Not sure where to ask sales tax question

[GoodGuy]

ORIGINAL: Erik Rutins

Hi Goodguy,

Here's the response from DR on the German VAT Tax question:

"Per our EMEA tax team Digital River collects and remits 15% Luxembourg VAT for digital downloads and 19% German VAT for boxed software. The 16% German VAT rate has not been applied since 2006 when the statutes changed. Just checked and the EMEA site confirms the same.

The VAT rate and, hence, the total price, may change once you select your shipping destination. The tax rate that will be applied for each respective EU shipping destination will be as follows: 20% for Austria or Italy, 21% for Belgium, 25% for Denmark or Sweden, 19.6% for France, 19% for Germany or Netherlands, 16% for Spain, 22% for Finland, 15% for Luxembourg, and 17.5% for UK and all other EU member states."

They confirm that they have been remitting the correct amount per the law. If there was an error, it was only in the store text rather than the amount being charged and remitted.

Hi Erik,

thanks for your reply. Thing is, Germany raised the VAT rate from 16% to 19% on 1st of January 2007.
When I obtained Close Combat - Wacht am Rhein on release date (28th of October 2008), the DR store still showed 16% !!!. When I got my calculator to check the VAT rate, the charged VAT amount for this product indeed matched the old VAT amount of 16%, valid until 31st of December 2006. In early 2009, the DR store was still showing 16%, hence my inquiry in the general forum back then, where I was asking for clarification.

So, in my books, DR kept this mistake going for quite some time, and their statement, that correct amounts are being charged/paid over now, doesn't help here, to be honest. So I'm still waiting for a proper explanation from you or DR a) WHY they didn't do their homework, and b) why you (Matrix) put your German customers in a situation where they may have violated German tax laws and where they might owe their government money, now.

I don't know what you expect us to do ....... from the number of downloads to the physical on demand fulfillment process for boxed copies. None of our competitors are running or using online stores that have the same capabilities, especially on the physical on demand side, that we've spent years building into ours together with DR.

I know what you mean. Still, by choosing DR for the digitial download side of things, you're hampering your own sales efforts. Customizable shop software (along with the corresponding server traffic for digital downloads) are really cheap nowadays.

Also, I don't think that DR's download servers are located in Europe (which would make it necessary to apply EU VATs), are they?

That said, there is really no need to do business with DR for digital downloads, except for the boxed copies. In turn, the number of boxed copy orders will decrease anyways, since more and more customers (maybe except for collectors and customers who are aiming for a printed manual) are adapting to the various digital distribution schemes, so I really don't see why you should do DD business with a distributor that restricts Matrix' economic progress by supporting the EU's impertinent tax policy. If you run your own shop software and servers for DD, then you can save quite some money, and DR (and the corresponding costs) are out of the distribution chain. The money you'd save that way could be put into your servers/shop, into lowering general prices, or could be directed to the developers, who seem to be struggling with decreasing revenue (due to higher prices, which are partially a result of the VAT drama).

The discussion about the price of BFTB is a prominent example for this:
Way less EU customers would have complained about the price tag if they wouldn't have had to pay EU VATs for the digital downloads.

I think that Matrix should follow US laws only (reg. digital downloads), and I am convinced that you shoot yourself in the foot by bowing down to EU impertinence. With the discussion about BFTB, you can see that many potential customers passed because the price (with the high EU VAT amounts on top of it) hit a mark where they would refrain from buying the game.

QUESTION:
I just went to the BFTB product page, I hit the "buy now" button, and got to the shopping cart, where DR does state the following:

ORIGINAL: Digital River shopping cart (BFTB)

"Any physical products sold to customers in the European Union include an estimated VAT charge. However, the VAT rate and, hence, the total price, may change once you select your shipping destination. The tax rate that will be applied for each respective EU shipping destination will be as follows: 20% for Austria or Italy, 21% for Belgium, 25% for Denmark or Sweden, 19.6% for France, 19% for Germany or Netherlands, 16% for Spain, 22% for Finland, 15% for Luxembourg, and 17.5% for UK and all other EU member states."

Hmm, well a digital download isn't a "physical product". This fine print makes it sound like a digital download would be exempt from VAT, or that a DD's VAT rate would not change to the customer's national VAT, so this could be misunderstood. Also, a VAT amount doesn't show up before I hit "place order", which I found to be disturbing the first time I ever bought a Matrix game, already.

DR is anything than transparent.

