How the EU can prevent VATMOSS from killing indies

UK developer Rebellion has joined a campaign calling for reform to a new law that co-founder Jason Kingsley says “kills small businesses before they start”.

At the beginning of the year, the EU introduced a new Digital VAT legislation designed to restrict large companies from exploiting the intricacies of tax laws across Europe, known as VATMOSS.

The law demands that businesses of any size that sell digital products online must pay VAT in any EU countries their product is purchased and at that country’s VAT rate. This applies even if the business itself is based outside of the EU.

The problem, however, is that there is no minimum threshold. Smaller businesses, such as independent and one-man game developers, need to pay this VAT even if their game only costs 99p.

There is also the issue of proving where the buyer is based, with businesses required to keep two non-contradictory pieces of information stored securely for 10 years. 

Naturally, this has been a daunting and damaging affair from smaller studios.

A campaign, EUVATAction, has been started that aims to convince the EU to amend this law by paying for a representative to present a case at the EU Finance Ministers’ Summit in Dublin this September. 

UK studio and Sniper Elite developer Rebellion is one of the firms that has signed up to help back and fund this effort. We spoke to co-founder Jason Kingsley to find out more about what the campaigners are trying to achieve and why VATMOSS has been so damaging. 

“The legislation, as I understand it, has been brought in to control perceived abuse of variable VAT rates in different regions across Europe,” Kingsley tells Develop. “Some multinationals have been making profits by supplying items from low tax places to the whole of Europe, thus paying lower VAT tax rates and depriving the region where the customer is based of tax revenue.

“These new rules – however well intentioned – take no account of the scale of your sales, so all the record-keeping and data collection they demand are all but impossible for small outfits to manage, and the effect is to simply kill that business before it is started. That can’t be good for the economy and almost certainly was not the intent of the law-makers.”

The biggest issue, of course, is that not every studio understands the new law. Awareness of VATMOSS, and more importantly its effects, is remarkably low for something that has proven to be so damaging, but Rebellion is keen to help with this as well.

"These new rules – however well intentioned – take no account of the scale of your sales, and kill your business before it is started."

“Many small businesses and studios I’ve spoken to are confused or even in denial about the new rules, which is understandable,” says Kingsley. “They are complex, difficult and, I have heard it said, quite oddly drafted.

“In terms of raising awareness the best place to start is word of mouth. Luckily the games community is pretty savvy and news travels fast via social media, but if larger companies like Rebellion can extend the reach and help funding for projects like EUVATAction then all the better.”

With Rebellion embracing new business models such as VATMOSS, the studio naturally has its own direct interests to think of, but its the impact of the new law on the company’s partners that concerns Kingsley the most.

“Like lots of studios we work closely with third parties of all sizes, and our freelance contributors in particular run modest, exciting and interesting personal creative businesses, and these new tax provisions seem to be unfairly impacting on them,” he says. 

“The UK games scene is so intertwined that encouraging grassroots creativity and supporting our freelancers is crucial to Rebellion’s future. Above all, it seems to be the right thing to do to help out if we can.”

So what can be done about VATMOSS? The EU Vatmoss Action Campaign team certainly don’t suggest anything as drastic as scrapping the new law, but Kingsley believes that with a little modification, the legislation can serve its original purpose without harming smaller businesses.

“Usually in this type of new legislation there is what known as a De Minimis clause,” he explains. “That is, an amount of business you can do before you have to bother with the provisions – just like actually registering for VAT itself. 

“After all, our tax administrators don’t want to be burdened with literally millions upon millions of tiny claims, the tax collected from which would simply be swallowed by the costs of collection. Hopefully we can create enough momentum to have this kind of cause applied here.”

You can find out more about the campaign, and how you can help, at www.euvataction.org.