Just when you thought things couldn’t get any tougher for struggling musicians, changes to European tax legislation will now see anyone selling music downloads served with a bill, regardless of where they are based. This means that even Aussie musicians will be feeling the brunt.
As FACT reports, from 1st January 2015, all sales of digital downloads in the European Union will be subject to VAT (the European version of GST). While the law will apply to things like videos and e-books, the sellers most likely to be affected by the new rules are musicians and small labels.
In particular, the thousands of musicians who use Bandcamp to sell their music to listeners around the world will be stung by VAT. As muso Steve Lawson notes on his blog, the VAT charge is determined by the country the customer is in, not where the seller is based.
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What this means is that even Australian musicians will need to be registered for VAT, no matter how much they earn from downloads or whether they are selling directly from their website. While such a rule was enacted in order to curb tax-dodging giants like Amazon, it’s likely to have a detrimental impact on small-time sellers too.
While it was initially though that individual sellers will have to navigate the new legislation themselves, including the filing of quarterly VAT returns, an update from Bandcamp indicates the site will be doing most of the legwork, automatically determining if a buyer is in an EU country, calculating the correct VAT amount, and adding it to the order total.
“Under our current system, in which buyers pay you directly, the above is the easiest we can make it for sellers to meet their VAT obligations,” Bandcamp note. “In the first half of 2015, we plan to make payments for digital transactions flow through Bandcamp. Among other advantages, this will allow us to take care of everything related to digital VAT, including tax reporting and payment.”
Furthermore, Bandcamp have stated that if an artist falls below their country’s VAT exemption threshold — i.e. most independent artists — they will be able to disable VAT collection for domestic purchases. However, the Telegraph reports that the new rule means all tax thresholds have been removed for online businesses, meaning even selling one item for $1 will require VAT registration and record-keeping.
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However, the UK HMRC have published a flow chart which seems to suggest that downloads sold through a third party marketplace are not eligible for VAT. It must be noted, though, that if this is true, it does seem to contradict Bandcamp’s advice, so further clarity is required.
“If the platform operator identifies you as the seller but sets the general terms and conditions, or authorises payment, or handles delivery/download of the digital service, the platform is considered to be supplying the consumer,” their guide reads. “They are therefore responsible for accounting for the VAT payment that is charged to the consumer.”
The EU’s new legislation is certainly a blow to Bandcamp and will likely affect sales on the popular site, which stands as one of the largest and most artist-friendly digital music distribution platforms currently operating, recently launching a well-received subscription service for individual artists.
