Spilldown Effects

On January 1, 2015, the European Union expanded its VAT tax to encompass any seller located anywhere in the world who sold any item to anyone in any EU country.

The spilldown effects of this decision have rippled through the business world and these effects will continue to be felt for some time to come.

Let's focus on a few fundamentals. Apparently, the new VAT tax:
  • Has no floor (no sale is exempt no matter how small it is)
  • Must be collected, processed and paid by every seller
  • Applies to every type of business and every type of sale (no exceptions)
In three short weeks, this tax has had a noticeable impact on American businesses, particularly those in the small and micro categories.

The responses have been varied and occasionally startling:
  • Some small businesses have simply closed their doors because they were unwilling to deal with the hassle of designing and maintaining a special system to support the EU's latest tax gambit. The new VAT policy is literally the tax that broke more than one camel's back.
  • Some are refusing to sell to EU companies or residents and have posted notices in their online stores to this effect. They're working to offset lost revenue by expanding sales in non-EU markets.
  • Some have increased all base prices, a decision that negatively affects every buyer, not just those in the EU. In some cases the increases have been dramatic, so it appears they want to recover the full tax amount and recover the ongoing costs of developing and maintaining yet another tax handling, reporting and payment system.
  • Some are taking a "wait and see" approach. Meanwhile, they're compiling data from past EU sales to determine whether the revenues justify the time, expense and headaches involved. A number have admitted it's likely they too will choose to block EU purchases.
Readers who aren't small business owners are scratching their heads in puzzlement and asking, "What's the big deal?"

Those who are small and micro business owners understand. They already pay a wide variety of federal, state, county and local taxes in the form of income taxes, fees, licenses, permits, certifications, mandatory health care, property taxes, and much, much more. Many also function as unpaid sales tax collectors for their state, county and local governments.

Now, their businesses and work lives have become infinitely more complicated, because they must also function as unpaid tax collectors for a foreign entity.

Practically speaking, many small businesses simply don't have the time, money, people and resources to accommodate this mandate. Looking solely at the time factor, consider this: Recent studies indicate the typical small business owner in America works an average of 52 hours a week, and more than a quarter of all self-employed Americans routinely clock more than 60 hours a week.

Contrast this with the EU, where the average work week in seven countries is 35 hours or less.

American entrepreneurs are already working long hours to keep their businesses afloat in a challenging economy. It's easy to understand why some have run the numbers and concluded the cost of doing business in the EU far outweighs the benefits.


Anon said...

Excellent example of what happens when those who've never owned, run or worked in a business set policy.

Anonymous said...

Spot on: Have heard this policy is creating great confusion and additional work for EU sellers and any small business that sells to EU buyers.

Barbara said...

You're both right, and from what I'm hearing, the costs and confusion continue.

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