In digital law, not all “myths” need to be corrected

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 The below post, which is now outdated, will remain here as an archive.

When you write about digital policy for a living, research often turns into a journey down a rabbit hole. Brushing up on the simplest topic can lead you to a decade’s worth of meeting minutes, working papers, and reportage. Far from being an ordeal, that rabbit hole can be rather entertaining. For example, if your concentration is sharp, you can often spot the exact moment where a simple choice sent a promising piece of legislation down the wrong path. Other times you find yourself knowing what “Annex 1, Section VIII, Point A” references without looking it up. Still other times you start researching one piece of legislation and end up taking notes on an entirely different one.

And sometimes you find the point where part of the solution became part of the problem.

Here’s one I found earlier.

The EU’s representative presence in the UK has an entire blog – and a rather massive one at that – devoted to dispelling the inaccuracies, innuendo, and indignation spouted by anti-EU media in the UK. The EU’s need to defend itself in the face of the onslaught is entirely fair and justified. Heaven knows our right-wing press gives the EU no shortage of myths to dispel, including my personal favourite, “No, Brussels is not calling for Italians to produce mozzarella using powdered milk.”

The danger with a blog like that, though, is that the facts are treated no differently than the myths. All criticism, even if justified, is assumed to be tabloid scaremongering: bias is met with bias. The home truths hidden in indignant criticisms of EU policies stand little chance of getting a fair hearing in a forum that is about PR rather than policy.

Case in point.

In April 2015 the blog published a retort to criticism of the EU Place of Supply Reforms (VATMOSS). You can sense the trouble ahead by the piece’s very title:

Media reports fail to point out how new EU VAT rules protect the UK from unfair competition

Starting a piece with a blend of arrogance and paternalism is generally not a good way to win friends and influence people. And so the tone was set.

The piece begins by explaining that

The UK government expects changes to EU VAT rules for digital products to raise for the UK Treasury an additional £300m in tax revenue every year. The government has added that the changes will protect £5bn in revenue that might have been at risk without the changes, because they remove an incentive for certain companies to relocate outside the UK, in order to benefit from rock-bottom VAT rates. The rule changes reduce the advantage for companies of locating in low VAT countries by establishing that VAT will be paid in the buyer’s country and not where the seller is based. So someone in the UK buying an e-book from Amazon will now pay VAT to the UK, not Luxembourg.

All well and good so far. Then we come to the point where the rule changes are explained as being in the UK’s interest:

This will ensure that countries like the UK – which operate average or high rates of VAT – get a fair income from VAT on digital products and cannot be unfairly undercut by countries offering especially low rates to entice online business. So all-in-all, this means more money that can be spent on, for example, UK hospitals and schools.

Is it any wonder that VATMOSS became so contentious when public discourse on its impact was reduced to “won’t somebody think of the children?”

The piece continues:

The changes were agreed by EU Member States, including the UK – the European Commission proposes EU laws, but it is national Ministers and MEPs who amend and decide on them. Member States rejected the Commission’s proposal for an EU-wide minimum turnover threshold below which VAT would not be applied.

You will recall that these two decisions alone triggered an international grassroots activist campaign, as did this:

That means the new system does require very small UK companies offering digital products to consumers in other EU countries to now apply VAT, having previously been exempt. To do this, they need to keep records of where their customers are located. However, the Commission has worked with the UK to minimise any burden, notably through the VAT mini one-stop shop (VAT MOSS) which enables businesses who sell in more than one EU member state to make their tax declaration only to Her Majesty’s Revenue and Customs (HMRC), rather than 28 different tax authorities. What is more UK companies with a taxable turnover of less than £82 000 for sales to UK customers still do not need to apply VAT on those UK sales. Yet many media reports have accused “Brussels” of somehow making life impossible for UK businesses, without mentioning that the new rules will both enable UK businesses to compete fairly with the rest of Europe and provide substantial gains for the UK Exchequer.

I think we all know how that turned out. The EU’s focus here, sadly, is “we’ve worked with HMRC”, in other words, we did our bit. The fact that HMRC made a dog’s dinner out of the task, from consultation to implementation, is not their concern. Yet they seemed annoyed to have been a focus of the criticism rather than HMRC. In other words, they want to take credit for the success but not the failures.

What of the accusations of making life impossible for UK businesses? The VATMOSS experience – the one that happened in practice in real life, not in catered meeting rooms –  proved beyond any shadow of a doubt that “competing fairly” and “creating a level playing field” means removing the smallest businesses from the marketplace altogether. Small businesses shut down because this legislation was not thought out properly. It doesn’t get more “impossible” than that.

The piece continues:

Most recently, the Mail Online’s “This is Money” section alleges on 12 April that the new rules have made it impossible to publish an e-book, in a piece headlined “Controversial European VAT rules scupper charity e-book on Terry Pratchett”. It is unclear how the changes could in themselves prevent the publication of an e-book, given that e-books are published in every Member State, including those which never had a VAT exemption for digital micro-businesses in the first place.

Sadly, as I saw with some sock puppetry from inside the Brussels tax office, the PR stance in the face of criticism of taxation policy seems to be “we are right, and criticism is from people who don’t understand THE FACTS.” Clare Josa of the EU VAT Action campaign paraphrased the attitude as “there there, dear, once you understand the legislation, you’ll know it’s easy, really”. The corollary of that attitude is “we will make no attempt to understand why people dislike our policies, as all dislike is misunderstanding.” In this case, it was the administrative burden of the changes which made the Pratchett festschrift not worth the effort. It seems incredible that rather than making an attempt to understand that, they lashed out from a position of arrogance.

Because – hear me and my crazy ideas out for just a minute – if you listen to people, work to understand their needs, and truly emphasize with what they are going through, you won’t have to devote so much time to maintaining a blog dispelling all the “myths” people want to believe about you.


European Commission First Vice-President Frans Timmermans has given assurances that the Commission is looking carefully at how the new rules are working in practice: “On VAT, the new rules came into force recently; they were decided a long time ago. We are evaluating it very pragmatically. We don’t want it to affect SMEs disproportionately, and will very carefully evaluate the effects. If there are adverse effects, certainly the Commission will take it into account.” More details here

What resulted from that “pragmatic evaluation”, of course, was a year of admissions, apologies, and legislative commitments. The disgruntled business owners now have consultative status; geoblocking has been approved; a small business threshold is on its way in; nonsense payment demands from foreign tax authorties are on their way out; and thousands of the businesses HMRC forgot to tell about MOSS have been ejected from the system for everyone’s own good.

Just because it’s bad PR doesn’t mean it’s wrong.

Dismissing the legitimate and agonised concerns of business owners as “myths” which needed to be corrected was part of what led many of them to cite VATMOSS as a reason to vote leave. And now we all have an even bigger mess to deal with.

Perhaps it’s rather telling that the Euromyths blog has never mentioned MOSS again.