The seller of the service (=you) does not have to collect VAT if Google provides you with a Irish VAT number.

On what do you base that assumption?

Given what the agreement says, Google is under no legal obligation to pay any kind of taxes (including VAT) imposed upon the publisher's income. It is the publisher's obligation to pay the VAT money.

It actually says in my profile I'm Belgian.

I pity you ;) You guys seem to always be left behind in things.

Irish merchants who place adverts already pay VAT for the adverts. Google shares this revenue with the publisher so it seems like some kind of double taxation is going on here, at least in the case of Irish advertisers and publishers.

A few things are relevant in determining the VAT situation:

1. where does the service take place
2. what kind of service is it.

For those of us in the Netherlands: have a look at the VAT law [wetten.overheid.nl], article 6-2-d-2 and -10. It says that advertising services and electronic services are considered to take place at the address of the customer, i.e. Google.

If you still doubt that selling ad space on a web site is an electronic service, please read the EU guidelines on electronic services (here [belastingdienst.nl]).

Then visit this page [belastingdienst.nl] on the tax departments website. There is a nice little table that makes it pretty clear that taxation is shifted to the customer, i.e. Google. 100% in line with the EU directive. It means that we do not need to charge Google any VAT. As swa66 made clear, technically it is up to Google to pay and reclaim VAT at the Irish tax department.

If we would need to send an invoice to Google, the words "reverse charge" would have to be on the invoice, as well as Google's Irish VAT number. That number is in the new TOS.

This applies to the Netherlands, but I'm sure that it will not be much different in other EU countries. But then, IANAL either.

[edited by: RonPK at 6:50 pm (utc) on Mar. 5, 2009]

Irish merchants who place adverts already pay VAT for the adverts. Google shares this revenue with the publisher so it seems like some kind of double taxation is going on here, at least in the case of Irish advertisers and publishers.

There is no double taxation. Google Ireland as a business sells and therefore charges VAT. Google Ireland buys (advertising services/space from publishers) and therefore is liable to pay VAT if the publisher is VAT registered. The publisher has to charge VAT to Google Ireland. For EU publishers not in Ireland, Google Ireland supplies an Irish VAT number so that VAT registered publisher does not charge VAT but includes the amount of VAT and the country details on their VAT returns.

Given what the agreement says, Google is under no legal obligation to pay any kind of taxes (including VAT) imposed upon the publisher's income. It is the publisher's obligation to pay the VAT money.

It is the publisher's obligation, where the publisher is VAT registered, to charge Google Ireland VAT. Google Ireland has to include that VAT on payment to Irish VAT registered publishers. Google Ireland has, by being a VAT registered business, certain obligations as regards VAT. The publisher charges VAT on the payment. Google may have no legal obligation to pay a publisher's income tax but this is VAT and it is completely different. Where a publisher is not VAT registered, there is no VAT issue.

Regards...jmcc

Boy didn't this stir up a hornets nest?

Why this fixation with VAT? For all you know every cent you earn may well have been from clicks in the United States. How can anyone prove otherwise?

The fact that Google is offering you your remuneration in Euros doesn't mean it attracts any form of taxation other than your regular income tax obligations.

In any event I can't see people being better off nor worse off by this move.

If they offered me the same deal in Oz dollars I'd decline because it's totally pointless.

In any event consult your tax consultant.

Correct me if I'm wrong, but:

Normally, at the end of a VAT chain, you have two sides:

1) The one that actually pays VAT (customer)

2) The one that collects VAT from the customer and sends it to the government (a VAT-registered publisher)

However, thanks to the agreement, this is not a normal situation.

The agreement between Google and the publisher provides that Google shall not pay any VAT connected with the publisher's activity. Therefore, the publisher cannot collect it from Google. The problem now is that the publisher still needs to send the VAT to the government in order to comply with the law.

It is important to note that only some publishers have to pay VAT. So, the customer (Google) would pay VAT only if a VAT-registered seller (publisher) added it to the price. The only way that could happen is if the publisher sent an invoice to Google asking them to pay VAT. However, the publisher accepts an agreement that says Google shall not pay VAT arising out of publishers income so sending such an invoice should be futile.

However, thanks to the agreement, this is not a normal situation.

The agreement between Google and the publisher provides that Google shall not pay any VAT connected with the publisher's activity. Therefore, the publisher cannot collect it from Google. The problem now is that the publisher still needs to send the VAT to the government in order to comply with the law.

