Patreon to Europe on #VATMOSS: “Not our problem, mate.”

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.

Update 12 March: Patreon has caved in and agreed to comply with VATMOSS.

Last month I wrote about Patreon’s rather creative interpretation of the VATMOSS rules. At the time, I replied to their email with a far clearer and more accurate explanation of how VATMOSS works than they had apparently received from their clueless consultants at PriceWaterhouseCoopers.

Sadly, Patreon have now confirmed that they will not be fulfilling their obligations as a third party provider. (Note: Patreon’s taxes page has gone offline – what a coincidence – but here’s what it said.) People who use Patreon as creators to share digital output within the EU will be personally responsible for calculating and processing VATMOSS taxes for each and every patron.

On the surface this would suggest that Patreon is effectively off limits for digital creators within Europe. Those who choose to use it will have to personally query each European patron for their tax status, VAT number, IP address, and/or any of the information required to substantiate the proof of supply. They will be responsible for issuing their own tax invoices to their patrons. They will have to supply the invoice and proof of supply data with their VATMOSS return. They will also, of course, have to store this information in a secure format on an EU-based and data protection compliant server for ten years.

Those rules will be difficult for creators using Patreon on a monthly subscription basis. For the creators who use the system on a per-creation basis – say, their patrons commit to making a payment per podcast or blog post – they will have to do all of that, and divvy up all of those tax payments, for all of those people, several times a month.

Remember that we are not talking about high flying international finance here. We are talking about pennies. Most creators start their Patreon subscriptions from $5 USD a month. Convert $5 into pounds or Euros (£3.29 and €4.58 as of today, respectively) and then shave off your country’s digital VAT amount. Say, France’s 5.5% digital rate. That’s what, about 25 Euro cents due in VAT thanks to your Gallic patron.

The time that creators will have to spend micromanaging the finance and admin of those 25 Euro cents ad nauseam is time that creators will not be spending…you know…creating. The thing is, they should not have to be doing that at all. But they will have to because their third party provider has creatively interpreted the rules to pass the responsibility on to them. As Frank Sinatra sang, “put your dreams away.”

Aside from the hideous administrative burden Patreon has now forced onto their European users (who in all likelihood will abandon the service altogether), this is important news for another reason. We have all seen European-based platforms and sellers opting to curb sales or shut them down altogether in response to the administrative burdens created by VATMOSS. We have also seen small-scale retailers outside of Europe threatening to close off sales to EU customers.

Patreon is, to the best of of my knowledge, the first major platform provider outside the EU to use VATMOSS as leverage to call time on Europe. They have not barred European creators and patrons from using the service, of course; they don’t have to. By stating that they have no responsibility for complying with or enforcing European law, they pass the full burden on to those directly affected by it. It’s a bold and necessary move, and one which may raise eyebrows at the EU. Those eyebrows frankly need to be raised. But as with everything in VATMOSS, this geopolitical chess game takes out the pawns first.

This, then, is the grim reality of the EU’s “level playing field”.

Update 6 February: PriceWaterhouseCoopers, the accountancy firm who gave Patreon the incorrect interpretation of the VATMOSS rules which caused them to declare noncompliance, has been accused of “promoting tax avoidance on an industrial scale” by Parliament. You don’t say…

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.

17 thoughts on “Patreon to Europe on #VATMOSS: “Not our problem, mate.”

  1. Thanks, Craig. My head hurts trying to make heads or tails of that thread, much less the laws underlying it.

    I’ve realised that in my post I forgot to subtract Patreon’s fair cut from that $5 USD starting point. When you take that out and start your VAT calculations from what remains, the VAT amounts due for European patrons become even lower. The micromanagement and administrative burdens remain the same.

  2. A couple more quick thoughts on this.

    1. Patreon’s misunderstanding of VATMOSS, via PriceWaterhouseCoopers, is so bad that they don’t understand that their US and non-EU creators would still have to report VAT on pledges made by European patrons.
    2. They are essentially picking and choosing which tax laws they get to comply with…
    3. Which is why they hired PWC, a firm that specialises in “creative” tax strategies, in the first place.
    4. The fact that Patreon uses the nomenclature of “donations” does not change the fact that the money is income. You can call the money you earn from Patreon a payment, a donation, or Larry. You still have to account for it on your taxes as earned income. Gabbi said as much in the tweet I cited above.
    5. The only way Patreon can continue in its current stance is by shutting off the service to EU based creators and patrons,
    6. And for their own safety, EU based creators and patrons need to stay well clear.

  3. Ugh. While I agree what Patreon is doing in this case is just abdicating responsibility, they are in a much better position to do something. Same with PayPal and Amazon Payments. All they need to do is get the postal code and IP address at pledge time, and apply/notify what tax rules apply.

    In some cases it may be better for creators using Patreon to just completely ignore the EU tax directives until some physical merchandise is promised. Maybe even have Patreon notify the creator and pledge to manually approve EU pledges once VATMOSS compliance… hence most US creators will just decline EU pledges without help.

    This falls afoul of a similar problem between the US and Canada, and inter-state/inter-province taxes. Some places do not have sales taxes and some places have sales taxes on very specific things (my favorite “what is even the hell” tax is California which taxes based on the pre-discount prices of merchandise.) Expecting everyone to know every tax jurisdiction’s tax policies is something that only multi-national companies can even do.

    Governments can only expect users of digital services to only comply with taxes in the location of the seller, because that’s the only laws that actually affect their ability to sell. Perhaps it’s time to flip things around and push Value-added/Sales taxes to the payment processor itself.

    • Hi Kisai

      That’s where this gets even worse. The VAT rollout on digital products, which began 1/1/15, is the first phase of the place of supply reforms. The rollout to physical products begins 1/1/16.

      This hell has only just started.

      As for the other thing – and I am being a broken record here, but it has to be said again – the US’s conduct with its own global tax law, FATCA, has been outrageously hypocritical. Every country in the world has been compelled to alter their systems to comply with US extraterritorial tax law, like it or not. Yet when asked to comply with other countries’ tax laws, Americans cry foul. They can dish it out, but they can’t take it.

  4. I can understand why Patreon doesn’t want to do this, it would cost them millions to comply with the EU’s bizarre and anti-small business tax law. This isn’t Patreon’s fault, this is the fault of your leaders in Brussels who came up with this law. As an author, I have to deal with this too, and to be honest, it has made me consider not selling to most EU countries, because even with a third party handling the paperwork, the pricing issues for me are insane. If I had to deal with it directly I would just stop dealing with most (if not all) of the EU countries.

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