Dealing with VAT

Well, this http://en.wikipedia.org/wiki/VAT is the obvious first reference. In Belgium (Dutch) it's called BTW and in Belgium (French) it's called TVA. In Europe it works the same way for most (all?) the countries. When you sell a product that product falls in one of the VAT categories. With a VAT category a rate is associated. When you sell something you need to calculate the total VAT for each of the categories and mention that on your invoice because your accountant needs it. I'm guessing all of this was already pretty obvious.

In Europe, if you are a company, you do not need to bill the VAT if you sell to a company outside your own company. In this case the invoice needs to mention a special phrase to make it valid.

Then there are special situations where one product needs one VAT rate if it's "to go" and another when you eat it where they make it. This is less relevant for e-commerce though.

VAT handling in e-commerce and invoicing solutions is usually done with being able to define different VAT definitions/categories and assigning a rate to them and then you can assign each product to a VAT category. For ease of use one should be able to say that there is only 1 category for the whole store (or a default category) because that is often the case.

It can be interesting to look at VAT handling in the invoicing applications http://www.freshbooks.com/ and http://www.gnucash.org/

Depending on the country, the applicability and rate of VAT can vary. A rather vexing point of tax law is regarding cross-border sales within the EU. For most products being delivered to a foreign customer within the EU :

• sell to individual: apply seller VAT
• sell to registered business with a complete verification (entity, address, name): do not apply VAT: purchaser must declare in his country ('reverse-charge' VAT)
• sell to registered business without a complete verification (which cannot really be performed conclusively online): apply seller VAT
• for a few products, like cars: apply purchaser VAT, not seller
• sell to registered business with a complete verification, but deliver to one of its places of business within seller country: apply seller VAT
• sell to a foreign place embedded within the seller country, like an embassy : apply seller VAT

In addition, within a given EU country, the same product can be sold under several VAT levels depending on sales terms. For instance, the same fast food item, sold for take-away, is charged VAT at 5.5%, while it is charged 19,6% when sold for eating in the restaurant, although the end price, VAT included, remains the same. In the same vein, delivering to some regions within the country, like extra-continental territories, is subject to different tax rules.

More generally, VAT apply to the actual merchandise flow: taxation is based on the respective countries of shipping and delivery, not the countries of the controlling legal entities for seller and purchaser. You could look up the notion of the fiscal representation (the operation of Amazon within the EU demonstrates exactly that sort of problem, about as far as it can get, if you can get your hands on an european Amazon invoice.).

Also note, that additional paperwork is needed: all EU product movements must be declared in a periodic document in addition to the VAT declaration, summarizing all the taxation cases, which must be provided anyway, meaning it would be good if EC could provide both.

I'm afraid there are (too) many legal intricacies to create both useful and compliant with the various EU taxation systems for someone who does not do business here. The best solution would probably be to create a taxation API and leave it to implementers to elaborate the solution appropriate for their country.

A useful resource is the VIES system (http://blog.riff.org/2007_04_08_vies_client), but a VIES check is not considered sufficient in case of a tax inspection to allow "reverse-charging" VAT.