicated and/or not viable for smaller vendors. For more from a UK perspective, see these posts by Juliet E. McKenna and Hannah Kate as well as this article from the Telegraph. For more from a German perspective, see this post at the German e-reader news site Lesen.net.

The reactions among indies ranged from a complete lack of understanding (which wasn’t helped by the badly formulated e-mails sent out by the big vendors) via sheer panic to sputtering hatred of the European Union (one dude even claimed that a massive war would wipe out all of Europe within five years at most anyway and got huffy when I pointed out that he was rather offensive, not to mention wrong). A lot of indie authors also vowed that they would raise their prices to offset the projected income loss due to the VAT changes. And since Amazon still isn’t able to grasp the principle of VAT inclusive prices, they also randomly raised everybody’s prices in the various European Kindle stores, forcing me to waste two hours to reset all my prices to the previous level.

Because I will not raise the prices of my e-books to account for the changed VAT rates. The prices for all my books will remain the same as before, only that they are now VAT inclusive.

If you are a European customer buying via Amazon.com rather than via one of the European stores, Amazon will probably still slap the applicable VAT in your country as well as the two US-dollar international surcharge on top of the list price. Unfortunately, I cannot prevent them from doing this. In this case, I will point you to one of the many other fine retailers, where my books are available. And since my e-books do not have DRM, you can even convert them to your desired format.

*The example the VAT mess always reminds me of is how in the mid 1990s, the German government raised the taxes levied on artists, musicians, actors and other performers, who are not German residents, for performances given in Germany. The background was that some successful German entertainers had taken up residence in countries with lower tax rates, most notably one Margarethe Schreinemakers who hosted a then massively popular TV talkshow and who had a very public fight with the German tax authorities (Ms. Schreinemakers insisted that the tax authorities were after her, because she had interviewed the ex-wife of the then German secretary of finance on her show, where that lady had some rather uncomplimentary things to say about her husband). Ms. Schreinemakers’ popularity soon faded, but the law her tax antics had helped to bring into being had the unintended effect of making performing in Germany drastically more expensive for all non-German actors, artists and musicians. As a result, the big international stars stopped coming or gave fewer performance, if they did, whereas unknown artists and musicians were taxed so highly that they could barely make a living wage with their performances. In the end, the cultural scene in Germany was greatly diminished because of the quarrels of one host of a (very bad) talkshow with the German tax authorities.

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24 Responses to A few words on VAT and pricing

  1. I was under the initial impression that this wouldn’t apply to me because I’m outside the EU. I was wrong. It seems that, as Sandal Press has its own store, I would now need to collect the appropriate VAT from an EU customer and then forward said amount (within 10 days of the end of each quarter!) to the relevant EU tax authority. Oimay! Needless to say, it’s all a big cock-up, not helped by the usual ignorant N Americans blaring about those “socialist” EU countries. I think they still believe the USSR exists!

    As with you, I’m rolling with the punches on this one. Imo, the concussed cockroach minds of EU politicians (who are mostly from NON-socialist EU governments) have decided to go with a “tax first, figure things out later” attitude that is going to backfire on them. Meanwhile, I’ve heard that this “place of supply” amendment will start being applied to non-digital goods from 2016, so watch out for that barrel of laughs. And, also from 2016, Japan will also be moving to collect VAT from out-of-Japan online vendors. Bwahahahahaha. You’d think that Abesan would just be able to print out more yen for the Japanese Tax Office…he’s doing such a swell job of it already.

    Amazon has declared that it will price-match if anyone has lower prices but, with differing amounts of VAT having to be applied at the checkout (and, to do it properly, it would have to be applied during the “Payment Processing” stage, and not at the “Add to Cart” stage), how can Amazon possibly figure out whether the sales price on a given website page is ex-VAT or post-VAT? I don’t think the wailing and gnashing of teeth, esp. from our American friends, is quite over yet.

