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Sales Tax and VAT

Sales Tax and VAT

How does eSellerate collect VAT?

SUMMARY

eSellerate collects the European Union's Value Added Tax (VAT) on most purchases of electronically supplied goods and services when the purchaser is located in a participating EU member state.  The rate of VAT varies from country to country, based on the specific location of the customer.  VAT is applied to the order subtotal, after any coupons or other discounts have been applied.  eSellerate remits all VAT payments to the proper EU-based authorities.

FREQUENTLY ASKED QUESTIONS

As the directives for VAT as determined by the EU can be difficult to understand, we have put together the following short list of questions and answers on how eSellerate and its customers are affected:

When is the VAT applied?
What if I (as a publisher) am located in the EU and already registered for VAT as a business?
Do EU suppliers have to collect VAT as well or does this only apply to non-EU suppliers?
Is this applicable to other e-commerce providers and if so, are these other providers generally prepared?
Do these VAT directives apply to all goods sold via the Internet or other electronic means?
What is an "electronically supplied service"?
How will an end user (a customer for any given publisher) be charged and at what rate?
If end users have questions regarding VAT, regardles of the issues, who should they contact?
Why is a non-EU based company bound by EU directives and taxations laws?
How will eSellerate continue to monitor the legislative initiatives and regulations that may impact its business or that of its customers?
How does eSellerate's position on VAT directly benefit its customers and partners?

When is the VAT applied?
The value-added tax is applied to an order only when a customer who resides in a member state of the EU purchases electronically supplied services from a non-EU supplier, in our case through the eSellerate system.  back to top

What if I (as a publisher) am located in the EU and already registered for VAT as a business?
As eSellerate is located outside of the member states of the EU and is the reseller of digital goods, all sales through eSellerate are subject to VAT regardless of your current registration status with the EU.  back to top

Do EU suppliers have to collect VAT as well or does this only apply to non-EU suppliers?
Suppliers located in the EU have VAT obligations as well and have had for some time. The new EU directives apply to non-EU suppliers in an attempt to level the playing field between EU and non-EU suppliers of electronic services.  back to top

Is this applicable to other e-commerce providers and if so, are these other providers generally prepared?
This is applicable to all non-EU businesses selling electronically supplied service into the EU. While there are companies like eSellerate that are well prepared, there remains much confusion on these directives as well as complete ignorance on the existence of these directives or defiance that has and will continue to leave other providers, whether competitive or not, out of compliance and causing an enormous liability for themselves directly as well as for the customers in which they service.  back to top

Do these VAT directives apply to all goods sold via the Internet or other electronic means?
No. These are directed at electronically supplied services only.  back to top

What is an "electronically supplied service"?
Taken from the EU guidelines, an ‘electronically supplied service’ is one that:

  • in the first instance is delivered over the Internet or an electronic network (i.e. reliant on the Internet or similar network for its provision);

and then

  • the nature of the service in question is heavily dependent on information technology for its supply (i.e. the service is essentially automated, involving minimal human intervention and in the absence of information technology does not have viability).

Therefore, on the basis of this two step test, an "electronically supplied service" includes:

  • 'digitized products' generally, such as software and changes to or upgrades of software; or
  • 'a service' which provides, or supports a business or personal presence on an electronic network (e.g., web site or web page); or
  • 'a service automatically generated from a computer', via the Internet or an electronic network, in response to specific data input by the customer; or
  • 'services, other than those specifically mentioned which are automated and dependent on the Internet or an electronic network for their provision.'


In general, the use of the Internet or other electronic networks by parties to communicate with respect to transactions or to facilitate trading does not, any more than the use of a phone or fax, affect the normal VAT rules that apply.

For example, where parties simply use the Internet to convey information in the course of a business transaction (e.g. e-mail), this does not change the nature of that transaction. This differs from a supply that is completely dependent on the Internet in order to be carried out (e.g. searching and retrieving information from a database with no human intervention).  back to top

How will an end user (a customer for any given publisher) be charged and at what rate?
eSellerate will identify if an end user resides within an EU member state, if that customer is a business registered for VAT, a business not registered under VAT, or a consumer, and what the goods are that are being sold to the end user. This will be a seamless process for the end users and one in which EU customers are already familiar with. Once the variables are determined, eSellerate will calculate any applicable VAT, present that amount as an easily identifiable line item prior to checkout, and ultimately remit to the appropriate VAT Tax Authority. The applicable VAT rates vary between approx 15-25% (depending on the member state that the end user resides in) and will be reflected in all areas the customer needs to have this information presented (order and order confirmation pages, receipts, etc).  

If you would like to view applicable VAT rates for each EU member state, please visit the European Commission Taxation and Customs Union website at http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/rates/index_en.htm, for more information.  back to top

If end users have questions regarding VAT, regardles of the issues, who should they contact?
While we feel it is important you are well versed in the issues affecting your customers and are able to address these types of issues directly, any end users with VAT questions can contact eSellerate via our End User Support Portal at http://shopper.esellerate.net, in addition to contacting the publishers as provided.  back to top

Why is a non-EU based company bound by EU directives and taxations laws?
It is in our best interest and that of our customers as well as good business practice. As eSellerate transacts a significant amount of business outside of the U.S. and continues to offer more services for international developers, we will be a company that is well versed and prepared to appropriately support international business cases as warranted. We continue to look well outside of our physical borders for both opportunities and threats and will support those business opportunities as needed in a global market.

More specifically, eSellerate's position on VAT is that we have decided it is more than prudent to comply with these EU directives as it will:

  • potentially inhibit future activities eSellerate may wish to consider to include, but not limited to, offices or other expansion into EU member states, any merger and acquisition initiatives involving EU based businesses or opportunities, etc where the EU governing authorities could prohibit or cause unneeded difficulties in such activities.
  • eSellerate would also carry unwanted tax liabilities and be exposed to penalties unnecessarily.
  • Furthermore, we have been advised that trademark, IP, or other concerns may not be recognized from the EU for companies failing to support such applicable policies, laws and the like.  back to top

     

How will eSellerate continue to monitor the legislative initiatives and regulations that may impact its business or that of its customers?
We will continue to monitor progress of this legislation within the EU and other areas of the world, as well as continue to consult with our chosen tax experts and consultants, our US Government agencies involved with these efforts and initiatives, and other pertinent information to continue to make well-informed decisions. As the legislative landscape changes, we will continue to adapt and do what is best for our customers, our business and our employees and will continue to communicate those decisions and issues to our customers as appropriate or necessary.  back to top

How does eSellerate's position on VAT directly benefit its customers and partners?
As the reseller, the burden of the EU VAT directives fall on eSellerate and not the individual partners and customers we are privileged to service, therefore, reducing the amount of risk to each of our customers and partners with no separate actions to take as a result of the recent VAT directives. eSellerate is a company that fully intends to comply with the letter of the law, allowing you to be partnered with a company that is honest, respected, and protects our customers' rights and interests as appropriate.  back to top

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