Milestones | European Union

Regulators had Web giants like Google and Apple in their sites when they framed a new value-added tax (VAT) regulation for businesses selling digital products into the European Union, but it is SMEs, microbusinesses and sole traders that are likely to be hit the hardest, according to one campaigner.

As of the new year, all businesses selling digital products to customers within the EU are required to pay VAT on each sale. The change was designed to stop Web giants from reporting sales tax exclusively in low-cost locales. However, Rosie Slosek, who runs a microbusiness, One Man Band Accounting, and is a founding member of campaigning website, says that although the EU is aware of smaller digital companies, it wrongly assumed the majority traded via third-party websites, which would have helped them with data collection requirements under the new regulation.

A survey by EUVATAction reveals that 95% of affected EU businesses do not use third-party platforms to sell their digital products. “The basis on which this law was passed is fundamentally incorrect,” states Slosek. “There is no [VAT exemption] threshold, because they didn’t see the need for it.”

Slosek says the main problem with the tax is its complexity. She cites the example of a company with a £1.5 million ($2.3 million) turnover, which paid £100,000 for a server upgrade to cope with the extra data processing required to remain EU-VAT-compliant. “This is corporate-level legislation applied to kitchen tables, and it is challenging for senior CEOs to implement,” she says. “Apple has decided to put prices up, while Google has restricted services.”

Slosek believes the EU is beginning to comprehend what this means for smaller companies. She says their concerns need to be taken on board before a similar VAT tax for physical goods sold online is introduced some time next year.