    • Cora says:

      Yes, it seems that vendors selling into the EU will have to charge VAT, though I have no idea how they’re planning to enforce that with any company that’s not Amazon or a similarly major vendor. I always assumed that VAT wouldn’t apply to transactions outside the EU in both ways, since I still don’t have to charge a customer not based in the EU VAT. But there is an increasing move to plug all the VAT loopholes that still exist (cross-border transactions in the EU used to be VAT-free, too, as were transactions in harbours and airports behind the customs zone, hence duty-free shops, or at high sea, hence what used to be called “butter cruises”), so that everybody will have to pay VAT somewhere. Oddly enough, at the same time there is a lot of talk of free trade.

      I think this is a case of typically clueless EU politicians realising that Luxembourg (and to a lesser degree Ireland) was getting tax revenues from big companies that their countries weren’t. And those big companies included such international conglomerates of villainy as Amazon, Google or Apple. So they come up with a law to make those big companies give up the tax revenue those politicians think their countries are due and totally miss the many other smaller companies and individuals that this law will also impact, from freelance translators or editors trying to figure out the applicable VAT rate in their customer’s countries via small presses and indie authors selling via their own website via small Etsy sellers via mid-size companies who can’t figure out why they suddely have to charge VAT for that crane they just delivered to Denmark, let alone which amount to European customers who find that they cannot buy all sorts of products from smaller online dealers anymore, because those dealers are terrified of falling afoul of VAT laws. In short, they’ve likely killed or at least made more difficult a lot of business activity that might even have made up for the “lost” tax revenue from Amazon, Apple, Google, etc… Though it might take a while for them to notice. In short, it’s a very similar situation to the Schreinemakers law I mentioned in the post, which is still hampering cultural life in Germany some twenty years after Ms. Schreinemakers’ show has been cancelled.

      Plus, a whole lot of politicians also don’t seem to get the internet at all (Chancellor Merkel even said it’s a new territory for everyone – in 2013!) and don’t seem to understand that for plenty of people the internet is the place where they make a living. In Germany, you also have an added general hostility towards small entrepreneurs.

      I’m also no fan of this whole “evil foreign company is not paying sufficient taxes” complaint, because at least coming from German politicians it’s hypocritical. Because a lot of German multinational companies are paying what taxes they pay here for products manufactured and sold elsewhere. For example, Mercedes, BMW and Volkswagen all manufacture cars in the US, let alone sell them. Does anybody think they pay a lot of taxes there?

      Nonetheless, the cluelessness of Amazon and their cryptic communications doesn’t help, as does the general hostility of some of our American friends towards the EU or taxes that support the “evil government”, while paying sales tax in their own country without complaint. I did point out that plenty of non-US indie authors had to pay a 30% withholding tax to the US-government, if they hadn’t yet handed in their forms or were from a country that didn’t have a tax treaty with the US, though I refrained from pointing out (in return to snarky comments about not wanting to support overly generous welfare programs) that maybe those non-US authors did not want to support the US military or overly aggressive police forces either.

      All in all, it’s just a big mess, though there isn’t much to be done about this except hoping that EU politicians come to their senses.

  2. Daniela says:

    As far as I understood it, B2B isn’t affected by this. But, as translators we often, of course, have non-business customers who want a letter or a report card translated. And which tax applies to someone who’s official place or residence is the UK, but who’s temporary residence is Germany? Stuff like that gives me a headache and I’m pretty sure even my tax accountant will be lost by some of that. Not to mention the tax office who’s already vastly confused by Amazon and their confusing statements.

    Not to mention all the people selling stuff on etsy and dawanda. I’m sure it will even impact ravelry where one can buy knitting designs from knitters all over the world. I would HATE no longer having that option.

    If they really start thinking about applying that kind of law on goods like Kaz mentioned, then they would probably have a little revolution on thier hand, because not only do people buy a lot online (I buy a lot in UK and US stores for stuff that’s not available in Germany) but also the people who cross a border to go shopping. Down here on Saturdays the supermarkets, discounters like Aldi and Lidle, and the drugstores are firmly in French hand. Just like a lot of Germans go shopping in French supermarkets. That would stifle cross-border transfer of goods which one then would have to look at with an eye toward the Schengen treaties.