I don't think that you understand the situation at all. The Google Ireland agreement is with EU publishers. Some of these publishers are registered for VAT. Google Ireland supplies them with an Irish VAT number which, under EU VAT legislation and local legislation is sufficent to allow them not to have to include VAT on the payment. The publishers do have to record the details of the transaction but no VAT is charged or is paid. The situation differs for Irish VAT registered publishers because both the publisher and Google Ireland are in the same tax jurisdiction. This means that the Irish VAT registered publishers have to charge VAT and Google Ireland has to pay the VAT to these publishers. Is this explanation simple enough?

Regards...jmcc

The fact that Google is offering you your remuneration in Euros doesn't mean it attracts any form of taxation other than your regular income tax obligations.

The fact that your business partner changes from a non-EU based one (Google inc.) to a EU-based one (Google Ireland ltd.), does have implications.

In any event I can't see people being better off nor worse off by this move.

How about no longer having your income dangling around on the forex market? Since google will use per-day exchange rate conversion, your income will no longer vaporize because of currency fluctuations the day Google decides to buy its euros. Ofcourse this also works the other way around, but overall its a great dampening effect. As a euro publisher, you will get a great amounf of extra security out of this deal.

[edited by: johnnie at 9:14 pm (utc) on Mar. 5, 2009]

Thank god, I finally managed to get hold of a tax authority, and he calmed me down :-) *phew*

Here's the summary (VAT in international services):

1) In most EU countries "selling ad space/time online" fits description of "electronically supplied service" and/or "advertising service" and/or "immaterial service".
2) All three cases rely on reversed VAT if both parties of the contract are companies, and the two companies are located in different countries. So, if Google (based in Ireland) buys adspace from my company (based outside Ireland), VAT duty is reversed to the buyer (=Google) and no VAT duties are on my company.
3) Danger/problem is that if over-eager taxman or stupid accountant places your business in the wrong category, and you end up paying the VAT.
4) There is a lot of misinformation/misunderstandings out there because if you change one word/aspect of this question, the answer changes completely. To make matters worse, there are electronically supplied services which are not under the reversed VAT rule, and the description of those services can be pretty similar to selling ad space/time online, so even tax experts can get confused if not provided all the information accurately. And, as EU/member states unify laws in EU area, they tend to change frequently.

I wish I could help more, but anything I say that could be construed as providing tax advice raises legal issues that I'm not prepared to handle. If you still have questions, I urge you to talk to a tax advisor. I have an updated version of my previous statement that includes the number of the tax code in question in case your tax advisor asks for specifics.

"While you may receive your payments in your local currency, all payments are being made by Google Ireland, a company incorporated under the laws of Ireland, in accordance with the terms of your agreement with Google. The services provided are subject to the reverse charge mechanism and so VAT is to be accounted for by the recipient, Google Ireland, per Article 196 of Council Directive 2006/112/EC. The only exception is for publishers with a mailing address in Ireland as these publishers may have an obligation to charge Google Irish VAT. Please speak to your local tax advisors if you have further questions."

I won't be able to say much else on this subject. If we update any of our documentation in the Help Center or on the Inside AdSense Blog, I'll definitely give you a heads up.

ASA

Thank you ASA.

*sigh of relief*

Looks like the reverse charge mechanism is saving us publishers.

I wish I could help more, but anything I say that could be construed as providing tax advice raises legal issues that I'm not prepared to handle.

Then don't bring this *news* as a new 'reporting feature'. I've consulted my accounted too, and he'll look into it giving me answers next week. Do you think these people work for free? Or are you trying to save the economy?

RonPK, your comment has been really helpful. Your links will be looked at.

I think the updated text posted by ASA above will be better understood by tax people.

If ASA could pass on to the team making this 2 suggestions for further improvement:

• add the Irish VAT number
  [it might be in the new terms, dunno as I don't see them]
  But it can't hurt either (there's nothing secret about VAT numbers).
  
• specify which of the exceptions in the referenced directive this
  service falls under.

Doing that should allow taxmen to give a consistent answer to the publishers seeking local advise and remove a lot of concern (and cost in looking things up)

RonPK, thank you for bolding "Netherlands" and, particularly, for your thorough explanation. That was very helpful. I better make a note not to forget to distinguish payments coming from Google US and Google Ireland when the next quarterly tax (BTW) filing is due. Until now, I've always filed Adsense earnings as non-EU, even though, now that I think of it, payments have always come from Google Ireland. My contract was with Google US, of course, so I think that was all right.

ASA: Will this currency change be available for Adsense statistics in Analytics in the (near) future?

