Hi Daprela, I think your understanding of the regulations is not correct. It is true that the IP address, which is the only tool a web site is able to use to determine the location of a visitor, is
not 100% accurate though it is pretty good and in over 99.999% of cases will be correct. However it does not matter. The rules only require that you collect the evidence available, what the regulations call “commercially relevant information” (see Article 24[f] of the EU VAT Directive 2006).
The IP address of a buyer is one piece of evidence explicitly permitted in by the regulations. The
declared billing address of the buyer is another. If the country of both of these pieces of evidence do not agree, a site is permitted to ask the user to ‘self-certify’ that the billing address is the correct address to use.
This is going to happen often in some locations in Europe. If a buyer lives in Tournai, Belgium but works 20km away in Lille, France then purchases are likely to be cross-border regularly which is why the regulations allow for this scenario.
Of course the buyer may lie about their location. Again the regulations allow for this and state that a company cannot be held liable for deception on the part of the buyer unless they would reasonably know otherwise. The regulations specifically allow for a passenger on a cruise or a guest at a hotel. In these scenarios the ship operator or hotel manager knows exactly where the buyer is located.
However, it is not reasonable for a web site selling software or an e-book to know whether the declared address of the buyer is correct or not. The obligation of the web site is only to apply VAT at the correct rate based on the available information (usually the billing address).
Even in the case of the ship passenger or the hotel guest, the current location of the person is only
relevant for certain purchases. The regulations give the example of someone staying at a hotel using a kiosk provided by the hotel to access the internet. The VAT rate applied to the purchase of the right to use the kiosk should be based on the physical location of the user because the hotel
knows that location (the location of the kiosk). However VAT rate applied to any purchase of a digital service made by the user of the kiosk should be the location of the kiosk user’s “permanent residence”.
<<thus forcing the site to change the final price if the VAT is different. However, changing the final
price is against the law, and makes all of this so difficult to manage>>
This is absolutely not correct. A web site MUST charge VAT at the rate that applies in the
buyer’s declared country of consumption. If I am visiting Luxembourg where the VAT rate on digital services is 17% and I buy a digital service and I enter my home address in the UK then the site MUST charge 20%. The price I see when I visit the site may include VAT at the rate of the country I
am in when I visit the site (Luxembourg). The site should make clear the VAT rate applied. However the “final” price must include VAT at the rate in the declared country of consumption. It is not illegal to change the price to reflect the correct rate of VAT. Where have you read that?
Just for the record, the VAT rate for digital goods in Germany and France is 19.5% and 20% respectively.
It may be that you want to offer a fixed price for a digital service, an e-book maybe and earn different amounts based on the tax you must charge. That is OK and most e-commerce packages
allow you to enter a price that includes tax so the price to the end user will always be the same. But the regulations do not demand that you be so noble.