    Ill thought-out law that once again is not taking the majority of companies into account. I’m also pissed at the German government who’s always focussing on big business when most of the jobs (80% if I remember correctly) in Germany come from smaller German companies. Companies who pay their taxes in Germany.

    • Kaz Augustin says:

      Thanks for the mention of Ravela, Daniela! I’ve joined up. 🙂 … More a knitter…have to learn how to crochet properly…

      • Daniela says:

        Yay! I LOVE ravelry :-). I’m also more of a knitter, at least when it comes to scarves and socks. I’m not very active on ravelry, but that’s something I plan to change this year. If you want to be ravelry friends you can find me under shadowyink :-).

        I’ve started to learn how to crochet granny squares which is turning out to be a lot of fun. Maybe I will even get a whole blanket out of them.

        • Cora says:

          Granny squares are a lot of fun and ideal for keeping your hands occupied when watching TV. I recently went through my craft supplies and found loads of granny squares just begging to be connected into blankets and tablecloths.

          • Daniela says:

            I tend to knit socks with easy to remember patterns when I watch tv. Might move on to Granny Squares now. The colors I picked for my trials a an almost neonish green and purple so the result will be very colorful.

            With some white edges around those squares might make a fun blanket or maybe a bag or even a pillowcase. Once I’m a bit more practiced with different types of granny squares I want to make a coverlet for my bed.

    • Cora says:

      I imagine a lot of tax accountants will be struggling to make sense of these rather non-sensical rules. I already had two different accountants disagreeing about the applicable VAT rate for a Swiss customer at one point and there will be even more of this. And yup, I get a lot of private customers, too, for report cards, health certificates, birth certificates and the like.

      Cross-border commerce is also big business in the North German border regions. The Dutch border towns are full of Germans on May 1st and October 3rd, while the Dutch flood the German border towns on Konigsdag. Ditto for the German Danish border. There’s also a lot of regular exchange and near the Dutch and more notably Danish border there are big supermarkets and even whole malls catering to Dutch and Danish customers, because a lot of everyday goods are cheaper in Germany. And internet commerce is international anyway, whether for physical or electronic goods.

      I guess the problem here is that our politicians have tunnel vision. All they know is Berlin (or Brussels) and maybe their hometown. They don’t use Amazon or Apple, let alone etsy or ravelry, and they don’t buy online from non-German stores, because they aren’t that interested in cool jewelery, rare action figures or British food stuffs. So they cannot imagine how important these things are for other people.

      I also agree on the extensive big business focus in Germany, even though at least some politicians originally pay lip service to mid-sized companies. Small businesses, however, might as well not exist (except when someone wants to lament about the minimum wage), let alone freelancers.

      • Daniela says:

        The tunnel vision is really bad, but then most of the politicians we now have in Brussels/Straßbourg are not really Europe-visionairs. One of the reasons for the Schengen treaties was to make cross-border commerce easier. Granted, they didn’t evision the internet but still. Now we are back to things getting more and more complicated. That’s not part of the original idea behind a unified Europe or the European Union.

        I agree that most of the politicians seem to have this kind of tunnel vision. I mean if Channelor Merkel describes the internet as a huge chance now? In 2014? A tad bit late, isn’t she? And not only her but also the business people who are advising her. What have they been doing the last 15 years? Sleeping?

        And of course by creating laws that make internet commerce more complicated they are hampering economic growth and possibilities for small and innovative companies.

        And of course with their attempt to hit the few falcons they’d instead hoit all the sparrows. Did you see this article? http://www.lesen.net/ebook-news/neue-ust-regelung-exklusive-kindle-titel-teurer-stores-schliessen-17377/

        And Osiander isn’t the only store geo-locking their offerings. Lots of small e-publishers have done the same and guess where people now have to shop for their eBooks? Yup, mostly at Amazon.