Erhmm... Rob, doesn't Ron's post imply we don't have to file our adsense income for BTW (VAT)? Nothing changes as I understand it now.

For Dutch publishers, here's a helpful article that explains the reverse charge mechanism: [koenenenco.nl ]

ASA,
Could you get the people on the Inside Adsense blog to change the section where it says that English law applies as Google Ireland is an Irish company.

"* The governing law changes from California law to either English or local law."

Even Microsoft woudn't make such a serious error of geography and jurisdiction. :)

Regards...jmcc

2) All three cases rely on reversed VAT if both parties of the contract are companies

So what happens when the publisher is not a company but an individual?

Rob, doesn't Ron's post imply we don't have to file our adsense income for BTW (VAT)? Nothing changes as I understand it now.

Are you saying we don't have to enter Adsense revenue into our quarterly tax reports at all? I've always entered them into the "Deliveries to countries outside the EU" field. It is revenue, after all, but then again I don't actually ship any goods. Perhaps I've been doing it wrong all along. We only have to enter the BTW we've paid in those three months, no other revenues unless we've shipped anything?

So what happens when the publisher is not a company but an individual?

Ah, I should have asked about that case too, but I was so worried about my own case.

In my opinion: If a company buys online adspace from an individual and they are located in different countries reversed rule is used (but if the buyer is an individual then reverse rule is not used). And Google seems to think the same way.

And in any case, if you earn under a specific sum (varies by country, something like ~8000e/year), you are VAT exempted. But if you are earning a large sum of money, you may want to ask that from your local tax expert - and you may want to consider setting up your own business to save in other taxes ;-)

As Dutch individual then like me better to stay contractual with Google US.

So what happens when the publisher is not a company but an individual?

If the individual is not VAT registered, nothing.

Regards...jmcc

So what happens when the publisher is not a company but an individual?

If the individual is not VAT registered, nothing.

Undoubtedly, but I was asking about a VAT-registered publisher...

Undoubtedly, but I was asking about a VAT-registered publisher...

If you are in Ireland, you charge Google Ireland VAT when the agreement changes otherwise the agreement is with Google Inc and the earnings are non EU earnings.

If you are VAT registered and not in Ireland, then Google Ireland gives you its valid IE VAT number and you record it and the amount of VAT. You do not pay this amount of VAT as you are not collecting this VAT on the transaction. This null transaction method should apply to all EU countries. (Verify with your local taxation authorities rather than just reading legislation and hoping for the best.) This is how cross-border VAT transactions are handled within the EU.

Regards...jmcc

What happens if you are a non-VAT registered business in the EU (and outside Ireland). Would this count towards the VAT registration threshold?

What happens if you are a non-VAT registered business in the EU (and outside Ireland). Would this count towards the VAT registration threshold?

It would be best to check with your local VAT office. But logically, since Google Ireland is an EU company and this would be taxable income it may count as it would be part of your turnover (you would be including it in your income tax returns). It is a tricky question though and that's why it would be better to consult the local tax authorities.

Regards...jmcc

I'm not a tax expert so I'd advise everyone to do their own research, however no-one seems to have mentioned this so far, so I thought I'd throw it in.

When I first set about applying for VAT registration in 2006 I was greatly confused and worried about the whole thing and spent a long time on the phone with one of Her Majesty's Revenue Collectors who was kind enough to explain the following to me:

As a UK-registered business (sole trader / individual) my sales of advertising estate to UK-registered businesses were to have VAT applied as normal, my sales of advertising estate to non-UK EU-registered businesses were to be considered "zero-rated" and my sales of advertising estate to non-EU registered businesses were to be considered "out of scope".

Normal VAT meant that turnover from the sales would be counted towards the threshold at which I would be obliged to register for VAT and that I would pay VAT on those sales.

Zero-rated meant that turnover from the sales would be counted towards the threshold at which I would be obliged to register for VAT but I would not pay VAT on those sales.

Out of scope meant that neither turnover from the sales would be counted towards the threshold at which I would be obliged to register for VAT nor would I have to pay VAT on those sales.

If this works in a similar way for other EU member state residents, then (unless you're an Irish passport holder) you will not pay VAT on zero-rated earnings from Google Ireland any more than you would pay VAT on out-of-scope earnings from Google Inc.

The only difference is that your zero-rated earnings (turnover) from Google Ireland will be counted towards the threshold which indicates when you have to start paying VAT, whereas the earnings (turnover) from Google Inc. can be safely completely ignored.