https://www.proz.com/forum/prozcom_job_systems/338359-vat_charged_to_add_funds_to_wallet.html

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VAT charged to add funds to wallet
Thread poster: Nikki Scott-Despaigne

Nikki Scott-Despaigne  Identity Verified
Local time: 04:29
French to English
Oct 29

Good evening,
If I want to add money to my wallet, I will be charged VAT at the French rate.
As ProZ is based in the US, what is the basis upon which ProZ charges VAT?
Regards, Nikki


 

Jean Dimitriadis  Identity Verified
France
Local time: 04:29
Member
English to French
+ ...
VAT number Oct 29

Hi Nikki,

If you add a valid EU VAT number, when you click on Next, the VAT charge should be lifted.

[Edited at 2019-10-29 22:33 GMT]


 

Nikki Scott-Despaigne  Identity Verified
Local time: 04:29
French to English
TOPIC STARTER
Thank you Oct 29

There is still a mystery as to how a US company can charge VAT at the French rate.

 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
EU Oct 29

The EU requires VAT to be charged on electronically supplied services to consumers in the EU from third countries and presumably also to entities that are not VAT registered (but I'm not sure about the latter).

What is a mystery here is how adding funds to a wallet can be a taxable service. VAT is only due if tangible items are sold or taxable services provided. It seems nonsensical to me. Which service is provided?

What's the idea adding funds to the Proz wallet in the
... See more
The EU requires VAT to be charged on electronically supplied services to consumers in the EU from third countries and presumably also to entities that are not VAT registered (but I'm not sure about the latter).

What is a mystery here is how adding funds to a wallet can be a taxable service. VAT is only due if tangible items are sold or taxable services provided. It seems nonsensical to me. Which service is provided?

What's the idea adding funds to the Proz wallet in the first place? Just curious.
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Nikki Scott-Despaigne  Identity Verified
Local time: 04:29
French to English
TOPIC STARTER
Wallet Oct 30

I'm not a paying member and was considering bidding on a job but found a way around it.
The thing that bugged me was how was it technically possible in the first place for a US company, not registered in France or in Europe, to charge VAT? Only companies with registered for VAT can charge VAT.

[Edited at 2019-10-30 02:04 GMT]


 

Samuel Murray  Identity Verified
Netherlands
Local time: 04:29
Member (2006)
English to Afrikaans
+ ...
The wallet is not a bank account Oct 30

Thomas T. Frost wrote:
What is a mystery here is how adding funds to a wallet can be a taxable service.


The way I see it, the "wallet" is not a bank account (although it attempts to operate like one). This is because ProZ.com is not a financial institution. When you add funds to the wallet, you are essentially buying credits. I'm not sure if "withdrawing" from the wallet is processed as a return or as a sale (I can't test it, since I don't have enough money in my "wallet"), but I imagine it might be done by you selling your credits back to ProZ.com, which would mean that if you withdraw funds from the ProZ.com wallet, that money is actually taxable income for you.

What's the idea adding funds to the ProZ.com wallet in the first place?


It facilitates micropayments (e.g. you can pay $1 for something small, without having to pay the usual bank transaction fees that you would incur if you paid $1 from e.g. your credit card or your bank account).


 

Sheila Wilson  Identity Verified
Spain
Local time: 03:29
Member (2007)
English
+ ...
What I've heard Oct 30

I think.it's because ProZ.com is a fairly large company that does a has a significant volume of sales within the EU, much of it to non-VAT registered individuals. Companies in that position are required to register and to charge VAT at the consumer's own rate. I think they have a VAT number that starts with EU.

 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
Not a service Oct 30

Samuel Murray wrote:

Thomas T. Frost wrote:
What is a mystery here is how adding funds to a wallet can be a taxable service.


The way I see it, the "wallet" is not a bank account (although it attempts to operate like one). This is because ProZ.com is not a financial institution. When you add funds to the wallet, you are essentially buying credits. I'm not sure if "withdrawing" from the wallet is processed as a return or as a sale (I can't test it, since I don't have enough money in my "wallet"), but I imagine it might be done by you selling your credits back to ProZ.com, which would mean that if you withdraw funds from the ProZ.com wallet, that money is actually taxable income for you.


TransferWise and many other e-wallet providers aren't banks either. That doesn't mean they have to charge VAT on all funds deposited in the EU for users not VAT registered. One effectively lends them money. That's not the same as providing a taxable service. If you use an e-wallet for printing your own stamps, the service is only billed, and VAT is only charged, when you buy a stamp.

