[Safe for work] #VATMOSS and the adult industry

Important VATMOSS update
In December 2017 the European Commission approved a package of reforms to the VATMOSS system. Please visit the VATMOSS resource page for more information. The below post, which is now outdated, will remain here as an archive.

My party trivia claim to fame is that my second cousin became an adult superstar after finding notoriety in the tabloid scandal about a certain golf legend’s extracurricular activities. (There’s a DVD. Don’t Google it.) When the story broke, my reaction to the first time seeing her in 30 years was “Ha, she’s got the family cheekbones!” The whole world was staring at her hole and I was PSML at her cheekbones.

I have total respect for individuals who choose to work in consensual, safe, and legal roles in the adult industry, and am always happy when the occasional SFW chance appears to work with them on web law issues. Trust me, these aren’t daft wee lassies. Once the camera switches off they show their true selves: absolutely killer businesswomen. I’ve had more intelligent, focused, and serious commercial conversations with adult performers than I have had with many managing directors. I also have complete admiration for the web professionals who run the platforms and web sites which keep them in business. After all, they have to develop on a base level of bandwidth, uptime, age verification, data protection, and account security that would leave even advanced developers queasy with nerves.

And guess what? They’ve all been screwed over by #VATMOSS too.

This post is about cam girls. If you don’t know how the business model of cam girls works, read chapter 6 of “The Dark Net” by Jamie Bartlett. There is also a detailed academic study here. The important thing to understand is that cam girls pay a platform to do the tech work of video hosting and streaming, photo galleries, and payment processing. Their customers, in turn, also pay the platform to access their content. Basically, think of these platforms as being adult Rainmakers.

Where adult platforms often differ is that the cam girls have to name their prices every day, or bid, for high rankings and showcase sections on the platform web sites. The more prominent your spot in the showcase, the more traffic you are going to get, and the more money you will make. Furthermore, there are different kinds of content. Some kinds, such as photo galleries, are pre-made and available to any customer. Other kinds of content, such as activities during cam shows, are “made to order” for the buyer. Some platforms also offer a booking mechanism for off-site services such as text chats, as well as in-person services such as escorting.

So I know what you’re thinking now: that’s all a big VATMOSS issue. Of course that’s what you’re thinking. Get with the program.

I was contacted by an adult performer who was concerned about the VATMOSS fees her platform was charging. A quick look into the situation seemed to indicate yet another VATMESS.

“No no no no no. I said – high five the adult entertainers and knock over the tax collectors. Not the other way around.”

I’m not going to name the site in question because I am not singling them out. Like all businesses, they are only as good as the guidance they have been given, and if they are making these mistakes, so are many others.

Proof of supply data

Even after all the VATMESS we’ve waded through, it’s still surprising to see an adult web site asking customers to upload a utility bill or bank card statement showing their home address to provide correlating proof of location data for VATMOSS purposes.

CRTrxoTWwAANFlZThis is the sort of micromanagement characteristic of the VATMOSS “reform” which the EU VAT Action campaign has been fighting against. Platform operators have enough to do every day without having to run a scan of customer records that lack two pieces of data to correlate their place of supply location, and then hit those outliers up for a copy of their bank card statement. Given the Ashley Madison hack, an adult site is the last place you want to upload that. It’s also important to remember that these platforms will already have had to verify customers’ ages through any number of industry-wide methods, which may well have included an automated check of address or bank data. Verifying place of supply location adds a second process.

The site’s content creators (adult peformers) are also having to provide this data.

CRTsSnkWEAA1XJPYou can only imagine the e-commerce development processes that a Maltese company has had to implement in order to ensure that a German man watching a cam girl in Ireland involves all the proper VAT allocations between the three countries.

How is this a problem? According to the performer, the platform she uses apparently requires her customers to verify their place of location before they can make a webcam booking. As she says, “that doesn’t make any sense as they can still make other purchases on the site without being asked.” Rather than following up on missing data later on, this platform has gone a step further and made two pieces of correlating data mandatory to access the service. You know what that’s called? Geoblocking.

Bidding is everything

Having secured the place of supply data for both customers and performers, the platform then apparently adds the correct VAT rate on to the prices that customers see on the site. That is how VATMOSS is supposed to work on paper. The problem is that the performers have no way of seeing that price. The result is that “the customers see the prices that individual camgirls like myself have set as 20% higher. They don’t get a message to indicate it’s with added vat, we all just suddenly look more expensive.” This is important – remember that the girls all set their prices every day in competition with each other. They now have no idea what’s really being charged. This risks performers looking cheap or dear based on their national VAT rates, and creating a marketplace which favours low-tax countries. Funny, wasn’t fixing that problem the whole point of EUVAT?

Is a cam girl a business?

