“The Netflix Tax” fiasco

On the 1st of January 2015, some new legislation came into effect mandating that businesses selling digital goods or services to EU consumers must charge VAT at the consumer’s local rate and pay it forward to the consumer’s local tax authority.

For example, as a US or Spanish business I would have to charge a consumer in the UK 20% VAT, and pay this VAT to HMRC, the UK’s tax authority.

To remain compliant, businesses must collect non-contradictory evidence of the consumers location, display prices with the correct rate of VAT for that consumer, and issue invoices in the correct format.

The EU are not the only ones with legislation like this, Australia's “Netflix Tax” is grabbing headlines, and other countries are following suit.

First of all, how are these tax authorities planning on enforcing these rules on foreign businesses, especially those without a presence in the country? Within the EU its different, as there are ways for member states to raise complaints, but how might HMRC go about forcing US businesses to become VAT compliant?

In today’s super-connected world, it is not like I can switch off my website or online store to entire countries just so I can become VAT compliant. The internet doesn’t work like that.

This whole fiasco is only going to get more complicated as more countries mandate VAT on digital goods and services. Aside from the technical cost of this particular legislation, there are user privacy implications and accountancy requirements that a startup just getting off the ground shouldn't really be having to think about.

I don’t think I am particular against countries imposing VAT on digital goods and services, but by no means is it going to be easy for online businesses to keep up with new legislation, changing VAT rates, and the submission of many several VAT returns each year to countries they don’t even have presence in.

How is your business dealing with this, if at all? Is it a priority, and if not why not? Is there a technical barrier to becoming compliant, and if there were a simple solution would you use it and what might it look like?