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Global Economy?

I am maintaining my sister’s website which is a .de domain hosted in Arizona on Godaddy servers. The hosting plan just came up for its yearly renewal and the receipt showed a $9.29 tax amount. There is no tax on services here, so I called Godaddy and was told that as of this year, they have to charge VAT for hosting accounts with addresses in Europe and remit the money withheld to the respective tax authorities. What? I am not saying that people shouldn’t pay the taxes that are due, but isn’t it a bit frightening when a foreign country’s “Finanzamt” can reach all the way into a company in the middle of Arizona and compel them to tax a service even though services are not taxable in the U.S.?

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6 Responses to “Global Economy?”

  1. RobinB says:

    Michael,

    Details here:
    http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/e-services/index_en.htm

    Providers of certain electronic services who are domiciled outside the EU to customers inside the EU must charge and remit the relevant national VAT on their services to avoid distorting competition (otherwise everybody would buy their web hosting from outside the EU). In essence, it’s exactly the same principle that applies to translations sourced from outside the EU – the EU-domiciled client (end customer or agency) still has to pay what amounts to “import VAT” on the outsourced translation (though it can reclaim the same amount as input tax).

    It’s worth remembering that the services aren’t actually being provided in Arizona, but to a client in the EU (Germany), so it’s perfectly reasonable for that service to be taxed in the EU. I’m pretty sure there are similar arrangements for certain categories of interstate commerce in the United States.

    Maybe I should do another taxation presentation on the GLD track at a future ATA conference.

    Have fun in Southern California, BTW!

    Robin

  2. Michael says:

    “it’s perfectly reasonable for that service to be taxed in the EU.”

    You are, of course, right. It is perfectly reasonable. Strictly speaking, when I buy goods in one state I am supposed to declare this in my state and pay the difference in sales tax, if one exists.

    What bothers me is the reach. Godaddy has no business with the German tax authorities and they have no jurisdiction over Godaddy (I assume). So while I would think it to be reasonable that my sister declares the purchase of that service in her tax return, I find it scary that Godaddy charges a German tax. That does not even happen here with sales tax in interstate commerce unless the seller has a brick-and-mortar store in the buyer’s state.

    Perhaps a presentation would be a good idea – maybe with a historic angle? What once fueled revolutions is now coming back almost unnoticed “durch die kalte Küche”?

    Will you be in Orlando?

    Michael

  3. RobinB says:

    The reach: Godaddy establishes a link with the German tax authorities the second it starts providing a service to a natural person or legal entity resident in Germany.

    You should also remember that VAT is structured differently to U.S. sales taxes in that it is levied at all stages of the production or service chain, although ultimately it’s only the consumer who pays it (it’s a pass-through transaction for everybody else). If you had a VAT system in the United States, I’m sure it wouldn’t be any different.

    As I wrote before, the primary reason for extending the reach of VAT to non-EU service providers is to avoid distortions of competition by establishing a level playing-field for all concerned. It simply means that Godaddy has no financial advantage over EU-based competitors on the basis of the VAT regime. That’s fair, isn’t it?

    No plans at present to be in Orlando, I’m afraid.
    Robin

  4. Michael says:

    I am not sure I’m buying into the level-playing-field argument. Isn’t that what business is all about — competitive advantages and disadvantages? I relocated to an expensive area of the U.S. Does that entitle me to a higher per-word charge? I remember a joke from my high school days: A German communist and a French communist see a fat cat drive by in a big Rolls Royce. Says the German communist, “Capitalist pig. When we take over, nobody will drive around in a Rolls Royce anymore.” The French communist says: “Look at that capitalist pig. When we take over, everybody will drive in a Rolls Royce.”

    Interesting subject. It was good hearing from you.

  5. Ryan says:

    This is pure nonsense. These stupid arguments that politicians make to take even more money from your pockets are just that.

  6. Michael says:

    Leveling the playing field, dude. If you want a level playing field, why not lower taxes to the global average, instead of making them the world highest?

    But I must admit, it’s amazing how inventive these EU apparatchiks are (then again 50% of people with degrees go work as one). Just think about it: Americans can buy tax free across state borders, but the Europeans IRS can even tax you if you buy something on the other side of the world. Lol!

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