BIC Breakfasts The VAT Session: do not assume anything
BIC Breakfasts have by now become regular affairs in the BIC calendar; and at BIC we hope this frequency allows their focus to remain both current and consistently relevant to the book trade. With this in mind one might question why at this month’s breakfast the discussion centred on EU VAT changes that will not come into effect until 1 January 2015. Those in attendance at the Breakfast will know that though these changes cannot be put into practice until 2015, preparation for the change could not be a more current issue in the trade, and if you haven’t started planning now then action is potentially well overdue.
After enjoying a table of delicious fare that we’ve come to expect at a BIC Breakfast, our first speaker – John Walsh, Senior Accountant at Oxford University Press – opened the discussion with an introduction to the changes. It should have now become apparent to most people with ears, eyes and an email address in the book trade that from 2015 onwards VAT on digital products across the EU will be charged at the VAT rate of the consumer’s EU member country of residence, as opposed to the country of the seller. But what if I order an eBook round my Nan’s house using my brother’s credit card on my sister’s computer?
Yes, of course there will be subtleties to the application of the changes, but essentially customer location will be verified by several pieces of evidence. So if you are using a UK registered credit card with a UK billing address, and the IP address of the retail site you are purchasing from is .co.uk, your sister bought her computer in John Lewis Oxford Street, and your Nan lives in Bromley, then we might assume you’ll be charged the VAT rate of the country you reside in – the UK. I’m cruelly anticipating the ways and means that the less law-abiding citizens of the EU may employ to avoid the higher rates of tax; although depending upon how publishers manage their pricing strategy the ragamuffins may have no need to play musical member countries.
UK publishers will not need to register for VAT in each country - cue sigh of relief. They can send a single return to HMRC, who will then allocate the VAT to the EU countries on their behalf through a ‘Mini One Stop Shop’, or MOSS. That sounds nice and simple (saves on postage at least), but you’ll still have to report exactly the same information, apply exactly the same 27 differentiating local rates to your products, and do it all accurately too! Our speaker stressed the necessity of treating every member state individually, and highlighted the actions of other tax authorities across the globe already requiring foreign suppliers to register locally for VAT (Canada, South Africa). Publishers certainly need to have their eye on the ball and make sure that they are as flexible as the VAT rates themselves!
John also hinted at pressure to have lower VAT rates applied to eBooks as per print books; but that is another discussion for another breakfast…
The first key message from our second speaker – Ian Singer, IT Partner at PKF Littlejohn – was don’t assume anything: and if you think you’ve thought of everything then think again. As a publisher you will need to evaluate every single one of your sales channels and determine which territories they are selling into. Fundamentally you will also need to know whose responsibility it is to calculate and remit the VAT element for each individual sale. For those giants selling hundreds or thousands of digital products a day this will be no small task.
Another question you will need to ask yourself is whether your reporting mechanisms are up to the task ahead – that is once you’ve even identified what that task is. How much are you going to invest in making sure they are up to it, and how will you support this investment? Not only will your financial system and your invoicing system need to evolve, but so will your bibliographic system. As Ian so rightly communicated to the group, the systems that your systems communicate with will have to be able to understand all the new information that is being communicated to them! Can your systems and the systems of your industry partners manage and share this data effectively and accurately? When it comes to the varying VAT rates of 28 EU member states somehow I don’t think the prehistoric systems lurking in many publishers back offices are going to welcome the information with open arms. Some of them might crumble like a shoddily baked cookie.
Hearts froze when Ian ventured into the territory of contracts and royalties. It’s not unlikely that the online retailers will want to renegotiate their contracts with publishers; but as a publisher can you renegotiate your royalty contracts? And how do manage your pricing? Will it be differential or universal? Strategic conversations need to take place at the heads of houses, and decisions need to be made not in 2015, not in 2014, but in 2013. The time is now.
Our third speaker – Gary Rodrigues, Executive VP of Sales, Impelsys – provided an interesting insight into the system vendor’s point of view, and echoed the concern that conversations are not taking place at the top table, and business managers have not grasped the commercial aspects of these VAT changes.
In summation the message from John, Ian, Gary, and sponsors PKF Littlejohn was early planning and preparation. These changes will apply to everyone (big or small) who sells any ebooks and digital products, services or subscriptions to consumers across the EU. It is absolutely imperative that publishers take legal or professional advice on this matter. In support of its members and the wider industry BIC is preparing a guidance paper on this issue – so watch the BIC website (www.bic.org.uk) for news of its publication.
September’s Breakfast was sponsored by PKF Littlejohn.