[bad_user]

"The change was made because EU wants to get more money from American companies"

That is not true - VAT is and has always been a tax for the buyer, not the seller. Of course, having VAT is awful for us - in my country it's an astronomical 24%. But that's besides the point.

[pja]

The point of the changes is to prevent large non-EU companies from going "VAT-shopping": like a certain well known advertising company claiming to sell all their services from a low VAT country when in fact all the business dealings are done in a tower block in the centre of London.

Now they have to charge whatever VAT rate each country within the EU thinks is appropriate for their citizens & there's no "race to the bottom" effect where Google, Apple, Amazon et al try to play different countries off against each other to get the lowest possible VAT rate.

The next stage is going to be tax changes to try and eliminate the profit shifting that all the non-EU companies do by setting up subsidiaries in different EU countries and "licensing" their IP to them at prices that just happen to match the profits made in that country.

Unfortunately, small online businesses are collateral damage in this particular fight.

[tormeh]

This. It was about time they got started.

[oh_sigh]

Does placing advertising on web property count as a digital good?

[jkulmala]

Yes, as said, they have pretty much covered everything.

You can find some more detailed information here: https://www.gov.uk/government/publications/revenue-and-custo...

[chris_va]

"VAT is and has always been a tax for the buyer, not the seller"

Does this distinction actually mean anything material?

Buyers start with all of the money, and it ends up split between the seller and the government. From the buyer's perspective, it doesn't really doesn't matter if this is an income tax on the seller, or a VAT tax on the transaction.

[humanrebar]

> it's an astronomical 24%

That's lower than the income tax rate for a middle class American. Why is this rate astronomical? Are there also high property and income taxes?

EDIT: It's an honest question. I know what a VAT is, but I have no frame of reference for how the overall tax scheme is especially egregious for the individual taxpayer. Some other tax rates (income, property, etc.) are surely relevant. A 24% VAT with absolutely no other taxes sounds nice, for example.

[nagrom]

You're comparing income tax with sales tax.

In the UK, on a salary of £40k (i.e. professional mid-career engineer), before you touch the money, the government takes about 25% for income tax and national insurance. Then, they take 20% of everything else that you spend unless it's non-luxurious foodstuffs, children's clothes or paper books. And, of course, if what you're buying is fuel, they actually take 85% of the price.

In addition, you'll pay approximately 2% of the purchase price of a house to the government, and you'll pay approx. one day a month in after-tax income to the local council as a property tax.

US has a 30% tax burden, UK has a 40% tax burden. France and Germany have >50% tax burdens. The last three have some form of nationalised healthcare though, which the US does not.

[fargolime]

> The last three have some form of nationalised healthcare though, which the US does not.

Plus a much better retirement plan. In the US you can wake up in a hospital after someone rear-ended you, to find you are bankrupt and going to become homeless, even when you had the best insurance. And unless the stock market returns 8% most people are going to have a rough retirement.

In the US you're lucky to get 3 weeks vacation a year. More than that, you need to quit your job. In EU countries it's generally 6 weeks by gov't mandate.

The greater taxes are probably a good deal.

[colechristensen]

Things which aren't true:

>In the US you can wake up in a hospital after someone rear-ended you, to find you are bankrupt and going to become homeless, even when you had the best insurance.

>unless the stock market returns 8% most people are going to have a rough retirement

Your health and car insurance covers exactly what it says it covers, and retirement plans aren't a mystery. In America you take personal responsibility for things which are done for you in Europe; you can make the wrong choices, but you're allowed to _make_ choices.

Vacation doesn't have much of anything to do with taxes.

[gmac]

Taking personal responsibility sounds all very well (leaving discussion of the impossibility of meaningful free will for another occasion), but private health insurance is a special kind of stupid. For example, some people are born with diseases or disabilities that we can say with certainty will cost millions in care over their lifetimes. Those people are obviously uninsurable. So health systems that don't leave people to die must involve an element of the collectivisation of risk.

[xrange]

>Those people are obviously uninsurable.