        OMG, I hope I can still order at ARe…

        I guess the politicians who pay lip-service come from regions where they have small business owners in their party and have to answer to them. I’ve met out local MdP once and that man was full of hot air and was just saying stuff without having even thought about the things that came out of his mouth. And some of that involved easy math. He didn’t fare too well in that Q&A-session but unfortunately is still MdP.

        • Cora says:

          One of the big problems with the EU is that the European commission consists of politicians no longer needed/wanted in their home countries, so they were pensioned off to lucrative posts in Brussels. Just look at Günther Oettinger as commissar in charge of digital affairs and communication, even though Günther Oettinger should really never have been put in charge of anything. Sorry, I know he was your minister president for a while (you are in Baden-Württemberg, aren’t you?), but it’s not as if a lot of minister presidents aren’t idiots. After all, I’m from the state that gave Germany both Gerhard Schroeder and Christian Wulff (as well as Sigmar Gabriel and Ursula von der Leyen – yes, we’re very sorry about all of them).

          Some of the EU politicians are quite good, e.g. I’m quite fond of Martin Schulz. But they can’t do a lot about the incompetents foisted upon them by the member states.

          Our current MdB is actually quite good, but the guy before him was a complete disaster. He looked like Blofeld, never did anything of note and was apparently screwed to his seat in parliament for almost 30 years, since he kept getting reelected. But then I live in a Wahlkreis that’s so securely CDU that other parties often don’t even bother campaigning anymore. The CDU could probably nominate a scarecrow and would still win the seat.

          • Daniela says:

            Yes I’m in BW and we were so glad when we were finally rid of Günther Oettinger. I know several people in the CDU who are very active and some of the once said: “The only thing Oettinger was good at was kissing the ass of the right kind of people.”
            The CDU down here is still very much “Vetterleswirtschaft”. Don’t even bother getting into politics (CDU and SPD) if you aren’t a local with a local family-line that goes back centuries.

            And I so agree on the fact that every state only sends the people they want to get rid off but can’t force into retirement yet to the EU. It pisses me off massively. We should send our best and brightest there not make people who have trouble finding the on-button on the compuer, commissar in charge of digital affairs and communication. Really, I was whimpering when I heard that annoucement.
            Have you ever seen the vid of Oettinger trying to hold a speech in English? It’s painful. (I’ve done coachings for people holding speeches or doing classes in English and couldn’t believe that his team didn’t get him some coaching first.)

            I forgive you for Schröder 😉 though I do in parts blame him for some of the EU-problems we have today (him, Sarcozy, and Berlussconi – three politians from the founding member-states of the EU who weren’t really interested in the EU at all, just in power 🙁 ).

            But don’t you want Gabriel back? Maybe to pluck a hole in a dirk somewhere? Early retirement for von der Leyen? We can’t really ship her off to the EU as well.

            Sometimes I really wonder about goes on in the heads of voters. We once had the chance to elect Martin Herrenknecht (owner of the Herrenknecht AG and a really good businessman and interesting person) as MdB. Which would have been great. Instead we got the same one again. He used to work for the Caritas (hello network and hello person with no idea how the real bsuiness world functions) and now seems to be glued to his chair. I did like his wife. She was/is very active when it comes to domestically abused women.

            • Cora says:

              Yes, it’s a problem that the EU is all too often the trash heep for unwanted national politicians. If they were incompetent on the national or state level, they’re not suddenly going to be competent on the EU level. Though Oettinger and his English skills are a special kind of incompetent.

              Unfortunately, we don’t need Gabriel to plug holes in dykes, cause the THW has got plenty of better equipment. As for Ursula von der Leyen, the Bundeswehr is welcome to her.

