It's not often that discussions on taxation pop up on music blogs, but towards the end of 2014, word began to circulate among musicians and artists about new European VAT regulations, which came into effect on January 1st, 2015. In December, some artists and labels were taking to social media to inform their audiences that they would be pulling all digital downloads from their sites. They were spooked because January 1st marked what Dermot Donegan, head of VAT policy and legislation at the Revenue Commissioners, calls "a monumental change for VAT".
Up to now, anybody selling digital services over the internet – music downloads, apps, ebooks, knitting patterns or illustrations – charged VAT at whatever their domestic rate was. However, this allowed large companies – notably Amazon and Apple – to locate their digital businesses in low-tax countries such as Luxembourg, where sales are subject to just 3 per cent VAT. From the beginning of this year, two very significant changes, in the works since 2008, have come into force.
“We agreed that the place of supply for telecoms, broadcasting and e-services would change from the place where the company supplying the service was based, to the place where the consumer was based,” says Donegan.
This means the company must now pay VAT at the rate of the country from which the customer is buying. This should make it impossible for large companies to use low-rate countries as a means of minimising their VAT obligations.
The second major change is that, for international sales within the EU, there is now no threshold at which these regulations become applicable. This brings a whole lot of new people into the system, including independent musicians, artists and craftspeople who would never previously have been liable for VAT. Someone who sells digital copies of their album from their own website is now technically as responsible for charging and filing VAT (as well as all the time and paperwork that goes with it) as Apple, Amazon or Google. Complying is beyond the means of many part-time, zero-profit labels and artists.
Mini-One Stop Shop
One major problem was figuring out how to distribute the collected VAT to the correct jurisdiction. The solution is called the Mini One Stop Shop (Moss). This centralised system requires a seller to file a quarterly return with its local tax administration, which then distributes payments to the relevant countries, while ensuring the seller doesn’t have to register for domestic VAT at the same time. “It really simplifies the whole system and cuts down on the huge costs that would be there for small businesses that aren’t used to this,” says Donegan.
It’s important to remember that it’s only those who sell through their own website who must take steps to comply with the new rules. One thing that sparked concern was that Bandcamp, arguably the most prominent and popular platform for independent musicians selling their work online, was not set up to handle VAT on behalf of its users, because it facilitated a direct transaction between artist and fan, rather than providing a shopfront, such as iTunes. The distinction meant that the thousands of artists using Bandcamp would be responsible for dealing with VAT, mostly for the first time. For those who could handle it, it would mean increased prices and a lot more time filling out paperwork. For the majority, it meant shutting down their digital operations entirely.
Thankfully, Bandcamp has since fast- tracked a change in approach that means it will now take responsibility for charging and filing VAT. Of course, people buying from Bandcamp will notice an increase in prices, whether the artist likes it or not.
"I feel like Bandcamp are doing as much as they can to help their clients and artists, so the fault isn't necessarily with them," says John Lillis, the Clare producer otherwise known as mynameisjOhn, who's 2014 album with God Knows, Rusangano/Family, is only available through Bandcamp. "They've made quick moves to make the transition as easy as possible but, realistically, the extra tax is going to affect sales."
Lillis, like many independent artists, feels like the sales an artist gets through Bandcamp or from a personal website are more about directly supporting someone’s creativity rather than simply purchasing specific music or art – particularly as most of it is available for free, one way or another.
“Buying music isn’t a luxury,” he says. “Nowadays, its something you do because you actually want to support someone’s art and creativity, which is rare. And we’re going to add even more tax to people’s good will? People will only go so far to support you. It certainly makes us look at how we release music, and what other options are open to us.”
Darragh O’Leary runs independent label Invictus Productions. He feels the powers-that-be have no real conception of how (or why) DIY artists operate. “Small labels like mine have core base audiences who support the label and bands alike out of a sense of kinship or duty, so to speak, and bringing in laws like this simply undermines the ability of independent musicians and labels to continue,” he says. “These ventures are labours of love as opposed to business models so effectively people are being taxed on creativity.”
In principle, the regulatory changes are a watertight solution to the problems posed by mass-market digital sales, and will be welcomed for this reason, as well as the promised boost to the exchequer. But the fear and confusion at the opposite end of the market is understandable.
Donegan suggests that Revenue will be taking a “practical and pragmatic” approach, saying that no one will be chasing artists for tiny sums of money, but the likely effect will be fewer personal websites and more use of third-party platforms for providing digital services.
It’s somewhat ironic that the changes meant to bring the likes of Apple and Amazon into line might end up convincing more people to use them in the first place. But if Bandcamp can handle the increased responsibilities, then most artists will probably leave it with the paperwork, and concentrate on making music.
