New EU proposals on #ecommerce and #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.

Last week the EU taxation and digital single market bods announced a new raft of policies on all things e-commerce. These are over and in addition to the announcements already made about the forthcoming VATMOSS threshold.

Contrary to some strangely inaccurate reporting, the announcements were not all rubbish. They were, as are all EU proposals, complicated and interconnected, and require an understanding of what policies and issues have preceded them. So rather than choking out a kneejerk “EU bad!” response, why don’t we take a few minutes to read and understand them. Radical thought, I know.

VATMOSS and geoblocking

For web development purposes, the most important announcement was that geoblocking for VATMOSS purposes has been acknowledged and approved.

Geoblocking – the practice of blocking access to e-commerce based on the visitor’s country of access – has been in the EC’s sights for a while now. That said, they tended to think of “geoblocking” in terms of middle-class issues like not being able to download the latest episode of your favourite show while on holiday. In the real world, geoblocking was being used as as a defensive e-commerce tactic by traders taking desperate action to protect themselves from the worst implications of MOSS compliance. Thanks to the work of the EU VAT Action campaign, the EC now understands exactly why MOSS-affected traders are engaging in geoblocking as a survival strategy.

Small businesses and microbusinesses have been deploying geoblocking to get out of VATMOSS obligations since day one. That has always been allowed. An “objective criteria” exemption has always existed wherein a business which is engaging in geoblocking for a specific and justifiable reason – not because they’re racist, petty, or afraid of an intellectual property rabbit hole – is permitted to do so. The difference in the new announcement is that VATMOSS has been specifically cited as a justification for geoblocking. That permission comes in paragraph 22 of the proposal for the regulation on addressing geoblocking:

Traders falling under the special scheme provided in Chapter 1 of Title XII of Council Directive 2006/112/EC27 are not required to pay VAT. For those traders, when providing electronically supplied services, the prohibition of applying different general conditions of access for reasons related to the nationality, place of residence or place of establishment of the customer would imply a requirement to register in order to account for VAT of other Member States and might entail additional costs, which would be a disproportionate burden, considering the size and characteristics of the traders concerned. Therefore, those traders should be exempted from that prohibition for such time as such a scheme is applicable.

Boom.

This announcement will not change anything for traders; at this point, if you have had to geoblock because of VATMOSS, you’ve already done it. What it does do is acknowledge that small traders’ concerns have been heard and acknowledged. The EU’s proposed strategy uses the phrase “unjustified geoblocking”. That concedes that there is such a thing as “justified geoblocking”, and having seen the evidence of what that is and why it is being done, they are giving the practice their formal approval.

If you feel a need to geoblock, here’s a primer. It’s likely you will need to build the functionality into your shopping cart, possibly through an extension or plugin.

No auto-redirecting e-commerce

Another interesting announcement made during the press conference concerned the auto-redirecting of e-commerce sites based on the country of access. This one is best explained by an example. Let’s say I visit a French clothing retailer’s site from here in Scotland. The web site will often auto-redirect me to the .co.uk version of the web site. Under the new proposal, the retailer should show me the French web site I went to by default, and give me the option to switch to the .co.uk version.

This is detailed in paragraphs 15 and 16 of the geoblocking strategy:

Certain traders operate different versions of their online interfaces, targeting customers from different Member States. While this should remain possible, redirecting a customer from one version of the online interface to another version without his or her explicit consent should be prohibited. All versions of the online interface should remain easily accessible to the customer at all times.

The proposal clarifies that auto-redirecting will still be allowed if the consumer is trying to buy something which would not be allowed under their own national legislation.

Scam sites

The EU wants member states – specifically, consumer protection organisations, such as Trading Standards, located within them – to be given the powers to issue web hosts with takedown notices on sites that are hosting scams. This is dealt with in the EC’s proposal on consumer protection cooperation.

While some have seen this portion of the announcement as hell waiting to be unleashed, I have to say this: anyone who has a problem with this bit of legislation should have to deal with elderly relative who fell for a scam and was subsequently put on a “suckers list”. You will wish you had the energy, creativity, and aggression of a boiler room predator.

Other changes

There were many other proposals put forth in last week’s press conference which, although interesting in their own ways, do not impact the work of web designers and developers. They include:

  • Lots of work on lowering the costs of cross-border parcel delivery within Europe
  • Clarifying what counts as an “unfair consumer practice”; in other words, where the line is drawn between a consumer’s personal pique and a trader’s insufficient practices;
  • Search engines will be required to clearly distinguish paid placements from natural search results;
  • Lots of work on platforms and audiovisual rules.

The big picture

What struck me as I watched the press conference and reviewed the corresponding documents was that microtraders and tiny businesses were discussed as standard. This is a huge change. One thing I have come to understand in my work is that policymakers have been stuck in an unrealistic mindset of what a “small business” looks like. Remember that the official European definition of a “small business” is up to 250 employees and €50 million turnover. In the past, when the EU has said “compliance will be easy for small businesses,” they were thinking of your 249 imaginary co-workers. It’s very clear that they are now shifting their mindset from “small businesses” as 250 people in a business park to “small businesses” as a handful of people on laptops.That is yet another debt of gratitude we owe to the work of the EU Vat Action campaign. Businesses like yours and mine have not always been on policymakers’ radar. Thanks to the Campaign, we are now.

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.

2 thoughts on “New EU proposals on #ecommerce and #VATMOSS

  1. Thank you for such a comprehensive update, Heather. And for the kind words.
    Geo-blocking is essential for those selling digitally cross-border, while we wait for the digitally-delivered sales to be brought under the distance selling thresholds – or equivalent.
    And yes, the work we all did together last year means that the EU Commission and the UK HMRC / HMT now have a much clearer understanding of the needs of the smallest businesses.
    It has been quite a journey!
    Clare Josa
    Mentor To Passionate World-Changers & Co-Founder Of EU VAT Action

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