...if they were born to parents who had insurance they would have been covered.

>So health systems that don't leave people to die must involve an element of the collectivisation of risk.

...insurance is all about collectivisation of risk, is it not? You are paying in, hoping to never collect, and the money you pay in is used to cover those who did need it.

[colechristensen]

This is very explicitly incorrect.

In America as of 2014 you cannot be denied coverage, charged more, or denied treatment based on health status.

There is no longer an "uninsurable" American citizen.

[Wintamute]

Brit here. I like to take personal responsibility for choices like career path, holidays, hobbies, where to put down roots, whether to have a family, who to love, who to have sex with, how much to drink, what books to read, what religion to follow or not follow, what to have for dinner. As for how I subsist when I'm too old or sick to work, or when I wake up in hospital after an accident ... those sorts of choices I'm more than happy for the government to make, in general they do a great job all things considered.

[fargolime]

Your health insurance doesn't cover non-covered expenses.

That retirement plans aren't a mystery doesn't negate needing 8+% returns to comfortably retire.

[Spooky23]

Investment return is always a problem. Pension funds don't magically create money!

[bjt]

No country mandates 6 weeks. The highest is Austria with a total of 38 days between paid vacation and holidays. Most of Europe is around 30 days. See http://www.bostonglobe.com/business/2014/08/13/one-few-count.... Scroll about halfway down for a nice infographic.

[fargolime]

30 days / 5 weekdays per week = 6 weeks

[jmnicolas]

It depends : in France I have 32 days but a week is 6 days (don't ask me why) so I Have just a bit more than 5 weeks.

[bjt]

Doh. You're right. I did the math with 7 day weeks.

[b3n]

How does the tax rate influence the amount of time you may take off work?

[fargolime]

Not directly, but higher taxes tend to go hand-in-hand with the gov't ensuring a higher average standard of living.

[Retric]

The only important number is government spending as % of GDP. US ~38%, UK ~42%. However the UK has universal heathcare where US simply mandates health insurance making the effective tax burden lower in the UK.

In either case the US tax burden is close enough to EU levels not to make a significant difference.

[praptak]

> The only important number is government spending as % of GDP.

Globally. Still here might be cases where a particular group funds an unproportionally high part of the spending. And you might be the edge case where you earn the money in country A to save and retire on it in country B, so A's sales tax doesn't affect you this much.

[tartuffe78]

The US does have medicare and medicaid, which aren't universal but still are nationalized healthcare for a lot of people.

[maaku]

Nationalized health insurance, which is a little different.

[acveilleux]

I live in Quebec and technically I don't have nationalized healthcare but rather health insurance. It doesn't change the fact that I don have to pay anything out of pocket at any hospital I go to here.

An itemized and detailed claim will be made on my behalf to the insurance agency to get everything paid.

From a user pov it makes no difference how the system works.

[maaku]

Quite the contrary, the level of service can vary wildly in nationalized health care, where the state runs the hospitals. There are pluses and minuses -- you can get much better health care at a much cheaper price to the tax payer, but with all the problems you see in any government bureaucracy.

Nationalized insurance on the other hand is pretty much the system any American would be used to, except the government pays and you have long queues.

[icebraining]

Isn't that the case in Germany as well?

[biafra]

Health insurance is not payed with collected taxes in Germany. You are paying for it seperately.

[toomuchtodo]

> US has a 30% tax burden, UK has a 40% tax burden. France and Germany have >50% tax burdens. The last three have some form of nationalised healthcare though, which the US does not.

As a US citizen, I'm happy to have an increased tax burden for legislated vacation/holiday days and 20% of the population not having medical bills they can't pay for.

[fargolime]

It's more like 80% of the population, when considering expenses not covered by insurance. A hospital can charge you for anything and you're legally obligated to pay it.

[pc86]

> A hospital can charge you for anything and you're legally obligated to pay it.

Categorically, unequivocally wrong.

Hospitals cannot just make up charges. They cannot bill you for procedures/tests/services you did not receive (and if they do, you are not "legally obligated to pay it").

