Will PayPal Help You Capture Evidence for EU #VATMOSS Compliance?


I’ve been tuning into a webinar with a representative from the HMRC this afternoon, covering the EU VAT MOSS situation.

They’ve been saying that PayPal will be helping merchants by somehow providing evidence about their customers’ locations that may help merchants comply with the 2015 EU VAT changes regarding digital services.

It could certainly make sense for payment gateways such as PayPal to help merchants with the new VAT rules. The payment gateway is often the only part of the system that gets to see the customer’s credit card number (something that could be used to identify the country in which that card was issued). The payment gateway could also be well-placed to capture and record the customer’s IP address, saving the merchant from having to do that themselves.

It will be interesting to see what payment gateways do to help merchants with these new rules. With lots of merchants concerned about the VATMOSS changes, this is an area where payment gateways can potentially make a real difference.

I haven’t yet seen PayPal’s announcement about this. Have you? If so, do post a link in the comments below.

Update: here’s the announcement from PayPal. It describes how you can retrieve the customer’s country of residence via the PayPal API. Unfortunately, as pointed out in detail by Clare Josa on her blog, the new EU VAT rules call for merchants to capture the customer’s location when they’re making the purchase not whatever location is associated with their PayPal account.

So PayPal’s guidance could be risky to follow. Will the tax authorities of EU member states end up turning a blind eye to the distinction between country of residence and location of sale for small merchants? It remains to be seen.

For now, a couple of safe solutions are to (i) switch to using a payment processor that handles VAT for you, for example Paddle (check it out if you’re selling software or games for Mac or Windows) or Fastspring, or (ii) switch to selling through a marketplace or app store that handles VAT for you, e.g. the Apple app store or LoveKnitting’s knitting pattern marketplace.

Have you seen any other payment gateways offering good ways to help merchants comply with VAT-MOSS? Let us know in the comments.

Matt Collins

Matt's the founder of PaymentBrain. He enjoys helping business owners navigate the confusing world of payment processing.

4 thoughts on “Will PayPal Help You Capture Evidence for EU #VATMOSS Compliance?

  1. Thanks so much for including Paddle.com in your article Matt, we really appreciate it!

    Just a quick note: we’re actually able to work with anybody selling digital products, not just developers. We take care of the checkout experience, analytics, file hosting and of course VAT for you too, so by using the Paddle checkout you won’t have to deal with the EU VAT changes in 2015.

    Happy to have a chat with anybody who’s looking to avoid the VAT mess! You can reach me at: fabio[at]paddle.com

  2. I’ve not looked at Clare Josa’s blog – but its not the location at the time of purchase that should be used. From https://www.gov.uk/government/publications/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop/vat-supplying-digital-services-and-the-vat-mini-one-stop-shop section 1.4:

    “You need to identify the place where your consumer is established, has their permanent address, or usually resides, as that will be the place where VAT on digital services is due.”

    I think what PayPal are offering is good evidence, but too late in the process. Before going to PayPal you need to make the location decision. If PayPal can come back with a location, which is based on two pieces of evidence then this is great. The issue is at that point the sale has happened, and the location might be different to the on you chose for your VAT calculation.

    What would be better would be for you to be able to say to PayPal process this transaction if, and only if, the location is X.

  3. Thanks for your comment, Liam. You’re absolutely right about which location the rules say is important. From the discussions I’ve seen online, I think there’s a bit of confusion about that at the moment, perhaps because the rules also talk about an IP address being valid evidence. As you suggest, PayPal’s record of the customer’s country of residence could be appropriate after all.

    Regarding whether PayPal’s evidence is supplied too late, in the case of PayPal Standard where the customer is redirected to a PayPal page to complete their purchase, it seems to me that (in theory) PayPal could be responsible for deciding how much, if any, VAT to charge (with the merchant’s website just specifying a fixed amount including or excluding VAT, without specifying the amount of VAT.)

Leave a Reply

Your email address will not be published. Required fields are marked *