"It is clear that the majority of EU-based publishers will be affected, whether directly or indirectly, by the new rules relating to charging VAT within the EU for digital products which came into effect yesterday. In the past, the UK publishing industry has been largely shielded from having to deal with the complexities of VAT, primarily because hard-copy books, journals and educational materials are zero-rated. However, with the explosion of digital content and the corresponding VAT implications, many UK publishers may well need to review their VAT position in any event as well as prepare for the increased complexities that have arrived.
Process issues you need to address as a priorityWith regard to the new rules, you will obviously first need to work out if you will be directly affected, and if so, how. The key factor here is to determine who actually makes the sale to the ultimate purchaser:
- Publishers and sales agents will first need to identify all sales channels for digital products.
- For each of these sales channels. you will need to confirm where the VAT liability arises, and whether there is any VAT due. For example with open access there may be no VAT liability in the first place if access is genuinely free of charge.
- You will need to establish the contractual position in relation to each sales channel, which may be different depending on whether you are selling through Amazon, a subscriptions agency or through your own website, for example.
Where ebooks are sold through an ebook vendor such as Amazon or journals are sold via a subscriptions agency, it is usually assumed that the ebook vendor or agency is acting in their own name on behalf of the publisher.
In practice, however, publishers and sales agents such as Amazon need to be aware of the terms of the contractual arrangement between the three parties potentially involved, namely publisher, distributor and consumer, and they will also need to be aware of the respective nature of the roles played by each of them.
So, as publishers, you will need to establish precisely what the contractual position is with your distributor/s, and should not assume anything. Furthermore, you should also consider who the consumer thinks they are purchasing from as this may override the contractual position in the eyes of the tax authorities.
In the same way, you shouldn't assume that the Mini One Stop Shop scheme (MOSS), the simplified mechanism for registering once and paying once rather than having to register and pay separately in each jurisdiction, is a one size fits all solution preferable in every situation.
On the face of it MOSS is the obvious choice, being an attractive alternative to registering in up to 28 Countries. However, there will be occasions where it might not be appropriate and separate registration would be preferable: for example, where a publisher also sells goods and other services or significant VAT is incurred in other countries.
But non-EU publishers currently operating under the VAT on E-Services (VoES) scheme introduced in 2003 will also be caught by the changes and will have to re-register under the non-Union VAT MOSS scheme from 1 January 2015 as VoES registrations will be cancelled with effect from 31 December 2014.
As a matter of priority, publishers should also be tackling relevant systems and procedure issues before the January 2015 changes take place, especially if they are not selling e-services solely through a platform such as Amazon. These include:
- establishing how you confirm purchasers' locations
- deciding whether you are going to charge a single retail price, for example for sales to customers in the Euro zone, or whether your retail prices should vary to take into account purchasers' locations. You will need to bear in mind that, if you opt for a single price method, it will be your responsibility to advise platforms such as Amazon what the net price and VAT amounts are for each jurisdiction.
- reviewing and even renegotiating sales contracts, where the parties involved wish to protect their own positions.
You will need to identify the implications of your choices and ensure that you have understood the full impact. For example, let's look at an illustration involving sales to Luxembourg, the UK and Hungary: if you decide to charge the same retail price in each country, the different VAT rates will mean that, although the consumer is paying the same amount, the net receipts will differ significantly. You may wish to take account of this variable outcome in your sales and royalty contracts."
The second post will cover the systems issues that you need to address as a priority.
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 firstname.lastname@example.org.
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. Read the Part 2 post here.