I know the anti-US healthcare circle jerk is pretty strong here, but we don't need to just make things up in order to prove a point.

[_delirium]

It's true that they can't just make up services, but they can do a pretty wide range of things and bill you for them, without giving you the price in advance. My dad was in the hospital once, and got something like 20 separate bills, for different services he had no idea he had received (and had no way to verify if he had even received). And my mom actually did get a half-dozen or so bills for services she definitely didn't receive. She went to the ER, checked in, but ended up leaving before getting any services whatsoever: after >1hr waiting in the ER's waiting room, she started calling around to see if she could be seen somewhere else, and left when she found a nearby urgent-care clinic that could see her. They still billed her for a "standard" ER work-up, including line items for a blood test and lab work! She had not had blood drawn, and clearly no lab work was done. Obviously she didn't pay that bill, though: if you really have good evidence that the service was not performed, you can challenge it.

[fargolime]

> Categorically, unequivocally wrong

Hyperbole much?

They can charge you for services / products rendered and which aren't covered by insurance, and they can charge any price they want and you're legally obligated to pay it. Of 3 times I helped my parents with processing their hospital bills, it was over $10K in non-covered expenses each time.

[rhino369]

The working poor get shafted in America, but the middle class gets a better deal. They hardly pay taxes, get employer paid health insurance and vacation.

[legulere]

Germany doesn't have nationalised healthcare. It's just mandatory for most of the population and the health maintenance organizations are extremely regulated (how much money they should take, in what cases they have to pay how much, ...)

[humanrebar]

> You're comparing income tax with sales tax.

For the purposes of personal budgeting, I don't see why the comparison is unfair. I'm trying to discuss taxation levels, not tax schemes as such.

> US has a 30% tax burden

That's more on point. That's also low. It doesn't include state and local income taxes. It also ignores other kinds of taxes like property and sales taxes. The U.S. has state-level taxes, which complicate things but they definitely affect the individual taxpayer.

[nagrom]

Your original comment was questioning why a 24% VAT is considered to be outstandingly high. It's the highest rate of VAT in the EU, and broadly speaking taxes in the EU are already higher than in nations of equivalent technological and economic development. So, it's not an unreasonable feeling that a 24% VAT rate is high.

That 30% tax burden for the US is from the same wikipedia page as the European tax burdens. I am assuming that the methodologies used to arrive at the figures are broadly comparable.

[pja]

That will be in addition to income and property taxes.

By way of example, UK taxes look like:

* ~40% income tax, first £10k untaxed.

* 20% VAT on most goods (food, books, children's clothes are untaxed, heating fuel is taxed at 5%)

* Annual property tax of around £1000 on the typical dwelling.

* 28% capital gains tax, first £10k untaxed in any 1 year. Dividends are effectively taxed as additional income.

In reality UK taxes are of course much, much more complicated than the rough outline above :)

[arethuza]

Worth noting that if you sell shares in your own company (e.g. your start-up is acquired) you probably won't pay 28% CGT as you will qualify for some kind of tax relief - I paid 10% CGT on the sale of our company ~12 years ago because of Taper Relief, this has apparently been replaced by Entrepreneurs' Relief:

https://www.gov.uk/entrepreneurs-relief/eligibility

[dghf]

> food, books, children's clothes are untaxed

Some food is untaxed. For example, cakes are untaxed but biscuits are taxed (or maybe it's the other way round). There was a court case to decide whether Jaffa Cakes were cakes or biscuits for the purposes of VAT: the court ultimately applied the principle that cakes were soft when fresh but hard when stale, while biscuits started off hard and then went soft; hence Jaffa Cakes were officially cakes.

[humanrebar]

This is exactly why the tax should be flat and other programs should counteract regressive effects. Well, it's one of the reasons.

