Since January 1, 2015, some legal regulations have undergone fundamental changes, which have an impact on the e-commerce industry. Operators of online shops offering digital products such as eBooks, films and applications have to adjust their prices and invoices and comply with new regulations regarding sales tax. The regulations have led to enormous changes in accounting, price indication and VAT calculation. Small businesses and internationally active dealers in digital content are particularly affected by the regulations.
Value added tax for digital contents
Since 1 January 2015, various legal regulations have changed. These concern the levying of sales tax for digital products. Operators of online shops must be prepared to adjust their invoices and prices accordingly. Digital content such as eBooks, applications and films must now be subject to VAT. The legal regulations only affect online shops and companies that sell digital content to consumers, i.e. private customers. Digital content sold to companies is not covered by the new regulations. Online shops that merely ship goods but do not sell digital content also do not have to worry from a tax law perspective. The scope of the regulations is limited to "electronically provided services". According to EU law, "electronically provided services" are those services that are provided via a data network, but only with minimal human involvement. Typical examples of digital marketers are web hosters, streaming services, online databases, film and music portals, and sellers of eBooks and digital photos. Online sales platforms are also covered by the scope. Excluded are services that are mediated via the Internet. Persons who use the Internet merely as a "transmission medium" for their services do not fall within the scope of the new regulations.
The fundamental changes
The new regulations on turnover and value added tax apply to the entire European Union. All dealers within the EU must pay the sales tax to the country from which the customer in question comes. For example, VAT must be paid to Italy if the customer lives there but has purchased his products in Germany. The same of course applies in the opposite case. Many online shops or consumers do not know the difference between VAT and sales tax. No wonder: there is none. Both terms refer to the same tax. Colloquially, the same thing is always meant. From a legal point of view, the term "sales tax" is more appropriate, as the law is called "Umsatzsteuergesetz". At the EU level, the term "VAT" is more appropriate, since within the EU the "VAT System Directive" exists, which forms the basis for the German VAT law. As a result of the legal changes, distributors of digital content must deal with the tax regulations of national states within the EU. In practice, the tax law changes can be implemented quite easily. For the advance return for sales tax, online traders can fill out a form at the tax office. This form forwards the advance return for tax on sales/purchases directly to the responsible tax offices in the member states. The interesting aspect is that the online trader only pays the sales tax to the tax office in Germany. However, he or she must specify the tax rate applicable to him or her in other EU countries. Clever online traders should find out exactly what the requirements of the respective countries are. The national law of the respective member states can offer considerable tax concessions.
Special features of the new regulations
Digital content distributors should take a close look at the new rules. There are some specifics: In the event of non-payment or incorrect payment of VAT, considerable penalties may have to be expected. From a theoretical point of view, it is possible that online traders of digital content may be subject to a reporting obligation in several EU Member States. In the event of any incorrect, non-payment or late reporting, the provisions of national tax law will apply. In many countries, much stricter penalties apply. Under certain circumstances, online traders may behave incorrectly due to a lack of information, which can lead to heavy fines. By means of so-called administrative assistance, the defaulting taxes that are incurred in EU countries can be collected via the German authorities. The new tax regulations for small businesses have a special significance. These do not have to pay sales tax within Germany as long as they do not generate more than 17,500 euros. However, the small business regulation only applies within Germany and not to the entire European Union. This was decided by the European Court of Justice in a landmark ruling. As a result, some small businesses no longer distribute their digital content abroad. Otherwise they would have to pay VAT and resort to a complex procedure for paying VAT. From 1 January 2015, operators of portals or app stores must register and pay VAT on all sales to consumers. This does not prevent them from acting purely as intermediaries. Therefore, all contracts, invoices and portal designs must be selected extremely carefully. Portal operators who broker digital content originating from third countries should therefore obtain precise information.
Price quotations on Internet presences
The new tax regulations entail many changes. Since sales tax is calculated differently in the EU member states, the relevant website the national tax rates must be indicated. Within the EU, it is mandatory to indicate the prices for end consumers including VAT. A separate listing of price and VAT is not permitted. In particular, statements such as "price plus VAT" are prohibited and may result in warnings or penalties. Therefore, the final prices must always be adapted to buyers from the relevant EU member states. The dynamic display of the respective VAT rates is a problem that needs to be solved. Ideally, the Internet presence should be individually adapted by programmers. Problematic is the fact that language settings or IP addresses cannot reliably indicate from which state a customer originates. It would be possible to indicate a uniform price that includes sales tax. However, due to the different tax rates of the national states, this would lead to different profits - depending on the state. Much more complex is the training of the accounting department. The latter must include the different sales tax rates in their calculations, which leads to an increased workload. Of course, the taxes must be correctly presented and paid in any case. Some states, such as Italy, require consumers' invoices to be accompanied by a private tax number when calculating VAT. The new legal regulations have caused displeasure among many shop operators. The seemingly minor changes extremely affect small business owners and digital content retailers on an international level and pose multiple challenges to their IT structures. Workload and Costs are so high that smaller shop operators have decided to limit their business activities. This was done against the background that possible penalties are to be avoided by incorrectly realised settlements.
