January 9, 2015

EU VAT on digital but what about the data?

By Paul Laughlin

EuropaPeriodically successive governments impose new rules on businesses without sufficient consultation time to think through the implications or ensure most businesses know what to do.

The latest example of this is the new VAT rules applying to the sale of digital products across Europe, which now require the VAT rate of the country of the consumer to be applied irrespective of where the supplier is based. If this has passed you by, then you can find a useful summary of the changes in this Guardian article.

As that article mentions, prior to the changes being implemented on the 1 Jan this year, there was somewhat of a backlash from SMEs seeking to get the government to realise the additional complexity & cost this would cause them. The chief concerns here have been usefully summarised by William Buist at Abelard. However, now that the changes have been implemented, those businesses who chose to still supply digital products to Europe need to turn their attention to how they comply.

Two questions I suggest you ask yourself: (1) Do I provide digital products that could be purchased elsewhere in the EU? (2) Am I capturing the evidence needed about the country of residence of my customer, so as to apply the correct VAT rules to their purchase? The first might seem obvious at first, but these changes don’t just impact major digital suppliers like app stores, they also apply if you sell e-books, recorded webinars, digital training material etc.

Large consultancies are also now beginning to turn their attention to another major compliance aspect, how you evidence the ‘place of supply’. This video from KPMG gives a useful overview of why this is more complex than you might at first assume (especially as you need 2 non-conflicting pieces of information, something few systems store already):


As you can see, much to consider there, including the pros and cons of using the government’s Mini One Stop Shop (MOSS). However, for the benefit of Customer Insight Leaders, I want to highlight the importance of thinking about the data capture & storage challenges. It is unlikely that your existing systems have been designed with the flexibility to readily allow for the capture of at least 2 pieces of non-conflicting evidence as to the location of your customer for these purposes. This is also in addition to the challenge of capturing and recorded whether your customer is an individual or a business & if they are VAT registered in their country.

As KPMG mention, as well as complying it is crucial to design any experience with the customer in mind. How can capture of the required information be done in a way that does not negatively impact their buying experience? Do you intend to capture IP address, or other information which the customer will not need to enter, in order to help with that?

The other consideration is data storage in line with local data protection regulations and the requirement from MOSS for you to retain this data for up to 10 years. As well as the more obvious cost and capacity implications to provide this, I would encourage you to think about going back to your data models. All customer systems & databases were originally designed from data modelling work. If this was thoroughly done, it would have considered a conceptual & logical data model that accurately captured your requirements, before any physical data model designed based on the technology/supplier being used.

Given the fundamental nature of this change in data requirements, it seems likely that most businesses will require changes back to their conceptual data models. As well as additional data variables, it may also mean that the relationship between entities like customer, channel & product need to change or other entities are required. If this is technically unfamiliar territory for your business, then I’d recommend seeking independent advice from a provider like Laughlin Consultancy.

More importantly than selling our wares, is that you gain independent advice as to what is required prior to approaching your IT suppliers, so you are protected from overly complex or costly recommendations. It is almost always better value to achieve a simple solution through your logical data models first, prior to paying for expensive IT fixes.

How is your business facing up to this data challenge?