New Rules for Digital Sellers in the US…
Change is in the offing for sellers of digital downloads into the USA. Many US states levy sales taxes on digital products such as software, videos, and games. Some have sought to implement an equivalent of the EU VOES system and force out-of-state retailers selling downloads into the state to register as sales taxpayers. Up until now, these efforts have failed due to the protection retailers could claim from a 1992 US Supreme Court case, Quill Corporation v North Dakota. That case found that a retailer with no presence in a state other than reliance on public postal systems for delivery of goods was not locally registrable. However, the case stemmed from a pre-internet age and its degree of applicability to modern business models has been somewhat doubted.
Things have now been clarified in the new case, South Dakota v Wayfair Inc North Dakota’s Southern cousins enacted a law creating an “economic nexus”, or taxable presence, once sales into the state exceed USD 100,000 or 200 transactions. On 21 June, the Supreme Court has upheld this law as valid
This case could potentially open a floodgate for US states to tax international digital services. Although both the above cases involved sales between US states, the principle applies equally to foreign vendors and the USA’s tax treaties do not afford any protection against state-level sales taxes. States including Alabama, Massachusetts, Tennessee, and Washington have already implemented laws introducing the economic nexus concept.
We would recommend that any digital retailer selling downloads to the US reviews the location and volume of its sales accordingly.
And in Latin America….
Colombia and Argentina have introduced VAT registration for digital sellers selling into those countries, as of 1 July and 1 April and respectively.
Hungary: Real-Time Invoice Reporting
As of 1 July, Hungarian taxpayers are required to report larger invoices to the authorities automatically in real time. The threshold for reporting is a VAT amount of greater than HUF 100,000 (approximately EUR 300/USD 350/GBP 270) for invoices generated on a computer system (handwritten ones are also covered but with slightly delayed reporting). Reports must be made in the required XML format without human intervention, so this poses a new systems and IT challenge to Hungarian taxpayers.
Poland: Split VAT Payments
Also from 1 July, Poland has introduced a split payment scheme whereby VAT registered suppliers must maintain separate VAT and general bank accounts and a customer can choose to pay the VAT separately. The VAT account is controlled by the bank so that it can only be used for certain things such as paying VAT to the authorities. The incentive for the customer to make the split is that if it does so it will be protected for any inquiries in the event of fraud being detected in the supply chain. Taxpayers who “clear down” their VAT accounts and pay the VAT authorities early can claim a small discount on the amount payable.
Although the system is currently voluntary this, especially taken in conjunction with other countries’ initiatives in real-time invoice reporting, is clearly a step on the road toward a future VAT world a few years hence where the norm will be linkage of the authorities directly into supply chains with real-time VAT reporting and payment. It is notable that other countries such as the UK are following Poland’s lead and beginning discussions on implementing split payment regimes.