[ElchDivision]

ORIGINAL: GoodGuy

ORIGINAL: ElchDivision

DEUTSCH bis auf die Knochen, German through and through [;)]
Even if the 16% thingy would be incorrect I sometimes fear there are some traits in my countrymen I do not realy like.
Any connections "Finanzamts"wise?

Actually, this doesn't deal with some alledged German nitpicker attitude, there's a political background (you might not know/see), plus there are Matrix customers who don't like the fact that Matrix chose DR as the sales/distribution platform:

Products shipped from the European Union (say to the US) are exempt from any VAT charges. Yet the EU imposes local VAT fees on all imports. In theory, if you follow the EU regulations, EU citizens are even supposed to pay VAT for digital download products obtained in say China. I for one, think that this is quite an impertinent if not imperialistic behaviour, putting US businesses like Matrix at a substantial disadvantage.

Some US businesses decided not to deal with sales platforms like DR (DR has subsidiaries in Europe) just for that reason, and - since the EU can't enforce their tax laws in the US (means on US businesses), such US businesses decided to boycott EU tax legislation, as higher prices for their EU customers would hamper their sales efforts, otherwise.

So if then, on top of the whole deal, DR decides to bow to the EU's discrimination of foreign (eg. US) businesses, by establishing registered subsidiaries in Europe and adding VAT to the bills of European customers, then I'd at least expect that they'd do their math right.

If they can't do that, I'd rather prefer Matrix to refrain from doing business with DR in the future, especially since they'd highly benefit from it, by putting up VAT-free price tags for EU customers.

The discrepancy regarding the VAT amount may also leave German customers with a bad taste in their mouths, as they might wonder whether DR really pays over the money or not. Hence my reference to German tax authorities, when I said that I can't imagine that the German tax office would be satisfied with 16% VAT.

Last but not least, US laws don't envision (let alone enforce) the use of EU laws on US territory or businesses.

Thanks for the kind explanation, I can see your point now. Nevertheless the "I will report you" statement, reminds me of days gone by [:D] Couldn't resist the pun...but sometimes the "little prussian" in our heads takes over I think.

Freundlicher Gruß nach Köln

Rob

[GoodGuy]

ORIGINAL: ElchDivision

...the "I will report you" statement, reminds me of days gone by [:D] Couldn't resist the pun...but sometimes the "little prussian" in our heads takes over I think.

There's no prussian in my head nor in my family line, and I don't see why I, as a customer, wouldn't have the right to question the ominous business practice performed by DR, and to ask why Matrix doesn't protect their right to just follow US regulations, exclusively.
So, if you don't have anything constructive to add here, if you don't understand that it's about more than just some 3%, and if you just insinuate that there's some imaginary "prussian" attitude on my end, maybe then you should refrain from intervening in this discussion. Your statement in your first post, which translates to "German to the bones", was already quite impertinent, as you don't know me at all. Now the prussian thing. This is getting insulting here.

Especially if you consider that the ppl from Cologne really have a strong aversion to everything Prussian from the point when they had occupied our city in 1815.[:D]

[thewood1]

Like I have said, BFC does it and they do both phyisical and digital.  They have yet to charge me sales tax.  In fact, I buy stuff onlline all the time and have yet to be charged.  Go figure.

btw, wouldn't be such a big deal if you hadn't decided to charge $80 for a digital download to begin with. I would like to think that a savvy business man would eat a little sales tax for an $80 download game. But go ahead, squeeze me for every penny.

[Erik Rutins]

ORIGINAL: GoodGuy
When I obtained Close Combat - Wacht am Rhein on release date (28th of October 2008), the DR store still showed 16% !!!. When I got my calculator to check the VAT rate, the charged VAT amount for this product indeed matched the old VAT amount of 16%, valid until 31st of December 2006. In early 2009, the DR store was still showing 16%, hence my inquiry in the general forum back then, where I was asking for clarification.

Can you give me an order number, please? I'll follow up on that and find out why that didn't match what they just told me.

Also, I don't think that DR's download servers are located in Europe (which would make it necessary to apply EU VATs), are they?

They actually do have lots of operations in the EU - we see that as an advantage, EU customers can get quick downloads and get shipping from within the EU for speed and no issues with duties.

That said, there is really no need to do business with DR for digital downloads, except for the boxed copies. In turn, the number of boxed copy orders will decrease anyways, since more and more customers (maybe except for collectors and customers who are aiming for a printed manual) are adapting to the various digital distribution schemes, so I really don't see why you should do DD business with a distributor that restricts Matrix' economic progress by supporting the EU's impertinent tax policy.

Actually, quite a few customers do order and prefer our physical copies, it's not decreasing at all.

