VAT change to online sales: not just a tax concern
Tax regulations are changing for the online sale of telecoms, broadcasting and digital content to private individuals who are resident in the European Union (EU). At present, VAT is paid in the country of the supplier. But from 1 January 2015, it will become payable in the country where the customer resides. Anyone selling digital products such as newspapers, music, software and games within the EU will be affected. Overnight, the VAT on content delivered from a supplier in, say, Luxembourg to a customer in Hungary will rise from 15% to 27%.
Social media is an expanding repository for consumer anger. So, companies that choose to alter their prices should expect a backlash on social networking sites.
This change clearly has wide-ranging implications for the tax requirements of affected companies. But there are also much wider cross-functional business implications. EY has identified five key areas where the businesses affected are most likely to feel the impact of the 2015 VAT change. These are: taxation, pricing and channel to market, third parties, systems and customer experience.
Each of these five key areas is examined in more detail in the full article. Here, we give a little more detail about just one of them: the implications of the change on the customer experience.
A more complex customer experience may lead to consumer anger
Companies attract and retain customers by making the purchasing process as simple as possible. But the impending VAT changes mean that this simplicity can expose companies to new risks. The company will need to introduce steps that demand proof of a customer’s location to ensure they aren’t trying to cheat the system. The result is that the purchasing experience will become less straightforward for the customer.
Remember, customers are not tax experts. When they are used to paying just €5 to download a film, many will be confused, even angry, when they are asked to pay €5 plus 23% VAT. And they may not understand why their friend across the border is paying €5 plus 17% VAT. Customer services should prepare to receive additional calls from customers querying and complaining about price rises. Companies that choose to alter their prices should also expect a backlash on social networking sites.
Adding value to your business
It’s clear that the impact of these VAT changes reach much further afield than a company’s tax function. And by looking at the wider implications, another important insight becomes clear. Preparing for the VAT changes is not just a piece of compliance. It is an opportunity for the providers of digital services to improve their pricing strategy, re-evaluate the markets in which they operate, work better with third parties, upgrade their systems and re-engage with their customers. In short, it is an opportunity to recalibrate their whole business. And if they take this opportunity, come 2015, they can ensure that a new year’s resolution to carve out competitive advantage is fulfilled on day one.
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