New Year, New EU VAT Regulation Change Part 2: systems issues to consider

On Thursday 1 January 2015 new EU VAT regulations came into force on sales of digital content to consumers in Europe with far reaching implications for publishers. Ian Singer from PKF Littlejohn LLP concludes this two part guest post with urgent priority actions related to systems issues you need to address. (Read Part 1 here).

"The first thing to do is to make absolutely sure you have identified all the relevant systems.  You may think it’s obvious but you may be surprised when you think it all through quite how far-reaching the required changes may be.

You will almost certainly have your own website which may or may not provide an ecommerce facility.  However, your products are likely to be sold via third-party websites and you need to be absolutely clear on both the contractual position and the presentation to the consumer in these situations to ensure you are not liable for the VAT processing.  The VAT authorities have stated that it is the responsibility of the “platform” to report and pay the VAT but there appears to be some confusion over what constitutes a “platform” in these circumstances and whether the “platform” or the publisher is actually the vendor to the consumer.

Your sales invoicing systems are obviously going to be affected and, even if you have outsourced your order processing and stock control, you will probably be continuing to undertake at least some invoicing in-house – bulk deals, contract publishing, rights sales and so on.

Your accounting systems are vital in addressing the EU VAT changes as they are going to be the final repository of your VAT position and will probably be the mechanism used to control payment to the tax authorities.  You should review without delay whether they will be able to meet the demands of the new EU VAT regime.

Your production and bibliographic data systems tend to be your central repository of product information and are also the mechanism you probably use to disseminate information about your products to the outside world - aggregators, websites, Amazon and the like.  These obviously need to be capable of capturing and distributing the additional information you may need to meet the requirements of the new EU VAT regime.

Once you have identified those systems that are likely to be affected, you will need to specify the changes you need to make.  Here is a summary checklist:

1. The first and most obvious one is the calculation of the appropriate VAT amount. To do this, your system will need to be able to recognise where the purchaser is located and what rate of VAT to apply.
2. Secondly, and equally importantly, your VAT calculation mechanism needs to provide the relevant VAT reporting.  This may go beyond the level of detail you are currently producing.
3. Thirdly, your systems need to offer highly flexible facilities to both calculate and store the necessary retail and other prices for each relevant jurisdiction particularly in order to deal with variable VAT rates in the Eurozone.
4. A key area to review may also be the transfer of information between different systems whether that’s between you and, for example, Neilsen or Amazon, your bibliographic data system and yours or someone else’s website, all your sales systems and your accounting system and so on.
5. You should also review the reconciliation and auditing facilities built-in to your systems and processes and implement/improve these where necessary.  (This may not be something that currently exists at all in, for example, your ecommerce systems.)
6. And last, though by no means least, you need to factor in the difficulties you may face with any required software development.  You obviously need to make the software changes in advance of the drop-dead deadline of 1 January 2015 but you cannot implement the changes until that date in your live system.  However, in the meantime you may need to make other changes to your systems and you will either need to develop two systems in parallel or try and develop the VAT changes in such a way that they can be slotted in at the last moment.

In summary

So, in summary, the first thing to do is identify the operational areas and IT systems likely to be affected by this change and establish your contractual positions.  Secondly, you should take appropriate professional advice - there is no substitute for this.  Thirdly, you need to be engaging already with your software development partners on what’s involved.  Once you’ve taken these initial actions, you should then be in a position to put together and implement your EU VAT action plan."

This article has been prepared for the ALPSP by PKF Littlejohn LLP, the developers of AVATAR, the publishing management software system for book and journal publishers.  It has been prepared as a general guide.  No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher.  For specific advice please contact PKF Littlejohn LLP’s tax department at tax@pkf-littlejohn.com.

PKF Littlejohn is a member of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member or correspondent firm or firms.

Further information is available on the European Union website and HMRC website in the UK.