              I’ve never understood what goes on in the heads of some voters either, especially since we also had better candidates than the Blofeld lookalike who was glued to his seat for twenty-plus years. But our Wahlkreis is weird anyway. Half of it covers very conservative and Catholic rural areas, where going to the right church and belonging to the right club is enough to get you elected. The other half covers the Southern suburbs of Bremen and is more left, more green, more pragmatic and largely Protestant. Though the CDU has been holding the office of mayor of our suburb for several years now, largely because the last SPD guy to want to take the office was widely disliked for his building policies and the CDU guy turned out to be very competent.

      • Daniela says:

        This article is also pretty good: http://www.faz.net/aktuell/wirtschaft/unternehmen/deutsche-e-books-fuer-china-13356056.html

        The German media seem to be more focused on Pegedia and Greece.

        • Cora says:

          Thanks for the link. That’s a very good article. I’ve been following Bastei-Lübbe’s digital strategies with interest for a while now and think that they are ideally suited to take advantage of the e-book marketplace due to their “Heftroman” experience. Plus, they’re sitting on a goldmine of content – sixty years worth of Jerry Cotton, forty years worth of John Sinclair plus Bergdoktor, Maddrax, Professor Zamorra, thousands of westerns, romances and anything else under the sun.

          Otherwise I don’t really fault the German media for being more focussed on Pegida and Greece as well as the various disasters of late. Though it is kind of troubling that none of the “new laws effective January 1, 2015” lists even mentioned the VAT changes, which directly or indirectly impact lots of Germans, whereas changes in the Biomüll regulations are prominently mentioned.

          • Daniela says:

            Ups, that was actually the wrong link, though it is an interesting article.

            I wanted to link to this one: http://www.telegraph.co.uk/technology/internet/11295953/How-the-EU-is-throttling-online-business-with-idiotic-VAT-reform.html

            • Cora says:

              That’s a really good article, though I’m not normally a fan of the Telegraph. And yes, this is a stunning display of incompetence, which will drive small businesses out of business, reinforce the dominance of the big businesses it was supposed to break and make it more difficult for European customers to purchase the products they want.

              But then, I have noticed a lot of hostility not just towards Amazon, but towards all online retail in the media of late. There is this meme that people buying online are just “lazy”, whereas in truth they are either too busy to go shopping or hate shopping or simply cannot get the products they want locally. And the anti-Amazon sentiment has gotten so bad, that I’ve been verbally attacked once or twice for daring to shop there.

              • Daniela says:

                I’ve encountered the hostility for online shopping and especially Amazon as well. Though mostly and ironically online (on Facebook).

                But like you said, there are numerous reasons why people shop online. Where I live shops often close during lunch and at 6 pm or 6:30 (even on the main shopping street in Freiburg).

                If you work till 5 or 6 pm you can either rush around or go shopping on Saturdays where it’s usually very crowded. And I hate crowds. The big farmer’s market is the only reason why I would head into Freiburg on a Saturday.

                Then there’s the problem of not being able to find what you’re looking for. Even with clothes it can be difficult. I have to order bras online because my size falls outside the standards (too small and too big at the same time) carried by the shops.
                Not to mention having to deal will stressed, bored, annoyed shop-clerks who snear at you if you are anything above a size 42.

                It’s also expensve. If I want to go shopping in Freiburg I either have to buy a train-ticket which cosst me over 10€ or pay for day-time parking which is equally expensive.

                • Cora says:

                  Same here, though at least parking isn’t quite that expensive here in Bremen, if you park on the big Bürgerweide parking lot. Though in theory, the Bürgerweide was a gift to the people of Bremen by the sainted Countess Emma (yes, she is a bonafide Catholic saint), so parking should theoretically be free. The Countess Emma argument comes out every time a politician wants to build a totally unnecessary convention centre or exhibition halls on the Bürgerweide or in the adjacent park. Countess Emma gave this to the people of Bremen, so stuff your exhibition halls where the sun doesn’t shine.

                  I’m not a fan of crowds either, which is why I avoid the city centre and the suburban shopping malls on Saturdays and open Sundays.

