I know that people are getting fed up with folk who write open letters to celebrities. However, I contend that senior official in the European Commission are not exactly celebrities as such. Besides, I have just spent quite a bit of time composing a letter to M. Pierre Moscovici, one of the people with the most power to do something about the awful disaster that the EU has unleashed upon digital microbusinesses. I’d like to share it with you.
Dear M. Moscovici,
I hope you are having a good Christmas. I’m not sure what you will be doing over the holidays, but I am busy dismantling a business that I have spent the past few years building up. That business is no longer economic, thanks to the new regulations for VAT on digital sales that you and your colleagues are bringing in as of January 1st.
This may come as a surprise to you, but I suspect that there are many people in a similar position to me. Europe-wide, there may be millions of us. That’s because the start-up costs for selling digital products online are extremely low. Once you have a product, you can set up an online store to sell it in a few hours, and for little or no cost. No technical knowledge is required.
I say “business”, but these are probably not businesses as you would understand the term. They don’t employ people; they don’t even make enough money to support their owners. Almost all of them are run by people in their spare time. The profits, such as they are, are often measured in hundreds of Euros a year rather than thousands. And yet all of them are classified as businesses under your new regulations.
Who runs these businesses? All sorts of people. They might be elderly folk looking to supplement their pensions so that they can afford a holiday, or some nice Christmas presents for the grandkids. They might be disabled people who have difficulty getting out to a job but can operate a computer at home well enough. They might be single mothers looking to supplement the meagre income they get from their jobs in supermarkets.
In my case I suppose you could say that my business is a hobby. I run a small publishing company, and thanks to Amazon there’s precious little profit to be made in such an enterprise. I do it because I love books, and because there are many fine authors out there who need a hand extending their careers, or starting them.
I, of course, am one of the lucky ones. I don’t have to shut the entire business immediately. I can still sell books through Amazon and similar stores. What I can’t do is sell direct to customers, because that would involve way too much time and expense complying with your fantastically complicated regulations. This isn’t a viable long-term situation. Amazon and their ilk are not my friends. Their terms are non-negotiable, and they are always looking to squeeze more profit out of the people who use their services.
In any case, by no means all third party websites are compliant with your regulations. Indeed, outside of the book trade, it seems that very few are. Many of them are based in the USA and see no need to jump through the various hoops you are putting in their way. You may think that we can simply swap to other, EU-based services, but the digital market doesn’t work like that. In the same way that most people buy books from Amazon because they are the biggest name, other segments of the digital market have their own brand leader sites. If we move away from them because they don’t support your new VAT laws, our sales will plummet.
For my own part, my main concern is crowdfunding. Over the past few years this has become the dominant method of raising funds for new books. I had big plans for new projects for 2015. However, the crowdfunding services I wanted to use do not levy VAT for me, and I don’t have the time or money to do it myself.
Your publicity for the new VAT regulations talks about levelling the playing field, and certainly forcing Amazon to sell on the same terms as a book chain based in Ireland, or Portugal, or Latvia is a good thing. However, there is no way I can compete on level terms with Amazon, or with the major multi-national publishers. Their economies of scale and negotiating power are things I can only dream of. The one small thing I had in my favour was not having to charge VAT on my books. You have taken that away from me.
Fortunately there are solutions of a sort. Because it is so easy to set up a new digital business, I have been able to find someone in the USA willing to take on my business and ensure that it will continue. I’ll doubtless still be involved, and will happily pay income tax on any money I make. But it won’t be my business any more, and it won’t be a European business. Other than via Amazon et al, it may not sell into Europe at all.
The sad thing is that all of this could have been avoided. The principle of Proportionality is well established in tax law. There is no point in trying to levy taxes when it costs more to collect them than you will gain in revenue. If it were not for people closing their business, HRMC here in the UK would be utterly swamped by the number of new registrations they would be getting. And yet, for some reason that no one can explain, you have chosen to do away with thresholds for VAT on digital sales. You have chosen to force people out of business if their operations are not large enough to comply with your regulations. That’s a very strange way to encourage economic growth.
Merry Christmas, M. Moscovici. I hope you are having a happier one than I am.