[TimSAstro]

Minor correction on income tax: 0-10K: Untaxed, 10-40K: 20%, 40K+: 40%,

[pja]

No, because I'm including National Insurance (both employers and employees) under income taxes. Employers NI is 14% of headline salary, so the effective tax rate for high earners is more like 50% than 40%. Meanwhile middle income people pay 12% NI on top of their income tax and 14% employers national insurance so the real rate of tax on the cost to their employer is about 40%.

Go do the sums & you'll see. Like I said, the reality is much more complicated, but the figures I gave are roughly in the right ballpark.

[Nitramp]

That's the VAT tax, comparable to the sales tax in the US, so this compares as 24% vs ~6% or so in most of the US. Income tax is separate from that, and depends on country to, but seems to work out to quite similar percentages, at least between Germany and the US.

[dllthomas]

http://en.wikipedia.org/wiki/Value-added_tax#Comparison_with...

VAT taxes sale, but it's not the same as a "sales tax". The rates don't mean the same thing, and it doesn't make sense to compare them directly without taking that into consideration.

[moonchrome]

>Are there also high property and income taxes?

Yes - this is on top of (high) income tax/capital gains tax, etc.

[humanrebar]

Good to know. Since I don't know what country you're talking about, can you give me some percentages to help me understand better?

[mcguire]

"[24% is] lower than the income tax rate for a middle class American."

Do you have a source for that?

(I ask because I'm definitely upper middle class or possibly lower upper class and I'm only paying ~25% (and I'm in no way tax efficient). Everything I've seen puts the middle class income tax rate below 15%.)

[pc86]

Not the person you're replying to, but maybe these numbers will help:

- The median household income for 2013 was just under $52,000 [1] - For that same year, the marginal tax rate for a single person making that income was 25% [2] - If the household is married that drops to 15%.

Most Americans on HN are very likely upper-middle class in income, since that generally means $62,500+ in personal income and a six-figure household income [3]

I think these income stats are incredibly interesting. I never would have considered my wife and I to be upper-middle class either in wealth or income, but according to every set of figures I can find we're pretty solidly in the top 5-8% range nationally. It can be misleading what "middle," "upper middle," and "upper" really mean if you're strictly speaking about gross income.

[1] https://en.wikipedia.org/wiki/Household_income_in_the_United... [2] https://en.wikipedia.org/wiki/Income_tax_in_the_United_State... [3] https://en.wikipedia.org/wiki/Upper_middle_class#Income

[humanrebar]

There's a ~15% payroll tax (income tax by another name) for social security and medicare. The bulk of the median household's remaining income will be taxed at 15%. There's some fudging for deductions, I suppose, but that's also leaving out state and local income taxes.

The point was that a 24% VAT doesn't mean much to me when other major taxes are left unmentioned. It actually sounds like a great deal if income and property taxes are only nominal.

EDIT: You're likely neglecting to include both halves of your payroll taxes.

[aragot]

VAT varies from 10% to 25% in most countries of the world [1]. There is an income tax in _addition_ to it. I've calculated a total of net income/turnover rate as low as 34% in my country (France), albeit including all mandatory spending and not only taxes, and the detail is in my blog post [2].

[1] http://en.m.wikipedia.org/wiki/Value-added_tax

[2] http://adrien-ragot.me/why-i-say-70-percent-tax-in-france/

[smackfu]

So Finland is one country that has 24% VAT (most are lower.) They have very low property taxes but very high income taxes (up to 30% federal + 20% local.)

[Sharlin]

You can't compare VAT to income tax, they are very different beasts. And yes, although I can't speak for the GP, in Finland (and other Nordic countries) other taxes are high as well. Not that I'm necessarily complaining, although VAT as a concept certainly has its problems.

[humanrebar]

For the purposes of comparing the effects on the individual taxpayers, it seems fair to me. Structural differences aside, a 24% VAT sounds great if there are no other taxes and there is some deduction or subsidy to counteract its regressive effects.

[pietro]

All taxes are astronomical in most of the EU, but with national differences.

In Denmark, in addition to a 25% VAT, there's an 8% payroll tax and a 40%-56% income tax, property taxes, huge environmental taxes, etc.