Proz has simply got this wrong. They charge VAT in error when you deposit funds in your wallet instead of doing it when you buy a service.


 

Nikki Scott-Despaigne  Identity Verified
Local time: 04:29
French to English
TOPIC STARTER
I wonder Oct 30

Yes, I was simply wondering about the legality of it. I'm not tax specialist, but Sheila's post is interesting.
If it is legal, I have simply learnt that there are occasions when a company in country A sells a service to a client in country B, A can/must charge tax at the rate applicable in its client's country.
I have always assumed that sellers can only ever charge VAT or sales tax etc. at the rate in the country where they are registered for such taxes.


 

Samuel Murray  Identity Verified
Netherlands
Local time: 04:29
Member (2006)
English to Afrikaans
+ ...
Re: TransferWise Oct 30

Thomas T. Frost wrote:
Samuel Murray wrote:
The way I see it, the "wallet" is not a bank account (although it attempts to operate like one). This is because ProZ.com is not a financial institution. When you add funds to the wallet, you are essentially buying credits.

TransferWise and many other e-wallet providers aren't banks either.


At the bottom of the TransferWise web site it says: TransferWise is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011, Firm Reference 900507, for the issuing of electronic money.

If ProZ.com isn't a registered financial services provider, they only way they can accept money from you temporarily is (a) if you purchase refundable credits from ProZ.com or (b) if you lend money to ProZ.com (and unfortunately there are also cross-border rules for loans).

Yes, there are "many other e-wallet providers" out there, but they work in many different ways, so I can't comment on them in general. No doubt some of them are true financial institutions where the money that you pay into the e-wallet remains yours and also remains "money".

ProZ.com has simply got this wrong. They charge VAT in error when you deposit funds in your wallet instead of doing it when you buy a service.


In several places on ProZ.com where the wallet is mentioned, deposits are referred to as "purchases".

Very little is said about the mechanism of withdrawals, unfortunately.

One thing I don't quite understand is how the e-wallet works w.r.t. payments from others. It is possible for clients who use the "turnkey" service to pay money to ProZ.com, which ProZ.com then pay into your e-wallet, from where it would appear you can "withdraw" it as real money. So, you can actually get more money out of your e-wallet than you originally put into it. Clients can't pay money directly into your e-wallet, though.

Nikki Scott-Despaigne wrote:
I have always assumed that sellers can only ever charge VAT or sales tax etc. at the rate in the country where they are registered for such taxes.


This is an actual thing w.r.t. "digital goods". Many countries have laws that state that if sellers from other countries sell digital goods to people in those countries, the seller has to ensure that certain consumer-related taxes are paid. It just so happens that many businesses have been getting away with not following such laws, until now. After all, many would argue, if you sell something to someone in some far-away country, shouldn't it be safe to assume that it is up to the buyer to ensure that all the relevant local taxes are taken care of? But no, that is not how the world works these days. Also different countries define "digital goods" differently.

The law in the EU is that sellers of digital goods must register for a VAT number in one of the EU countries, charge VAT when selling digital goods to consumers, and periodically pay the VAT to that EU country's tax authority.

https://quaderno.io/resources/worldwide-tax-guides/united-kingdom-vat-guide.html

What's telling is that ProZ.com charges VAT over the entire amount that you put into your e-wallet. They're not just charging VAT on the service fees.

[Edited at 2019-10-30 11:49 GMT]


 

Sheila Wilson  Identity Verified
Spain
Local time: 03:29
Member (2007)
English
+ ...
I just vaguely remember something said by staff a while back Oct 30

Nikki Scott-Despaigne wrote:
Yes, I was simply wondering about the legality of it. I'm not tax specialist, but Sheila's post is interesting.
If it is legal, I have simply learnt that there are occasions when a company in country A sells a service to a client in country B, A can/must charge tax at the rate applicable in its client's country.
I have always assumed that sellers can only ever charge VAT or sales tax etc. at the rate in the country where they are registered for such taxes.

I may well have the wrong end of the stick, Nikki, as I find VAT as clear as mud -- I've never had to deal with it as I went from having a "franchise" in France to a business in the Canary Islands, where we don't have VAT!