                  The nastiest bit of hostility for daring to shop at Amazon I ever encountered was on Twitter ironically. Though I also got grief in person from a translator colleague. When I asked him, “Well, where do you get your English books then?” he said, “In the UK, of course.” But then, he has a British wife and is in the UK several times a year. Never mind that I can’t always find what I’m looking for in UK bookshops either, since they don’t carry certain SFF authors.

          • Daniela says:

            Did you know that Bastei-Lübbe bought beam.ebooks? They really seem to have a strategy.

            Found thing I found very interesting was the Abo-function they offer for series like Perry Rhodan. Fits in wonderfully with their other series, right?

            • Cora says:

              Yes, I’d heard that Bastei-Lübbe bought beam e-books. They clearly have a digital strategy, which puts them ahead of most other trad-publishing companies.

              An abo function would be ideal for series like Perry Rhodan (which isn’t actually a Bastei-Lübbe series, but published by Pabel-Moewig-Bauer) as well as Bastei’s Romanheft series like John Sinclair or Jerry Cotton.

  3. Kaz Augustin says:

    I blogged about this a couple of weeks ago at the Sandal blog and thought that this VAT rule encapsulated the downfall of the EU. Not because of the VAT rule as such, but because it highlights the systemic flaws throughout the system. How you can have supposedly standard rules across the board for accession to the EU and then completely ignore the differing VAT rates within each country is beyond me. A school-bake committee would think of it, and yet a body like the EU can’t/didn’t???? It beggars belief.

    Now I hear Iceland has pulled its application to join, because it doesn’t want to be held to any conditions made by a previous government, and Frau Merkel is saying the EU can do without Greece, which may (or may not) be posturing on her part… I don’t think this whole house of cards is what anyone was thinking of when the idea of the EU was first mooted. And I still say I thought it was a damn fine idea! Schengen too! Especially Schengen. But now look at it. ::throws hands up in horror::

    I feel sorry for you guys in Europe. I fear it’s going to get a whole lot worse before it even begins to get better. And I don’t hold out much hope for the EU surviving, either.

    • Cora says:

      Ms. Merkel’s alleged remarks were more Der Spiegel desperately trying to regain lost readers and revenue than anything else. Der Spiegel has been posturing a lot of late, though mostly about Islam and/or Putin, a sad decline for what was once a proud news magazine.

      There actually is a range of permissible VAT rates between 15% at the low end and approx. 25% at the high end. In practice the VAT rate mostly around 20%. A lot of countries also have reduced rates on good deemed vital, mostly food and print books (but not e-books). In Germany, there are also reduced VAT rates on fresh flowers and dog food. I guess flowers are deemed really vital, as is dog food.

      In principle, I’m in favour of a greater harmonisation of VAT rates across the EU. In practice, I’m not in favour because at 19%, Germany has currently one of the lowest rates in the EU (only Luxembourg’s rate is even lower at 15%), so a harmonisation would almost certainly mean a VAT hike for us. If they’d settle on 20% for everybody (though our neighbours in Switzerland make do with 8% as their regular rate), I’d be okay with that. But in practice we’d probably end up with 23% to 25%, which would mean a massive price increase. I’m not a fan of VAT increases in general, because they disproportionately hit students, pensioners, the poor and the unemployed who don’t profit from the income tax reductions that often accompany VAT hikes.

      I don’t actually think the EU will fall apart anytime soon and I’m generally in favour of the EU, though it needs reform and a lot of good ideas have been badly implemented.

  4. Thank you for posting this. I believe that both sides of the story should be viewed (Look at what happened to Lendink), just to be clear on the full picture of things. Not everything is done for malicious intent. Maybe a change will be made when they learn what actually is effected.

    • Cora says:

      Yes, I suspect that the intentions behind the new VAT laws weren’t necessarily malicious. The governments merely wanted big companies like Amazon, Apple or Google to pay their fair share in taxes. Nonetheless, the law was extremely ill thought out and will have the side-effect of making things extremely difficult for small and micro-businesses. It remains to be seen how the EU officials will react once those side-effects become visible.

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