Wednesday, September 25, 2013

Appsterdam lunchtime lecture summary 3: VAT on Google and Apple app sales

This is part of my summary series of the Weekly Wednesday Lunchtime Lectures, an initiative to allow people in Appsterdam to talk about technology and share knowledge, allowing participants to receive training in public speaking. The lectures cover a wide range of topics related to making apps on any platform, from technical to non-technical including computer languages, modeling, testing, design, marketing, business philosophy, startups, strategizing, and more.

Today’s lecture was by Mr Victor Alting van Geusau and Mr Drs Wilbert Nieuwenhuizen, experienced professionals in management and VAT, talking about VAT for both Google and Apple App Store sales. I wrote about this before, but I never knew whether this was actually correct.

In the meantime, Appsterdam has published the video of this lecture as well.

I am not a tax lawyer. This summary was not checked afterwards by the speakers, and comes without guarantees.

European VAT rules for B2B

Wilbert explains that all app sales are electronic services for VAT. The main rule for is that all electronic services are taxed with 21% VAT in the Netherlands. However, there are three exceptions. For any exception, it is important that the records prove that this is applicable. The three possibilities are:

  • Dutch buyer and Dutch seller: 21% VAT in the Netherlands, added on the invoice.
  • EU buyer and Dutch seller: VAT can be reversed. The invoice must contain the VAT numbers, full name and address of involved parties. This is still included in the Dutch VAT filing of the seller, which also has to file an ICP-listing.
  • Non-EU buyer: no VAT is due, as the place of supply is outside the EU. But, you do have to prove the goods were supplied to a non-EU buyer.

European VAT rules for B2C

Again, when selling to Dutch consumers, you will need to charge 21% VAT in the Netherlands. But also if the consumer is in the EU - the only exception is if they are not in the EU.

Misunderstandings, in general, about VAT

The first misunderstanding is that app store sellers only trade with businesses. However, this is not the case: the portal might only be the intermediary, providing a portal. The portal sells a service to the app maker, the app maker directly supplies to the consumer for VAT purposes. In other words, as you are selling a service to an EU consumer, 21% VAT applies. Of course, if the consumer is outside the EU, no VAT is charged.

The second misconception is understanding what your turnover is. You may only get a certain percentage of the consumer sale price. But, the full price has been supplied to the consumer, so the VAT should be filed based on the 100% price. Separately, the portal would charge you for their cut of the sales price.

However, Apple is different

For Apple, the situation is different, due to the setup of their contracts. For Apple, you are actually trading with iTunes SARL in Luxembourg. That seems to match up completely with my earlier post about Apple and VAT.

Apple does have a list of countries for which they do not take care of taxation, like China or Russia. Dutch VAT does not apply in that case, but Chinese taxes might. It is important that you are able to prove that those sales were made outside the EU.

Google App Store

For Google, the contracts are different. In that case, you are directly selling to consumers, so the problems mentioned earlier all apply. Unfortunately, the information Google supplies you is not sufficient to file taxes correctly. It is unclear which taxes are paid, whether the buyer is a consumer or company, and if they are a company the VAT number is not provided. Google even provides incorrect advice on their website about taxation of sales.

If this is discovered in an audit, this can result in taxes being levied over the past five years for the full revenue. This may result in additional tax over the past five years over all sales achieved, with added penalties. This can be far higher than the plain 21% VAT. Wilbert had a client which had to file for bankruptcy after this happened.

The safe option for the Google App Store is to just file and pay 21% VAT on all sales. Victor thinks the same problem probably also applies to the Amazon app store.