Thom Yorke has premiered a song on Bandcamp

Bandcamp Faces Exodus Over European Tax Change

Marc Hogan

By Marc Hogan

Lead News Writer
on 12.29.14 in News

UPDATE: Bandcamp has said it will handle newly required European tax registration and reporting for artists who sell downloads over its service. More details are on the site’s blog.

Users of the popular online streaming service Bandcamp have found themselves entangled in a political fight over the European Union, the United Kingdom’s place in it and big companies’ legal tax-dodging strategies. Some U.K. artists are warning they’ll have to stop selling downloads through Bandcamp after new rules go into effect on January 1. The upshot for listeners might be less music available through the well-regarded streaming site.

The rule change comes amid a bigger debate over corporate giants such as Apple and Amazon cutting their tax bills by basing their European offices  in low-tax countries such as Luxembourg and Ireland. Under the current rules, sellers of digital services must pay so-called value added tax, or VAT, based on the tax rates of the country where they’re based, so the likes of Microsoft pay less by putting their operations someplace with a low VAT. Way back in January 2014, the EU announced that effective next year the VAT for such services would calculated based on the country of the buyer, not the seller.

The idea is to make it harder for large companies to avoid paying taxes in the countries where they sell their digital services. The British treasury, for instance, will probably reap an extra windfall of tens or hundreds of millions. Critics say the new rule will hurt small businesses, a concern that has spread to the music world as the January 1 deadline approaches. European music-makers are right to be worried, though as with the debate a couple of years ago over U.S. anti-piracy legislation, some of the rhetoric has been misleadingly overblown.

Talk of the rule change spread online today after a report in FACT flagged the risks for artists who use Bandcamp. Future of the Left, the Welsh band formed several years ago from the ashes of Mclusky, issued a series of tweets about the issue, praising Bandcamp but saying “no direct downloads from us anymore.” A quick search reveals other U.K. indie labels and musicians are also saying they’ll pull their digital download sales from Bandcamp (which just last week premiered a song from Thom Yorke).

One immediate outcome for those of us listening at home could be an inability to buy digital downloads of music from our favorite British artists. Another negative consequence could be any potential blow to Bandcamp, which has stood out in recent years as a useful service for discovering smaller artists.

For musicians affected, the problems are real, too. British businesses that sell e-books, apps or, yes, music downloads would be required to pay VAT on sales to customers in all the different countries of the EU, with some 30 different tax rates. Though Bandcamp will handle the details, EU-based indie labels and artists would still be required to file quarterly VAT reports and keep their records for 10 years — not exactly what they were expecting when they got into this business, one can safely assume. And the extra costs of compliance could either cut into profits or raise the prices for music buyers.

On the plus side, Bandcamp says it will post downloadable VAT reports for EU-based users starting in March. “In the first half of 2015, we plan to make payments for digital transactions flow through Bandcamp,” the site explains, as opposed to the current system where buyers pay artists and labels directly. “Among other advantages, this will allow us to take care of everything related to digital VAT, including tax reporting and payment.”

Still, the 11th-hour backlash has been considerable. A petition opposing U.K. participation in the new tax rules has received nearly 17,000 signatures since being launched last month. British small-business network Enterprise Nation told the Financial Times the new VAT requirements could cost entrepreneurs more than £400 a year ($622) in accountants’ fees.

However, onlookers should take note: The debate has also touched on some U.K.-focused issues that have almost nothing to do with music. A widely circulated Telegraph op-ed by Willard Foxton uses the potential negative impact on musicians as a reason to argue for a so-called Brexit, or U.K. exit from the EU. The headline on the op-ed — which, in fairness, he might not have written — calls the move “idiotic.” This style of argumentation surely inflames, but it doesn’t necessarily inform.

For more details, Bandcamp helpfully points to the official U.K. overview of the VAT changes, as well as the official EU overview. And earlier this month, critics of the new tax rules said the U.K. tax authority, HM Revenue and Customs, was listening to their concerns. “The weight of feeling has taken HMRC by surprise, but we were delighted with their prompt response,” Enterprise Nation founder Emma Jones told the FT. “We will be working together with them to ensure [the VAT rule change] does not impact negatively on small businesses.”

While the new rules might not yet require average song downloaders to take sides on the possibility of the U.K. parting ways with the rest of Europe, here’s hoping the powers-that-be also ensure the changes don’t further harm the music community.