Tales from a Brussels bar
04/12/2016 Update. EU’s new VAT rules likely to make ebooks cheaper.
Glum faces lined the bar last night, though it was Friday. Even Costas was not his usual ebullient self. Apparently it had been snowing in Athens, so it wasn’t just the whole of the EU that had it in for the Greeks, but even God himself.
Costas spoke up at half-time as if he hadn’t noticed the match at all. “I don’t mind that our public services are being forced to become more efficient, or that we have to start paying tax on new houses even before the roof goes on – but it’s the little people, those just struggling to get by, who are suffering now.”
“How on earth are we ever going to pay back these loans?” he demanded. “The Greek economy is practically non-existent, no-one has any money to buy anything, and the banks that caused the whole problem have simply moved their money somewhere else. Everyone wants to stay in the euro, but other countries have to see reason!”
No-one cared to reply. Even Maj stayed silent. But then, I knew, he had invested a substantial sum into German government bonds, and was afraid of any financial upset that might endanger his savings.
Teavis the barman interrupted at that point as he served another round, “Personally I think Europe should just abolish VAT,” he said cheerfully. “If that happened then Greece would get a new start, lots of businesses would have less administration to do …. and my job would be a lot easier as well.”
We stared at him. Abolish a tax? When did any government agree to that? People buying goods and services without paying a tax on them? The idea was unimaginable. “I seem to remember that there was a time before value-added tax,” said Costas, “but I can’t quite remember when it was.”
“It must have been a long time ago,” put in Teavis, “if you abolished VAT now, then every country would have to close down a couple of ministries in order to balance the books.”
We cheered up at the thought. The idea of getting rid of some government ministers was appealing. “We could lose the Minister for Modern Slavery in the UK for example,” said Maj. “I didn’t know there was such a thing as modern slavery until they created a minister for it.”
We looked disbelievingly at him. “I’m serious!” he exclaimed. “They’ve just created one in Britain!”
“Well if governments feel they need to create a new minister,” said Costas, thoughtfully, “then I guess they have to have a new ministry to support him … or her. It sounds to me like the way we used to solve such problems in Greece, and look where we are now!”
I could see Maj itching to introduce his bugbear of the moment; he’d been charged twice by Amazon for a new TV, and wasn’t happy about it. Sure enough, he saw his chance. “Of course if certain super-companies ran conventional sales operations, rather than persuading small EU states to offer them special low-tax deals, then governments would have more money from taxation to play with.”
“I mean,” he continued, “look at the internet. You have this huge new market for online sales, and it’s dominated by a few companies such as Amazon, eBay and PayPal. Why? Because of their sheer size. Why do they base themselves in Luxembourg? Because they’re so big that they can persuade a small country’s government to give them a special tax deal.”
True enough, I thought, but all perfectly legal. Other European administrations could complain about predatory tax policies to that country’s government, but the prime minister had moved on. He was now head of the European Commission.
Maj was in full flow by now. “We forget just how important the internet market is. It’s not just about sales of TVs, it is the basis of a whole new sector in digital products – music, eBooks, software, designs, patterns and lots more. Some of them never become physical products at all – they stay in electronic form and never see the light of day. It wouldn’t surprise me if these digital sales, in the long term I mean, are the single biggest boost the European single market has ever had!”
That was a grand claim I thought. Even more than, say, German cars? I wasn’t so sure.
But at this point a neighbour, sitting with her friends at a nearby table, chimed in. “That’s all very fine,” she said. “but Europe isn’t doing very much to help small businesses in this giant market, is it?”
We looked at her questioningly. “Oh I know the EU institutions keep blathering on about the importance of small business to Europe,” she said, “but they don’t exactly encourage them, do they – especially when they introduce a new regulation that practically forces every business to register for VAT.”
“They haven’t,” said Maj, irritated by having his flow interrupted. “If you’re a small trader and you stay below the VAT threshold, you don’t have to register for VAT at all. That’s the case in Britain and in France, I know.”
“Ah, but it all changed this January,” responded our neighbour. “If you are selling digital products online, eBooks in my case, then you have to register each sale outside your own country with a new European database, a MOSS. And you have to do it quarterly – it’s the same amount of administration as if I was VAT-registered.”
We were all listening now. “A MOSS is a Mini One-Stop Shop – it’s the Commission’s idea of solving the impossible problem – how to reform VAT across Europe without killing small business through excessive administration.”
“And has it worked,” asked Costas.
“It’s a complete nonsense,” she replied. “I write eBooks, and I might make three pounds profit on one that I sell online. How much time do you think I’m going to spend doing extra online paperwork for that?”
For once even Maj was silenced. “So why is the Commission doing this?” Costas wanted to know.
“They want to change the basis of VAT, so that it is all paid in the country of the buyer rather than the seller,” replied our neighbour. “Apparently it’s recommended practice worldwide now, and endorsed by the OSCD.”
“Well if that’s true,” said Costas carefully, “then making life more difficult for small business is hardly going to help the European economy.”
“Welcome to my world!” replied our neighbour. “Sometimes I’m not sure whether I’m living in the real world or fantasy-land, especially when I come to Brussels!”
“Well,” said Maj, “what do you think the Commission should do?”
Clearly she’d been anticipating the question. “The only way this new regulation will work is if the Commission establishes a minimum turnover threshold, say 100,000 euros, before a small trader has to worry about registering cross-border digital sales. That way the regulation forces big companies to pay their proper share of tax – which I believe was the intention – without penalising little people like me.”
We stared at her, impressed despite ourselves by the suggestion. “Yes but,” said Maj, “that’s going to take a while. The Commission will have to consult Parliament, not to mention the EU governments via the Council. It’ll probably take about a year before they can make any change.”
“I’m sure you’re right,” replied our neighbour. “But in the meantime, as far as I’m concerned, the single market is dead. I’ve given up on cross-border sales – I’m concentrating on the domestic market, and I know others like me doing the same. There’s this new survey from some lobby group called EUVatAction, which has found that 35% of small traders are withdrawing from all export markets since this regulation came into force!”
Maj could think of nothing to say; the rest of us were equally stumped. This was a problem that needed further thought.
And the second half was starting up across the bar. Teavis wound the volume up as we turned towards the screen. It seems, I reflected as I picked up the new glass, that God is not only against the Greeks, he’s also on the side of the big battalions.
© Philip Hunt, 2015.