A storm is shaking my little world.
The European Union has implemented a new law regarding the sales of digital services\goods, known as VAT MOSS (also read VAT MESS). Etsy, after notifying its sellers about it, has been keeping quiet. This week plus of silence has greatly affected the way I feel about Etsy, causing me to muse over brand experiences in general and with Etsy specifically, and to re-think of where my business is heading.
What is the new EU VAT rule?
As I understand it, the new law says that if you sell a digital item to a buyer located in a European country, you – the seller – are responsible for paying the VAT. Even if you are not a citizen of an EU country yourself, and even if your buyer isn’t, if he is located there when making the purchase, you need to pay the tax. And the tax rates are different in each of these countries. This applies to all sorts of digital items – apps, ebooks, songs, movies, printables, website themes, plugins, patterns, clipart, etc. It does not apply if you send your files manually by email.
What’s more, a similar VAT law is supposed to come into effect 1.1.2016 concerning physical goods – so in a year from now, no matter what you sell – it will apply.
According to this new law, if you sell through a marketplace, the marketplace is the one held responsible by the EU tax authorities, not its individual sellers.
Link to HMRC Guidance publication:
https://www.gov.uk/government/publications/vat-supplying-digital-services-to-private-consumers/vat-businesses-supplying-digital-services-to-private-consumers#contents
This flow chart, also from HMRC, tries to simplify understanding who the rule applies to:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/390300/VAT_MOSS_Flow_chart.pdf
This of course could entail a lot of hassle for micro and small businesses such as mine. But, since I sell in a marketplace – I felt pretty confident Etsy, after a few days of recuperating, will own up to its responsibility and state that it will pay the VAT, possibly raising its rates a little bit to cover the new expenses.
It did not happen.
Etsy’s response (or lack of)
The first I’ve heard of the VAT rule was on 31.12.2014, one day before it came into effect, via an email from Etsy. The notification article was carefully worded, saying Etsy are really sorry for the trouble this will cause its sellers, and that they will try to assist us by coming up with tools to help us verify the buyer’s country and supply us with the info needed for the tax reports. Basically, they dumped the responsibility solely on the sellers.
Since then, for over a week now, they have been keeping quiet, ignoring the outcry in the discussion forums.
“Ok,” I said to myself, “it’s New Year’s, it’s holiday time, come Monday, they will issue a response, let us know what stance they are taking, what they intend to do. Even if they refuse to take responsibility, they will let us know”.
But coming and checking periodically, I found no new response. Only more confused, bewildered and mad comments from shop owners.
Sellers have been responding in different ways. Some close up shop, some change instant downloads to manual email, some are blocking EU purchases, or making special items for EU customers to purchase.
Since I am a law-abiding person and don’t want to get in any trouble, as well as to show my protest against Etsy’s silence, I decided to close my shop temporarily and put up a notice explaining my reason. Personally, I decided from the start I will not filter my customers.
Over the next few days, I logged into Etsy, read more user comments, but found no response from the admin. I realized I have no wish to be active in my account, to browse through shops and items, to vote for favorites. I was more and more angry with Etsy for abandoning me, for their unwillingness to take responsibility, or at least notify us what their stance is.
Several other marketplaces have let their users know they will handle the VAT, making Etsy’s silence even louder.
Company-customer relationships and brand experience
As is the case with any other products seller or service provider, they set the rules, and we the customers vote democratically with our feet. Customers can recommend a company or give it negative feedback, become loyal fans or stop buying from it completely, and at the end of the day, they rely on us for their existence.
It has been well established that we have relationships with these providers. Very personal ones. In fact, the whole idea behind branding is based on this. We humanize the brand (=company\product\service), we give it characteristics and have emotional interactions with it.
A very important aspect of brands, is brand experience. It means how you the consumer perceive the brand. And anything can influence your experience, be it the more obvious touch-points, such as the sales person’s attitude, the atmosphere in the shop, the app’s interface or the product having a surprisingly useful feature.
Or it can be more indirect: a good word from a friend, the company’s car by-passing you, waiting times when you call customer service, and so on. You don’t even need to have the product yourself, you can have a brand experience when people around you are using the products.
Here are 2 great explanations about brand experience.
An article in The Guardian on creating a great brand experience:
http://www.theguardian.com/media-network/partner-zone-brand-union/four-elements-great-brand-experience
A more concise definition:
http://www.brandexperience.info/definitions/
Back to Etsy
So while it’s not possible for a company to control every touch-point and possible point of interaction a costumer may have with its brand, in this case of Etsy ignoring its sellers outcry, I think they are making a big mistake with their (lack of) response. This is not a minor, marginal experience. People’s livelihood is at stake, their businesses are suffering.
Every time each of us enters the site to get some answers, the negative brand experience grows. With every day of silence we become more bewildered.
While my sales on Etsy are really quite pitiful as to date, I have been a huge fan so far. I started buying things from other etsy sellers, I recommend it to lots of people all the time, I enjoy favoriting items, thinking it helps and encourages small business artisans and crafters, I even forgave them for not answering an email I sent with questions (not even an automated reply).
But this week things have changed for me. I realize that even if they write now, even if the best-case scenario, for me, happens now – my Etsy brand experience has been damaged. I feel disappointed and betrayed, and I’m not sure it can be reversed. If they do not take responsibility as a marketplace, I think we’ll see an immigration wave towards other existing marketplaces who do handle the VAT, or to new platforms will surely pop up to accommodate the need.
And don’t forget – in a year from now the VAT rule will affect all sellers of all sorts of goods. People will not tolerate a platform that doesn’t comply with their needs, that doesn’t even acknowledge their needs.
It could be the end of the Etsy era.
What am I going to do?
As for me, I know what I need. I sell so little at the moment that registering for MOSS is not a viable option for me. It is clear to me that I need to find a new marketplace platform, that will be handling the VAT. I am currently investigating, looking at alternative marketplaces to sell my digital goods (printables and hopefully soon enough – ebooks as well). I will write about the options I encounter.
Since I have not found an article listing alternative marketplaces that are viable for me, I am attempting to compile a list myself. Check out this post-in-progress:
Alternatives to Etsy: My quest to find a new marketplace to sell on: A post in progress
Does VAT MOSS affect you too?
Get informed, read updates, take action: http://euvataction.org
Please consider adding your vote to the petition:
https://www.change.org/p/pierre-moscovici-a-unilateral-suspension-of-the-introduction-of-the-new-eu-vat-laws-for-micro-businesses-and-sole-traders
24.1.2015 update
Late on 20.1.2015 Etsy finally stepped up and announced they will handle the VAT, but so far only for EU sellers.
Things are still pretty vague, we still don’t know the what, how or when.
Check out my updates post: http://tullacreative.com/etsy-the-eu-vat-mess-update-21-1-2015/
Announcement on the Etsy blog: https://blog.etsy.com/en/2015/update-european-union-rules-on-digital-item-sales/
To end on a cheerful note, a great cartoon from Dave Walker:
