Am I right in thinking there’s no actual reliable way of receiving the billing address from a Paypal IPN? Therefore a solution that integrates simply with Paypal will have to collect an address up front?
I really think Paypal integration is important for B2C businesses, as per http://www.elstensoftware.com/blog/2014/08/18/paypal-versus-stripe-customer-survey-surprising-result/
I switched to Paddle.com from Gumroad yesterday and currently testing them out for one of my products. Surprised to see a tax charge for a purchase made by a customer in EU. I thought the VAT and all was included in the 5%+50 cents fee per transaction. Are you paying the taxes separately too?
Also, about services like Payhip and Sendowl, aren’t those more like E-junkie and less like Gumroad in the sense that they don’t hold payments? As someone in India, could I have Payhip process both cards and Paypal for me, because Stripe is still not available for us yet?
Checkout the EU VAT rates. 5%+50c isn’t enough to cover it. Besides, Paddle need to make their margin independent of the country you sell to, otherwise they’d do their best to discourage you from selling to high-tax countries.
No. Like @Richard said. Why would Paddle pay your tax from their profits?
You can choose one of 2 options:
2, The tax is added to price, so customers in EU pay extra.
I choose option 2, as why should I lower my profits to help some government collect taxes (and I say this as someone who lives in Europe).
It’s more complicated than that. Your product becomes approx 20% more expensive to EU customers (the exact amount depends, of course, on the tax rate in the customer’s country). That will almost certainly lead to a drop in sales. Which ultimately is most likely also a drop in total profit, albeit not profit per sale.
For some years I chose option 1, but like you I now choose option 2. I don’t have clear data as to which results in higher net profit for me.
Since it’s their governments that passed this law, they should be happy to pay the tax!
Less sarcastically, EU buyers are used to (or should be used to) paying for VAT. Everytime I buy anything online, VAT is added separate (or a note is given, saying VAT has been added).
I think its a bit more complicated than that - depends on B2B and either B2 ‘normal’ C or B2 ‘sophisticated’ C.
B2B - not a problem, they are used to seeing net prices and in most cases can claim VAT back anyway.
B2 ‘sophisticated’ C (someone who buys a lot online and understands whats going on better) will be fine seeing final price suddenly jump up as VAT added. (though this is against EU law as I understand it as prices to consumers should be shown gross - never mind that its impossible to actually comply)
B2 ‘normal’ C - the prices they see day to day will be gross (VAT inclusive) and they probably dont ever think about whats going on with the tax. (The tin foil hats amongst us will realise that this is probably not an accident, why wouldn’t a govt try and hide what its actually taking out of your pocket?).
I’ve no answers - just pointing out that different types of consumers are likely to see things very very differently.
Gumroad now say they collect VAT. And they will include it in their commission:
Just got that email too:
You’re probably aware that there have been some changes to the VAT regulations with respect to digital goods sold to EU customers.
Well, not to worry. Gumroad will collect VAT as required on your behalf and remit it to the EU. No forms to fill out, no options to toggle, nothing to change.
Your EU-based customers will see, and pay, the added VAT on their purchases. Additionally, at least for now, Gumroad will absorb the transaction costs associated with VAT to keep our 5% + 25 cent pricing structure simple.
While traversing the hoops and pitfalls of running a creative business, it’s nice every once in a while to find out that there’s something you don’t have to worry about. This has also inspired us to dig deeper into finances and payments. Stay tuned next week for that.
Does this change much? People more happy to stick with Gumroad rather than switching elsewhere?
Gumroad is really easy to use, and just works. A 2 week old baby could upload and start selling in 5 minutes. You have to give them credit, they did make the UX very smooth.
Hey guys, Jessica from Gumroad here. Happy to answer any questions you have about our VAT support. We really hope it helps.
Wow, man. Take it easy.
She’s here to help (I assume that until she gives me proof to the contrary).
As long as her contributions add value to the discussion, she is very welcome (to me).
Update: Glad to see that you removed your post.
@jjalsey Jessica: Will you dynamically add the VAT% on top of the price as soon as the customer says “I’m European”? Is this even legal (I talked to Ryan about this back in october) as you (Gumroad) are not the seller and it’s the seller’s obligation?
How does this legally work out with the law saying you have to show gross pricing (i.e. including all taxes) to end customers in Germany? the dilemma here is that you don’t even KNOW someone is from Germany until they say so.
I assume you had legal advice on those topics, so I’d appreciate hearing what your lawyer had to say about that mess.
Also: Please say “Hi” to Ryan 
Cheers,
Christoph
Hey Christoph,
Thanks for the question. If anyone else has questions, feel free to email me directly at jessica [at] gumroad.com.
To clarify, Gumroad views itself as the supplier for purposes of VAT, per the regulations. Accordingly, imposition of VAT is based on IP address, payment card information, and self-certification — again, all consistent with the regulations.
Hope this helps! And Ryan says “hi!”
@jjalsey - Thanks for taking part in this discussion - definitely interesting to get your point of view. However, I’m not sure you answered @itengelhardt’s questions. Specifically:
How does this legally work out with the law saying you have to show gross pricing (i.e. including all taxes) to end customers in Germany? the dilemma here is that you don’t even KNOW someone is from Germany until they say so.
Are you basing price on IP until they tell you otherwise? What do you do incase of a conflict - ask for a third piece of information?
Also:
Will you dynamically add the VAT% on top of the price
I think you might have answered this one implicitly - you do add the VAT to the product. Correct?
To clarify, Gumroad views itself as the supplier
So are other business supplying you? I don’t really understand how this works VAT-wise I’m afraid. Are you submitting the VAT returns for all sales through yourselves? Won’t that lead to double accounting if I have to also account for it in my own VAT return (or do I mark it as 0 rated or something else)?
Allan
I don’t think that’s it. It’s just convenience. Some might say it’s also the most honest way to advertise your prices: just include everything your customer will have to pay.
I’m not sure where you live, but I find visiting the US and Canada extremely annoying in this regard. You never really know how high the bill will be until you have to pay it.
I remember eating out at Niagara Falls (Canada side) a few years ago and having to pay more than double of the advertised price (state tax, city tax, gratuity, “fireworks tax”, etc.). Compared to Oregon, where there were virtually no taxes on eating out (I think it was Oregon, could have been Wyoming or thereabout, it’s been a while)
For what its worth Peter I agree its better for the consumer - but its also a happy coincidence that its better for the govt if consumers don’t realise how much is going in tax.
For confirmation just look at fuel protests in UK a few years ago and govt talking heads ‘urging the petrol industry to do the right thing and cut costs for consumers’ whilst forgetting that 60% of the cost of petrol in UK is tax.
Hey Allan,
Sorry for being unclear! To clarify, we determine a buyer’s location using their IP and card address. If there’s a discrepancy between the two we ask the buyer to select their country from a dropdown list.
Yes, we do add VAT on top of the price dynamically and we also remit all VAT on your behalf so you don’t have to worry about it. You can tag the sale as exempt because you’re supplying us (a business based in the US) with your product to sell to the final customer.
Does that make sense? Sorry this stuff is so complicated!
@jjalsey Thanks for the clarification. As per the discussion above, EU law requires that the price be shown up front including VAT. However, as you note, you don’t know what VAT rate to charge before you have the users location (which as you same is from a self assigned input and credit card number).
So what I’m wondering, and what @itengelhardt originally asked, is if you had legal advice on how to address this discrepancy. There would be a lot of interested people here if you are able to share that with us.
Thanks,
Allan
Many sites ask the country up front and set it in a cookie.
For instance, http://bol.com will try to guess your country and show a popup where you can change if needed.
There’s also a little flag icon in the top right where you can change it afterwards.
I suppose there’s an additional credit card and address check when you checkout. I’m not sure what happens if that doesn’t match with your initial choice. I will try that on my next order
@allan_jardine Yes, we regularly consult legal and policy advisors on how to develop and refine our VAT solution. As this discussion shows, it’s a pretty complicated issue. Our priority is to ensure the Gumroad experience stays simple with as few barriers to conversion as possible. Our VAT product team designed accordingly.