[Kiro]

> Are there also high property and income taxes?

Isn't that usually the case? High VAT, high income taxes.

[TheCoelacanth]

VAT is essentially a sales tax. Sales taxes in the US are usually 5-10%.

[goodJobWalrus]

because it's much bigger than sales tax in any of the us states?

[smackfu]

True, it should say: "EU wants to get more money from transaction for American companies."

[lultimouomo]

I would say it's something different yet:

EU wants to hinder rascal states that make money at the expense of the rest of the union taking advantage of their small size: they won't be able to collect VAT for business made in the whole EU just because they offer a lower rate. (I mention the size because the deal is convenient for the state only if its economy would be otherwise very small).

It does not matter if the company is American or European, I could have made a Luxembourg subsidiary of an Italian company and paid Luxembourg VAT rates.

Of course, this is a very stupid way of doing it: it works only for VAT, while the countries can still be fiscal havens for any other tax, and moreover it makes life hell for small B2C business.

The proper way would just agree on a uniform tax policy. Never going to happen.

[danmaz74]

I agree that the proper way would be unification, but that's impossible - the UK would be the first one to say no.

They should "just" add a size limit or at least make it much simpler for companies to comply with the law.

[cstross]

Hitherto, the UK has had a threshold for mandatory VAT registration: if your VAT-able turnover (sales within the EU) exceed the threshold, you must file a VAT-1 and register, but if your VAT-able sales are below the threshold (e.g. you do B2B sales to customers outside the EU -- which aren't VAT-able -- or your turnover is just plain low) you aren't required to register. As of the current time, the threshold is £81,000 per annum turnover: arguably, if you're turning over that much, you can bloody well afford the bookkeeping costs.

Unfortunately not all EU countries have a lower threshold and the new arrangements have a lower threshold for mandatory VAT registration of any amount -- a single €0.99 sale in Estonia and whoops, you need to be registered to collect and pay VAT in Estonia or via your own tax authority's One Stop Shop.

If the £81,000 threshold applied to the new arrangement, nobody would be shouting. But as it is, this will kill a huge number of spare bedroom businesses and start-ups.

[teamonkey]

In the UK at least it's not difficult or expensive to register for VAT, but it is yet another barrier. Bear in mind that registering a company is trivial in the UK compared to some other countries.

I registered my small business for VAT voluntarily when I was bringing in much less than 81k since I found that larger companies wouldn't deal with me if I wasn't VAT registered. Since I already had an accountant and used software for my bookkeeping the effort and increase in costs was negligible.

What is difficult is charging a different VAT rate for every non-VAT registered individual in every country you sell to.

[boracay]

"a single €0.99 sale in Estonia"

Would of course be done through a service. Maybe it's time for these "innovative" payment processor to actually be innovative and provide this service.

"£81,000 threshold applied to the new arrangement"

It can't apply to the new arrangement since you are now paying taxes in the customers country.

It seems that you would just either do your local sales as before and your international sales through a service or start two companies. That why you should be able to keep your threshold for domestic business. (Don't quote me on this though since I'm not in the UK)

[smackfu]

It is definitely a lot harder to use this kind of tax avoidance if you are a European company.

[jkulmala]

Thanks for the correction, I updated the blog post.

[mrb]

jkulmala, the other part of your claim is wrong: "The change was made [...] to force them to move more operations to EU to get VAT reductions". After Jan 1, 2015, there will be zero VAT-related incentive to move to the EU, because any company (EU or non-EU) will get the same VAT reductions: the VAT in the customer's country.

Edit: yes, I meant VAT "reductions" not "payments". My point holds though: there won't be any more VAT incentives to move.

[jkulmala]

It's not what they pay, it's what they get to reduce. If you purchase supplies etc. you get to reduce the VAT you've paid.

So if you have $0 VAT from EU purchases, but $40 VAT from sales, you pay $40. But if you paid $40 VAT from EU purchases, and have $40 VAT from sales, you pay out $0.