This gets into the issue of what constitutes a business. VATMOSS, after all, is about the sales of digital services from a business to a consumer. For us, the adult platform is a business, the cam girl is the consumer of that service. Likewise, the adult platform is a business, the customer is the consumer of that service. Or is it? What happens, EUVAT-wise, when a consumer of the platform puts on a cam show for another consumer of that platform?

The performer said “All of the providers on the site are self employed businesses with tax references from HMRC, which makes us B2B and therefore exempt from the VAT charged to us if we are in UK (or taken in by us under reverse charge). We don’t earn enough to be vat registered yet the site is insisting it can only accept a vat number as proof of business.”

Got that? The platform requires the girls to act as B2B, which would put them outside VATMOSS, but they are still being treated as consumers of the site’s services (B2C) and charged those taxes. The service itself – the cam shows, and other services – are C2C.

The platform has been charging the performers VATMOSS on their bidding fees as well as their admin fees:
“When we buy anything from the site such as featuring our profile for the day (previously £3) there is now 20% added onto that. When we cash out the credits we have made they have added 20% to the admin fee we pay (previously 30% so it’s now with an extra 6%).”

Because the girls are a lot smarter than the platform gave them credit for, the platform has turned around and admitted they should not be charging EU VAT on the admin fee.

Under the VATMOSS rules it’s the portal – the adult site – which is required to account for and remit the VATMOSS payments. Are adult performers working through other marketplaces being told they have to get VAT numbers, register for MOSS, and file zero returns regardless of that?

More to the point, why is EUVAT being charged at all?

The wrong VAT on the wrong services

Here’s where things get disturbing. The performer who contacted me felt very strongly that “what (camgirls) offer doesn’t seem to fit the description of digital goods as these are not automated services.”

She’s absolutely right, and HMRC have now confirmed this to her. VATMOSS applies to the automated delivery of on-demand video. That means, for example, the pre-recorded training videos a client has posted to his web site as part of an accreditation course. You pay to access the course and the videos on your own time. (Citation: Bird & Bird)

Here’s what BIL, the literal textbook of internet law, has to say about what constitutes a VATMOSS-eligible electronic service (page 12.5G)

Examples of electronic supply and whether or not they are digital services

Service E-service Electronically supplied? Covered by the new rules?
Stock photographs available for online download Yes Yes Yes
Live webinar No No No
Online course consisting of pre-recorded video and downloadable PDFs Yes Yes Yes
Online course consisting of pre-recorded video and downloadable PDFs plus live support from a tutor Yes No No
Individually commissioned content sent in digital form e.g. photographs, reports, medical results Yes No No
Link to online content or download sent by manual email Yes Yes Ye

I’m not trying to be funny here: there is nothing within that set of definitions which matches what cam girls do. Their videos are streamed live and cannot be downloaded or purchased later on. The activities they do in the videos are determined during the live streamed show by the customers who have paid to see it.

The definitions of VATMOSS-eligible activity also fail to apply to the to other services offered through adult platforms such as phone calls, text messaging, IM chat, and in-person escorting. For those services the site is little more than a booking platform. VATMOSS would only be due on the admin fees for use of the platform, not on the services themselves.

The only service the performer who contacted me engages in, which by this read would be eligible for VATMOSS, are the photo galleries she uploads which she does on her own time – in other words, photos which are not individually commissioned by customers or made as part of a cam show.

The question then becomes one about platforms: is it really any easier to implement a VATMOSS system for only one small part of a complicated e-commerce operation? Of course it isn’t. The marginal costs to your developers and legal team are the same regardless, as is the amount of work you have to do on your checkout process.

So how’s that for a VATMESS? International customers on a continental digital marketplace are not only being charged VAT incorrectly on a massive scale, but are being made to upload correlating personal data unnecessarily. Content providers have no idea what they are actually charging their customers, and their rankings by price order within their marketplaces may well be determined by their national VAT rates. VATMOSS is also causing adult performers to be redefined as both consumers and businesses simultaneously, and quite possibly, being charged incorrect VAT too.

This is, quite literally, a fucking mess.

And again, we have to remember what this reform was supposed to be about. Does anyone really believe that “creating a level playing field” for cross-border taxation through the VATMOSS system should be about evaluating individual moments of consensual adult activity by the definitions printed in a tax table in a textbook? On paper, the VATMOSS reform was supposed to be about managing the games multinationals play in tax havens. In practice, it’s about micromanaging the games consenting adults play in their bedrooms.

At this point I can only sympathise with both the performers and the platforms. None of them are responsible for this mess, and they are all doing the best they can despite conflicting government and legal advice spanning a continent. What I can say is this: platforms, you need better lawyers. Girls, you just keep on doing what you do. You’re amazing.