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Commerce: Support for B2B/B2C taxation of electronic goods

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It was discussed before, but I want to try to describe it again as simple and clear as possible, so we hopefully see some improvements for this. 

1. The situation

Since January 2015 new tax rules regarding electronic goods and services are in effect in the European Union. This covers forum subscriptions being sold on IPS-powered sites as well as sales from the Downloads app handled through Commerce. So basically the typical things people sell on IPS sites. Unlike all online shopping software vendors I know of, these new regulations were not addressed within the IPS software suite yet making it very hard or even impossible to sell these products and services as demanded by the law. While some European laws are indeed a pain in the a… because they differ in every country, the new tax regulations are actually not hard to implement and are identical for every EU country regarding their technical implementation. 

2. What needs to change in the backend

It is not enough to simply set one tax rate per country anymore. We need to base taxation on the status of each buyer:

  1. Consumer
    Buyer pays his/her country’s tax rate, because the tax rate for electronic goods & services is now different for each destination country for sales within the EU. This can already be handled through commerce if we would have a consumer-only shop. 
  2. Business user within the EU with valid VAT ID number or business user outside of the EU
    no tax. VAT IDs of buyer and seller as well as a note about the “reverse charge” procedure appear on invoice if the buyer is an EU business. 
  3. Business user with a failed VAT ID number
    purchase is put on hold until a valid ID is provided or the local business tax of the seller is applied

3. How does the checkout process needs to change

The checkout process needs an option to force a decision about whether the buyer is a consumer or a business. This can be done by offering a business name field or by offering radio buttons to really make a choice for one or another. If it’s a consumer or a business outside the EU (which will not have a EU VAT ID) the current procedure of taxation applies. If the system knows it’s a business user, a VAT ID number field is offered. If the user fills it out, it is then immediately checked against an online verification service. When the ID was verified automatically or manually through the store owner the tax can be removed (see 2.2).

That’s basically it. It might sound complicated to outsiders at first, but the logic of it is pretty clear and therefore easy to implement. It’s just needs the additional steps of establishing the user’s status as consumer or business and to check the VAT ID if it’s a business. 

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Has anybody managed to make this happen?  I'm hoping to start selling digital downloads but its going to be very difficult tracking this EU vat for each country isn't it? 

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12 minutes ago, kar3n2 said:

Has anybody managed to make this happen?  I'm hoping to start selling digital downloads …

If it’s to consumers only, Commerce can handle it. You just have to set up all the tax rates for all 28 EU countries. 

12 minutes ago, kar3n2 said:

but its going to be very difficult tracking this EU vat for each country isn't it? 

I’m doing it since early 2016. You register for the MOSS procedure and send in all the collected EU taxes every fiscal quarter. You need to check for yourself if the added bureaucracy is worth it for you. 

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3 minutes ago, opentype said:

If it’s to consumers only, Commerce can handle it. You just have to set up all the tax rates for all 28 EU countries. 

I’m doing it since early 2016. You register for the MOSS procedure and send in all the collected EU taxes every fiscal quarter. You need to check for yourself if the added bureaucracy is worth it for you. 

Oh right so as long as the buyer clicks his correct VAT rate that should work out fine then. :-)  I just have to make that decision re the MOSS as to whether its all going to be worth it I guess. Thanks

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7 minutes ago, opentype said:

They just enter their address. They don‘t have to pick tax rates. You set them up and assign them to the digital products.

Cool. As long as it picks it all up alls well   THANKS  

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One of the challenges for me is the inability to SPLIT the sales process.  For example... paid memberships is ONLY available for UK businesses and UK friends which means I at least have to reach the VAT threshold in UK before even charging VAT whether they are a business or not. At least that's how i think it works. However because its a digital service I may have to register for VAT straight away even though its only to UK..   UPDATE I rang them and as log as i don't sell cross border memberships then I don't register for VAT until at UK threshold.

 HOWEVER downloads can be purchased by anyone globally hence they need to have all the EU countries Vat rates in them. I could close the downloads and make them only available to UK members which rather limits the market and they would need to be logged into their UK member accounts to make a purchase.

I think my best bet is to limit the downloads to my UK members only which doesn't make it much of a good proposition for small indie musicians selling mp3 files.

Edited by kar3n2

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So here is a flow-chart, which might make it easier to understand.

http://ralf-herrmann.de/temp/ips/flowchart-eu-tax.pdf

 flowchart-eu-tax.thumb.png.3fc20e6914b0cd4ae6c170cf50d24a25.png

Essentially, what needs to change:

  • Option to have two tax sets per product (B2C and B2B), each with country-based tax-rates. The checkout process needs to clearly enforce one of the two options.
  • If it’s a B2C checkout, there needs to be an option for a VAT ID check and the result will decide whether a tax can be waived or not. 

The diagram just shows the logic of the taxation process, not necessarily how this should be implemented technically. There are probably many ways to do it and I am happy to help figuring out the best option for Commerce. 

 

Disclaimer: while I am confident, that chart is accurate, such an implementation should be discussed with EU lawyers of course. Don’t just take my word for it. 

Edited by opentype

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8 hours ago, opentype said:

So here is a flow-chart, which might make it easier to understand.

http://ralf-herrmann.de/temp/ips/flowchart-eu-tax.pdf

 flowchart-eu-tax.thumb.png.3fc20e6914b0cd4ae6c170cf50d24a25.png

Essentially, what needs to change:

  • Option to have two tax sets per product (B2C and B2B), each with country-based tax-rates. The checkout process needs to clearly enforce one of the two options.
  • If it’s a B2C checkout, there needs to be an option for a VAT ID check and the result will decide whether a tax can be waived or not. 

The diagram just shows the logic of the taxation process, not necessarily how this should be implemented technically. There are probably many ways to do it and I am happy to help figuring out the best option for Commerce. 

 

Disclaimer: while I am confident, that chart is accurate, such an implementation should be discussed with EU lawyers of course. Don’t just take my word for it. 

Nominating for flowchart of the year.  

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Giving this another push, since I heard from staff that this is still considered “low priority”. This is how Commerce is currently advertised:

1384627803_Bildschirmfoto2019-02-01um08_42_29.thumb.png.8be3268f1cc732e4024704b47e5af0ae.png

The “sell anything” claim would need a big red disclaimer “unless you wanna do business with people and businesses in the EU”, i.e. 500 million people and one of the biggest markets on the planet. 

The EU taxation rules changed in 2015. Every e-commerce solution I know reacted to this by implementing VAT ID checks by the end of 2014. It’s 2019 now and no sight of support in the Commerce app. 😞

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1 hour ago, The Old Man said:

@opentype clearly put a lot of time and effort into this. I don't know if it was addressed or not but disappointing the topic never received any official IPS replies.

Sometimes I feel like same, maybe "we spend a lot of time suggesting for nothing"....

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