If you run your own shop software and servers for DD, then you can save quite some money, and DR (and the corresponding costs) are out of the distribution chain. The money you'd save that way could be put into your servers/shop, into lowering general prices, or could be directed to the developers, who seem to be struggling with decreasing revenue (due to higher prices, which are partially a result of the VAT drama).

Yes, running our own store would definitely have advantages. There would also be huge disadvantages which you do not mention though, but a lot of those are more visible internally. [;)]

I think that Matrix should follow US laws only (reg. digital downloads), and I am convinced that you shoot yourself in the foot by bowing down to EU impertinence. With the discussion about BFTB, you can see that many potential customers passed because the price (with the high EU VAT amounts on top of it) hit a mark where they would refrain from buying the game.

The thing is, we're pretty darn sure that running our own store is not really possible right now. We're also pretty sure that of the very few companies that can even attempt to do what DR is doing for us right now, all of them are large enough and have enough visibility and exposure to the EU that they would have to charge VAT anyway. The only way we could ever have "gotten away with it" would be if we ran our own store and given the merger that has combined Slitherine (a UK company) and Matrix (a US company) I don't think even that is possible any longer and it was not a practical possibility since about 2003 in terms of what our store needs to be able to handle.

I just went to the BFTB product page, I hit the "buy now" button, and got to the shopping cart, where DR does state the following:

ORIGINAL: Digital River shopping cart (BFTB)

"Any physical products sold to customers in the European Union include an estimated VAT charge. However, the VAT rate and, hence, the total price, may change once you select your shipping destination. The tax rate that will be applied for each respective EU shipping destination will be as follows: 20% for Austria or Italy, 21% for Belgium, 25% for Denmark or Sweden, 19.6% for France, 19% for Germany or Netherlands, 16% for Spain, 22% for Finland, 15% for Luxembourg, and 17.5% for UK and all other EU member states."

Hmm, well a digital download isn't a "physical product". This fine print makes it sound like a digital download would be exempt from VAT, or that a DD's VAT rate would not change to the customer's national VAT, so this could be misunderstood. Also, a VAT amount doesn't show up before I hit "place order", which I found to be disturbing the first time I ever bought a Matrix game, already.

Good point, it should mention digital downloads there too since they are charging VAT on them.

DR is anything than transparent.

That I will agree with. We have had our share of issues with DR in terms of transparency, we try to compensate for that on our side by being as open and transparent as we can.

Regards,

- Erik

[ElchDivision]

"There's no prussian in my head nor in my family line, and I don't see why I, as a customer, wouldn't have the right to question the ominous business practice performed by DR, and to ask why Matrix doesn't protect their right to just follow US regulations, exclusively.
So, if you don't have anything constructive to add here, if you don't understand that it's about more than just some 3%, and if you just insinuate that there's some imaginary "prussian" attitude on my end, maybe then you should refrain from intervening in this discussion. Your statement in your first post, which translates to "German to the bones", was already quite impertinent, as you don't know me at all. Now the prussian thing. This is getting insulting here.

Especially if you consider that the ppl from Cologne really have a strong aversion to everything Prussian from the point when they had occupied our city in 1815"

My family has had its roots in the Rhineland, Koblenz, Cologne and Trier for the last 600 years+. I am sorry if the "Prussian" and "german to the bone" thing was insulting to you, but you seem to be missing the Kölsche sense of humor aswell. I will in the future refrain from disturbing your important and constructive posts and will continue posting unconstructive and silly messages somewhere else.
Thanks for the relaxed and very rewarding reaction.

I am out, Good bye!

[Lützow]

ORIGINAL: Erik Rutins

Can you give me an order number, please? I'll follow up on that and find out why that didn't match what they just told me.


Regards,

- Erik

For evidence I could forward my last five Matrix Confirmations Emails, if you want me. Those purchases are from 2009/2010, VAT is always 16% and Paypal charged exactly what is declared as total sum. Can't blame Goodguy for his suspicion. I also think that DR is lying here and put the money in their own pocket.

[Erik Rutins]

Please do, please e-mail them to me at erikr@matrixgames.com.

[Erik Rutins]

Hi Lutzow,

I received them, thank you. Based on my calculator here, all but one of the orders were charged at the correct 15% VAT rate for digital downloads, as they did not include physical copies. The one order that does have a physical copy was not charged at 19% though and I am now investigating that with DR.

