Microsoft evading VAT tax with GitHub sponsors
twitter.com
twitter.com
> VAT is due on any exchange, but not when receiving money without a counter performance.
> To make things worse, if you offer a 'digital good' for a sponsorship, for example access to a streaming a video course, many countries apply special rules for VAT handling.
So, clearly GitHub sponsorships aren't meant to be used for selling stuff. If you would try to do so anyway, it would indeed likely be illegal, but I don't think it's necessarily clear that anything illegal is going on at the moment.
> Because it happened to Patreon which now charges VAT. And to other digital service platforms like OnlyFans.
With these services it's more directly obvious that you're getting something in return for your money. GitHub will likely claim that sponsors aren't typically getting anything in return directly, as development on the open source projects would happen to some extent regardless of each (individual) sponsor's contribution.
I replied the same thing in another sub-thread, but I just don't think that you can make that claim in good conscience. There are different tiers and you can specify "rewards" for each. If I give you money and you give me certain goods or services in return, you are selling me something.
> GitHub will likely claim that sponsors aren't typically getting anything in return directly
Even the examples they feature on https://github.com/sponsors do give something in return. OpenSSL has a tier (at $400/mo) that will feature your name or your company's name on their website in a sponsorship section. Depending on your jurisdiction VAT may already apply to this.
Article mentions that you have to sponsor a certain amount to get
1) early access to software
2) Access to videos
The second especially is a "sponsors only" feature
"A few weeks later I added a new “private” group of screencasts for GitHub sponsors only."
Honestly, VAT is one of the most puzzling aspects of trying to do any trade with people/entities in Europe, and unless you use some service that handles the accounting for you, it's impossibly hard to figure it out all on your own.
This affects everyone who has sponsor tiers as effectively all sponsor tiers come down to a trade: You sponsor me (e.g. pay me) and I give you something in return (e.g. mention somewhere, a sticker, support, etc.). It also affects GitHub because they will very unlikely be able to argue that they are just payment processors with the current way it's implemented.
Additionally it's even worse than what the tweet suggests, because VAT rules are different for digital services and physical goods in most countries in the world. So if you give someone something physical in return (e.g. stickers, coffee mug, some merch, etc.) for a sponsorship then you must distinguish your VAT collection for sponsors who only get a digital service in return and those who get a physical good in return.
It's a real bloody mess and VAT is the worst bureaucratic nightmare to digital businesses. Nonetheless, no excuse for a huge corporation like Microsoft to blatantly violate tax laws which they are very well aware of.
> Honestly, VAT is one of the most puzzling aspects of trying to do any trade with people/entities in Europe, and unless you use some service that handles the accounting for you, it's impossibly hard to figure it out all on your own.
True, but it's beyond Europe. VAT applies in the country where the customer lives which means you also have to deal with VAT rules for South African customers and many others and not just EU or UK.
The EU Commission forcibly changed this some years ago to the present system which is drastically more complicated, where you have to figure out where your customer is. There are even special rules for things like people who buy things whilst on cruise ships. Then you have to submit VAT returns to every single country where you have customers, and those countries are under no obligation to make it easy, for instance, they usually only offer tax returns in their own language.
Because this is impossible to comply with without enormous numbers of staff, there's now a whole industry of tax middlemen who do it for you. Thus selling to the EU is a nightmare of overheads and costs. It doesn't have to be this way because it never used to be that way, but the EU is ideologically committed to the socialist notion that tax competition is harmful and should be eliminated.
Unlike in Europe they don't include it in the advertised price - same as service. As a rule of thumb add 10% or 30% to the price you see on the shelf/menu and you may be in the right ballpark.
I don't believe the tax isn't paid with interstate commerce though, giving a massive boost to online sales. There have been attempts to change this.
There are two problems with collecting sales tax / vat in the modern world, the rules themselves (which can be byzantian, especially when involving 3 or more companies in the transaction), and compliance.
Removing consumption taxes completely would be the easiest way to solve the problem, but there's still tariffs on international trade in most countries. If I buy a CD from another country, I have to pay import duty. If I buy an mp3 I don't. Or do I?
That changed in 2018 with the Supreme Court decision in South Dakota v. Wayfair [1]. Online sellers now have to collect sales tax on sales into any state where they meet that state's "economic nexus" law. Here's a summary of each state's economic nexus law [2].
It's way worse than VAT. With VAT, all you need to know is what country the buyer is in, and which of a handful of categories the thing you are selling falls under. It's easy to figure out the rates on a given sale yourself.
Then it is just a matter of registering with one EU country, and using their VAT MOSS system to submit a simple quarterly report with your sales for each country. It just got less simple because the UK failed to arrange to stay in the VAT MOSS system, so now you need to deal with them separately, so it is two quarterly reports you have to file.
With US state sales tax, you have to know the exact address of the buyer. The tax at 123 Foo Street might be different from the tax at 124 Foo Street. Heck...I remember that the last time I played around with state tax data, I found cases where 123 Foo Street Suite 100 and 123 Foo Street Suite 200 had different tax rates. There are also many more categories of goods that might have different rates than there are under EU and UK VAT.
If you want to play around with the insanity that it is to figure out sales tax rates in the US, you can download data for about half the states from here, in a common format [3]. You can get data directly from states, but then you have to deal with each state having its own format.
Each state of course has its own way of submitting your reports. That and the difficulty in determining rates pretty much guarantees that you need to use a third party tax service.
[1] https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair,_Inc.
[2] https://www.avalara.com/us/en/learn/guides/state-by-state-gu...
