Digital platform Ghost leaves the EU thanks to #VATMOSS

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.

The blogging platform Ghost has announced that it is withdrawing from the UK and reincorporating in Singapore. Why? VATMOSS.

In the blog post announcing the move, co-founder John O’Nolan states:

For anyone not familiar with the implications: we had to rewrite our entire billing system twice, charge many of our customers more money, and submit to woefully complex and inadequate new accounting requirements. All of which had been put in place to stop multibillion-dollar corporations like Apple and Google from tax-avoidance in Europe. All of this was a constant, constant source of pain…
The current EU legislation around VATMOSS is completely untenable. We’re in the very fortunate position of being able to vote with our feet and change service provider to one who treats us better.

John spoke extensively to AccountingWeb about the burdens Ghost has faced.

His post makes a greater point. He notes that his digital business is, well, a very average digital business:

We’re a distributed company: we have no business premises, and our staff are all over the world; we’re an online company: thanks to the power of the internet, our customers are all over the world; we’re a non-profit organisation: we have no investors, and don’t need to optimise for their legal needs

The businesses which have been the worst affected by VATMOSS, like Ghost, are small, lightweight, agile, distributed, and operate on low margins. These are businesses built on laptops in coffeehouses, not skyscrapers in the City of London. The 14 months that these businesses have been living under the MOSS regime comprises the life cycle of a digital business itself. Ghost’s decision is not about tax evasion. Ghost is simply pivoting to a new iteration.

Nor do the numbers lie. According to the EU VAT Action campaign, HMRC has admitted that 78% of the VATMOSS returns being processed in the UK only bring in 1% of the total revenue they get from this scheme. HMRC have gone so far as to eject 3000 of those small digital businesses out of the MOSS system because their tax revenues are so tiny that they are essentially not worth processing. Yet the scariest number in this whole drama was the Campaign’s finding that only 1% of impacted businesses are even aware of the MOSS requirements. That 1% is fed up struggling under the burdens of a regulation designed to go after multinational corporations whose sweetheart tax deals were brokered by EU politicians in the first place.

The unfortunate truth is that relocating to Singapore does not get Ghost out of its VATMOSS obligations. They are still required to charge MOSS on intra-European purchases, and to select a country to register with as a non-union MOSS participant. Ghost’s legal team would also do well do study the recent judgement by the Court of Justice of the European Union in the matter of Webmind v Nemzeti. This ruling, made in December 2015, concerned a Hungarian adult platform which had reincorporated in Portugal for VATMOSS purposes. The court ruled that moving to another EU member state which has a different VAT rate cannot alone be considered evidence of an attempt to abuse the tax system. However, they did rule that

If an abusive practice is found which has resulted in the place of supply of services being fixed in a Member State other than the Member State where it would have been fixed in the absence of that abusive practice, the fact that value added tax has been paid in that other Member State in accordance with its legislation does not preclude an adjustment of that tax in the Member State in which the place where those services have actually been supplied is located.

In other words, if a company is found to have engaged in jurisdiction shopping for VATMOSS purposes, they may be liable for the amount of tax they would have paid in the original member state. Reincorporating outside of the EU, and then selecting a non-Union state for filing purposes, will require Ghost to make their case, and defend their choice, to tax authorities rather than their customer base. I am sure they will be happy to do so.

Ghost’s exit from the EU is a gesture. It is a grand and dramatic one, but it is a gesture all the same. Yet so was Andrus Ansip’s pledge to propose an EU-wide minimum VATMOSS registration threshold “as soon as possible.” That pledge was made on 19 May 2015 – nine months ago. “As soon as possible”, you see, means introducing an agenda item sometime in 2016 for implementation in fiscal year 2019-2020. Is Ghost’s gesture really any worse than that?

Digital businesses are struggling NOW. They need quick, transparent, accountable action. What they’ve gotten instead are press statements and campaign promises about things that might happen four years from now. Enough is enough.

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.