#VATMOSS: “Place of service” is not “place of supply”

Important VATMOSS update
On 1 December 2016 the European Commission announced a package of proposed reforms to the VATMOSS scheme. Please read this post for the latest updates, as some of the proposed changes may affect the situation described in the post below.

I have been kicking the tyres, so to speak, of Patreon – the US-based creative sponsorship platform – as a means of getting paid for my web law writing and research.

After all, I have university tuition to pay for, and it ain’t cheap. (Sugardaddies are welcome, though not in the Robert Redford sense. Seriously: donate here.)

Part of my interest in Patreon stems from a desire to have more time to get on with what I want to do – writing and research – and less time dealing with admin, back-end processes, and time sinkholes. I am happy to let a third party provider take a cut if it will free up my time and energy.

Like so many other self-employed people, my plans hit a serious roadblock in the form of #VATMOSS. My read of the 10 December update from HMRC confirmed my suspicion that using Patreon would put me into the VAT system. I would be providing my patrons with frequent and regular links to content which they would have paid for.

We then came to the Mexican standoff between HMRC and third party providers, a standoff which commenced when HMRC released updated guidance on the 29th of December, two days before the law went into effect (and you wonder why the web community is stressed off their nut). In this update, HMRC reaffirmed their position that third party providers are responsible for the VATMOSS system:

Digital portals, platforms, gateways and marketplaces

If you supply e-services to consumers through an internet portal, gateway or marketplace, you need to determine whether you are making the supply to the consumer or to the platform operator. If the platform operator identifies you as the seller but sets the general terms and conditions, or authorises payment, or handles delivery/download of the digital service, the platform is considered to be supplying the consumer. They are therefore responsible for accounting for the VAT payment that is charged to the consumer.

By my read that would make Patreon responsible for divvying up payments into the VATMOSS system; after all, they are setting the terms and conditions and authorising payment. For that matter they are already divvying up patrons’ money by taking their fair cut before passing the funds on to creators. In that sense it is hard to argue that they would not be responsible for cutting it up a bit more.

I wrote to them to enquire about their stance towards the #VATMOSS regime and received this in return:

Hey there!!

First of all – thank you so much for being patient with us as we investigated the new VATMOSS tax and how it would affect Patreon, our Creators, and Patrons.

After a deep and time intensive preliminary analysis from PriceWaterhouseCoopers (our accountants), we believe that the payments which Patreon makes to Creators will NOT be subject to VATMOSS (since the place-of-service would be deemed to be the United States).

So we hope that is helpful at least for now. We expect to receive final confirmation from PWC in February or March of 2015. We will definitely advise our Creators as soon as we receive PWC’s final opinion with respect to VATMOSS.

Again, we truly appreciate you bearing with us through this. Know that we are working as fast and as diligently as possible.

I could only reply by telling them that they have wasted their money on bad advice from PriceWaterhouseCoopers. (Ironically my undergraduate senior thesis was about the global political consequences of bad advice given to the International Monetary Fund by PriceWaterhouseCoopers. Apparently I’ve been preparing for VATMOSS since the a:/ drive era.)

In Europe we are working from the understanding that the place of supply (not the place of service – I worry that this was more than a typing error on Patreon’s part) is deemed to be the country of primary relevance, however that is determined by the required evidence, to the buyer. A Dutch developer supporting me in the UK, as a patron, would need to be charged Dutch VAT. In that transaction the US would only be the location of the third party intermediary. If the place of supply was the country where the intermediary is located, Amazon could keep on sending parcels from the warehouse 20 miles away with an invoice indicating supply from Luxembourg at the Lux VAT rate.

The place of service is not the place of supply. In e-commerce, it hasn’t been that way for a long time.

Regardless of how this plays out, it comes back to the main issue with #VATMOSS. There are so many of us – individuals, stealing whatever hours we can get on our laptops – who are having to make these cases and collect these facts on our own. It’s us against governments, us against payment providers, and us against tax authorities. I thought that by this point in January my new business idea would be in full flow. Instead I’m losing my marbles having to explain to third party providers how international law works. And here’s the thing:

Update 4 February: Patreon have confirmed they are not complying with VATMOSS.

About the author

Heather Burns is a digital law specialist in Glasgow, Scotland. She researches, writes, publishes, consults, and speaks extensively on internet laws and policies which affect the crafts of web design and development. She has been designing and developing web sites since 1997 and has been a professional web site designer since 2007. She holds a postgraduate certification in internet law and policy from the University of Strathclyde. Learn about hiring Heather to write, speak, or consult.

6 thoughts on “#VATMOSS: “Place of service” is not “place of supply”

  1. Question though:

    hrmc vat guide section 4.5
    “You supply services if you do something, other than supplying goods, for a consideration. A consideration is any form of payment in money or in kind, including anything which is itself a supply (see paragraph 7.2).”

    What service or goods do your donors actually receive in exchange for the consideration?
    If they get nothing, it’s possible that VAT is not liable?

    What happens if you don’t do anything after receiving the money, they can’t get a refund can they?

    It seems more like a grant or possibly even some type of self employment perhaps?

    Perhaps an expert on this (I am not one) could comment?

    • If they are receiving access to something digitally – a blog post, a piece of art, a podcast, etc – it’s no different than if they had paid for an item in a shop.

  2. (Sorry, I don’t mean to be spamming your site with excess comments)

    The question is whether they’re getting something after paying, which they wouldn’t be able to get without paying.

    If they only get something after they pay, then you obviously need to think about vat. but if you’re just asking for donations and they get nothing in return, no vat is apparently liable.

    (However I don’t claim to be an expert)

    • If you’re getting nothing in return it’s a donation, but there’s little chance you would be using Patreon for that.

      This is the problem with the life cycle of EU laws. EUVAT was thought up in 2008, when online digital content essentially meant Amazon and iTunes. For the most part, donation and crowdfunding platforms had not yet been devised. Yet the law took effect on 1/1/15 in rules draw up for the 2009 e-commerce world.

      Unfortunately I misplaced the keys to the Tardis, which means I can’t go back in time and advise the EU how to make the law comply with platforms that haven’t been invented yet.

  3. I see your point, if people will only donate if they get something in return (preferential access to articles for example) then it makes things difficult to fit within the sponsorship exemptions.

    I also agree absolutely about this being a complete mess, and I’m not in any way trying to defend the actions of the government or tax authorities.

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