[3] https://www.streamlinedsalestax.org/Shared-Pages/rate-and-bo...
USA is pretty much the only major country that does not apply VAT. As of 2018, 166 of the 193 countries with full UN membership employ a VAT [1].
In my jurisdiction you get upto about $100k without having to register for VAT, but I wouldn't have a clue what tax implications I'd have if I took money and sold a service to someone from Peru.
40 years ago international trade was very specialised, especially trade in services, and companies had experts to help them with the legalities. The internet allows anyone to trade with anyone else, and tax law just doesn't keep up.
It's quite possible for a company or sole-trader with a revenue of $50k a year to be providing services to customers in 150 countries. That was unthinkable even 20 years ago. How do they ensure that they meet all applicable local laws (including buy not limited to tax)? What about if their customers are anonymous?
If I'm providing coding services to "Joe Blogs" who pays me via bitcoin or western union or even cash in the mail, how do I know he's not in Iran or Cuba and I'm breaking American law.
If I'm a developer in India and I do work with a customer in the USA and a customer in Iran (and customers in 50 other states), am I breaking US laws? Or Iranian laws? Or Indian laws? Not just tax laws, but economic boycotts, export laws, etc.
How do I keep on top of that even if I'm pulling in $50k/year in sponsorship, what about if it's just micropayments for my blog and I'm getting $500/year into my bitcoin wallet?
There's a third category you missed: amazon. They handle the transactions and even the fulfillment, but don't collect taxes on behalf of the seller in certain circumstances. A few years ago (before South Dakota v. Wayfair, Inc), amazon wouldn't charge sales taxes for certain third party sellers, especially out of state/foreign ones.
>In my jurisdiction you get upto about $100k without having to register for VAT, but I wouldn't have a clue what tax implications I'd have if I took money and sold a service to someone from Peru.
Hetzner (german hosting company) has a country/VAT selector on their site. If you select a EU country, you get charged 20% (or whatever) in VAT, but if you select US you pay 0% VAT.
For VAT I believe that many countries only have thresholds for sales from sellers in the country, or in another EU country. Other sellers owe VAT even on tiny sales.
Also they aren't evading VAT but actually they're just not assisting their users in complying.
The most likely answer I think is that they just didn't think it's important or relevant (yet).
In normal EU country this would be a donation. There is no contract signed, no work relation, no goods to deliver.
I don't think you need to do anything with VAT.
Tax, especially international tax, is hard, especially when Microsoft hide who your customers are.
Why are Microsoft so bad at implementing it?
Otherwise every company in the world could legally evade tax by calling their sales "sponsorships" and offered services as a "favour".
But analyzing when VAT applies and when it doesn't for every possible sponsorship reward and every country that Sponsors works in is a ridiculous overhead to put on either GH or the developer being sponsored, so they should just give you two options in my opinion: give back absolutely nothing, do not even list their name on the sponsors page OR charge VAT and allow the developer to provide whatever services they want.
Microsoft have a large legal team that operates in practically every country in the world, I'm sure it wouldn't be a ridiculous overhead to do this
If GH/MSFT were to manually check every reward by every developer that might still be doable, but I do think that's a lot of effort to check in a hundred or more different jurisdictions for free. I certainly wouldn't expect it.
Also, who's accepting liability for wrong categorization? Say, my sponsors in Belgium should have been charged VAT for the $20 tier but weren't. Since I'm in the EU and so is Belgium I believe it would have been my responsibility to pay the VAT, but GH decided VAT didn't apply. I doubt GH would be willing to put themselves on the hook for errors their law department made for a free service. And if I'm on the hook I'm just going to want to always charge VAT so I'm on the safe side.
Microsoft actively invites the user to offer something in return for sponsorship. They have features built into their sponsorship program to encourage that like the tiers and also documentation and examples on GitHub owned properties demonstrate examples of doing exactly that. Therefore Microsoft actively wants you or at least strongly suggests that this is what the user should do whilst at the same time making it impossible for the user to comply with national VAT laws because they withhold you the information and don't allow you to capture that information yourself and don't invoice correctly which is also done by Microsoft automatically.
Therefore Microsoft is actively evading VAT and actively pushing their own customers to evade VAT which is a double offence IMHO.
Microsoft are arguably acting like Uber, and arguing that they person being sponsored is responsible for the VAT collection.
On the other hand they are specifying neither the price, nor what the service is, so perhaps they're more like ebay and amazon.
Unlike OnlyFans and Uber, Microsoft isn't a 'disrupter' company that can take the risk, it's an established company in most countries.
Uber in the UK, and OnlyFans, and AnyAnswers, are all facing VAT charges. I'm sure other countries are doing the same (and of course in the UK we're about to get an online business tax for some regressive populist reason)
https://www.accountingweb.co.uk/tax/business-tax/uber-faces-...
> As with many VAT issues, including the OnlyFans and Any Answers Ltd cases, it comes down to the simple question: “Who is supplying what and to whom?”
> Is Uber acting as an agent for the drivers, putting work their way? If Uber is based in the UK, this agency commission will be standard rated for VAT.
> If Uber is supplying passenger transport in the UK, rather than the self-employed driver, the gross fare paid by the passenger to Uber is standard rated. The place of supply for passenger transport is where the journey takes place.
Of course it's even more complex with github as the customers aren't all in the UK (almost everyone paying for an Uber in the UK is in the UK - not sure how cross border journeys work in Ireland, and I guess you could engage an uber to take you cross channel too)