Regards,

- Erik

[Erik Rutins]

Ok, I received a further reply from DR and I think this answers the question. I saw that on your Physical + Digital order you were being charged less than 19% VAT and I asked them how that was possible. It turns out that for orders that combine digital and physical, they use a blended VAT and as the bulk of the price is for the digital download and on that they are only required to charge the 15% Luxembourg VAT rather than the 19% German VAT. The 19% German VAT only applies to the part of the price that is clearly for the physical copy.

3 line items were in this order and calced for tax.

· Digital Download – that was taxed as a standalone download à Lux VAT at 15%

· DVD of download but setup as “Physical on Demand” therefore treated as physical item but with zero price.

· Shipping related to DVD à therefore treated same as DVD item DE VAT at 19%

If a customer from Germany buys the stand alone POD version they will be charged the 19% VAT tax based on the full product cost and on shipping.

[Lützow]

Oh well ...

Anyway, I tell you another secret about DR, but maintain silence about this, please. There is no reason to pay for extended download service, as I always skip this option and could still download games I purchased a year ago.

[GoodGuy]

ORIGINAL: Erik Rutins

3 line items were in this order and calced for tax.

· Digital Download – that was taxed as a standalone download à Lux VAT at 15%

· DVD of download but setup as “Physical on Demand” therefore treated as physical item but with zero price.

· Shipping related to DVD à therefore treated same as DVD item DE VAT at 19%

If a customer from Germany buys the stand alone POD version they will be charged the 19% VAT tax based on the full product cost and on shipping.

Well, I don't think there's a regulation that would allow to handle digital downloads differently (means with the sender's/seller's VAT rate instead of the recipient's VAT rate). If there is such a regulation, you or DR could point us to the particular tax law.

Erik, I'm not a tax expert, and I don't expect you to be one either, but I think DR does it wrong.

I rechecked my emails, I paid 15% VAT for the CC-Wacht am Rhein DD, in 2008, for example.

The German VAT rate is 19% since 1/2007.
Interestingly, DR's shop-website explicitly stated that there's 16% VAT for German customers.

I paid 15% VAT for COTA in 2006, even though the VAT rate was 16% back then.

[Erik Rutins]

"I have confirmed that Digital downloads should be charged at a 15% VAT rate. Digital downloads are an “Electronic Services” in EU and to charge EU in accordance with the Selling Entity address (Luxembourg) the correct VAT rate of 15% is in place.

Supply of goods or “physically boxed software” take into account where Seller is registered and ship from address – in this case POD shipped from Germany would be charged at a the 19% VAT rate."

"Tax Company ID = DR / Order Entity = DRSARL
Digital River International SARL
Estimated VAT Inclusive Pricing Footnote:
The price indicated includes anticipated VAT that we will collect from you based on information you make available to us. The total price may change during the course of the shopping session depending on a number of factors. However, you will have the opportunity review the final price we will charge before you submit your order. (hyperlink: How we calculate VAT).
Hyperlink information (which may change as DR SARL’s tax registrations change):
How we calculate VAT
If the product is considered to be a digitally delivered product:
• If you are a non-VAT registered person located within the EU, prices will include VAT of 15%
• If you are located within Switzerland, prices will include VAT of 7.6%
If the product is considered to be a physical good:
• The applicable VAT is dependent upon where you are located and where the product is shipped from.
• If the product is shipped from a different country than the one in which you are located (or, if you are located within the EU, the product is shipped from outside of the EU), you will be identified as the importer of record. In that case, the prices reflected in the cart are exclusive of VAT and we will not collect VAT. However, please be advised that you may be asked to remit import related VAT and / or fees to the delivery agent upon delivery.
• Non-EU locations: If the product is shipped from the same country as the one in which you are located and you are not located within the EU, the price will include VAT of your country.
• EU locations: If the product is shipped from within the EU and you are located within the EU, the price will include VAT for your country if you are located in any of the following EU countries:

o Austria
o Belgium
o Denmark
o Sweden
o Finland
o France
o Germany
o Ireland
o Italy
o Luxembourg
o Netherlands
o Spain
o United Kingdom

o If you located within the EU, but not in one of these countries, the VAT rates charged will reflect those of the EU country from which the products are shipped.
Swiss Customers only – If you choose to include a CD / DVD in your order of electronically supplied software, you will be considered the importer of record of the software into Switzerland. In that case, the prices reflected in the cart are exclusive of VAT and we will not collect VAT. However, please be advised that you may be asked to remit import related VAT and / or fees to the delivery agent upon delivery. (If you choose not to include a CD/DVD in your order, prices will include VAT and no additional taxes or fees should be incurred.)
VAT Inclusive Pricing Disclosure:
The price indicated includes anticipated VAT that we will collect from you based on information you make available to us. "