But this is what I was referring to:
https://en.wikipedia.org/wiki/VAT_identification_number says:
"Foreign companies that trade with non-enterprises in the EU may have a VATIN starting with "EU" instead of a country code, e.g. Godaddy USA EU826010755 and Amazon USA AWS EU826009064"


 

dkfmmuc  Identity Verified
Local time: 04:29
German to English
+ ...
Adding French [or German] VAT is ok Oct 30

Nikki Scott-Despaigne wrote:

Yes, I was simply wondering about the legality of it. I'm not tax specialist, but Sheila's post is interesting.
If it is legal, I have simply learnt that there are occasions when a company in country A sells a service to a client in country B, A can/must charge tax at the rate applicable in its client's country.
I have always assumed that sellers can only ever charge VAT or sales tax etc. at the rate in the country where they are registered for such taxes.


Dear Nikki,

I am 100 % sure that adding the VAT in principle is legit and also ok.

Some months and years ago there was a huge witch hunt of especially European tax administrations/countries claiming that the IT giants would try to avoid taxes. Using tax friendly corporate structures, locations etc..

If I have understood that correctly the tax administrations even wanted to cash in more money by not only adding a "normal" VAT but an additional "digital tax".

Here is an impressive article about that:

https://www.welt.de/wirtschaft/webwelt/article190209973/Digitalsteuer-fuer-Amazon-und-Co-ist-gescheitert.html

In light of that planned tax increase we may/should/could be happy that this amount is only 19 percent (in Germany). And not with a surcharge of three percentage points.

The only thing questionable is the course of action to add that VAT immediately. This is fine when paying for membership etc. .

But a bit vague if you e.g. pay in 20 USD into the "wallet" and use that afterwards for n bids at different points of times.

But this is only a minor issue and not influencing the taxes paid in any manner. The only "advantage" would be that you would get one proof of payment and then n separate invoices for payments of 1 USD or so.

So in view of the correctness of the tax deduction everything is ok.

The only thing questionable is the long trend of tax increase after tax increase. Some people remember the times when VAT in Germany was in the range of 14 percent.

But that is another topic for an epic discussion in a dedidcated politics forum.

To summarize it: The calculation of VAT seems to be fine due to the fact that the "proz.com wallet" is not a bank account but can be seen of a means of payment for services to render. There is a slight blur in favor of the tax agencies. By paing this 19 percent a bit too early and not at the time of delivery/rendering of the service.

Best regards


 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
Digital tax nothing to do with VAT Oct 30

A digital tax has nothing to do with VAT and is intended to be a corporate tax on gross turnover in each country, not something the consumer has to pay in addition to VAT. Furthermore it is only intended to apply to the very largest international corporations, not relatively small outfits such as Proz.

As VAT is only due when taxable services or goods are provided, we need to know which service Proz consider they provide when someone adds funds to their wallet. They also have to pro
... See more
A digital tax has nothing to do with VAT and is intended to be a corporate tax on gross turnover in each country, not something the consumer has to pay in addition to VAT. Furthermore it is only intended to apply to the very largest international corporations, not relatively small outfits such as Proz.

As VAT is only due when taxable services or goods are provided, we need to know which service Proz consider they provide when someone adds funds to their wallet. They also have to provide an invoice stating what this is when they charge VAT. This has nothing to do with whether or not Proz is a bank or under the supervision or one or another regulator.

As it is possible to withdraw funds from a wallet, it implies that such funds are not necessarily used exclusively for buying Proz services.
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Nikki Scott-Despaigne  Identity Verified
Local time: 04:29
French to English
TOPIC STARTER
Thank you Oct 31

thanks to all those who took the time to answer. Jean's reply indicates that it would not in fact be charged. Nonetheless, I'd expect (and understand) a US-based company to charge US taxes as that is where they are based. Things fiscal are strange beasties indeed!

 

Thomas T. Frost  Identity Verified
Member (2014)
Danish to English
+ ...
Place of supply Oct 31

Nikki Scott-Despaigne wrote:

I'd expect (and understand) a US-based company to charge US taxes as that is where they are based. Things fiscal are strange beasties indeed!


It all depends on the place of supply, a concept in the EU's VAT Directive. Services are taxable at their place of supply. For electronically supplied services, the Directive defines the place of supply as the buyer's location. So VAT is due in the buyer's country regardless of the location of the supplier– even if the latter is outside the EU, as the EU now legislates for the entire planet (the GDPR is another example).

If you buy a widget in the US online and get it delivered in the EU, you also have to pay VAT on arrival (although small amounts are exonerated).

Since it's impossible to insert customs officials in electronic supply, the EU now obliges third-country sellers to act as tax collectors.


 
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