The Ghost open-source foundation says new EU tax rules for levying VAT on digital services such as its own Ghost blogging platform, and the UK's confusing and draconian implementation of those rules, have driven it overseas.
One of the beauties of the internet is that it allows virtual companies to be based anywhere -- but this particular decision by Ghost raises some interesting questions.
The VATMOSS, or VAT Mini One Stop Shop, rule means even small businesses below the VAT threshold have to charge VAT on digital services, at the rate applying where the customer lives.
It's been in place since January 2015 and is designed to make sure large platforms like Amazon charge and pay VAT on services like Kindle subscriptions that match VAT in the different EU countries rather than just at the low Luxembourg rate.
Charging VAT to EU customers has been the law from a long time. But with VATMOSS, UK tax authority HMRC decided to apply it to businesses of all sizes.
Because it means charging VAT at the various levels of every EU country, it's a lot of work for smaller businesses and ironically pushes them towards those large platforms that do the work for them.
It's not surprising that the whole thing is so unpopular with micro businesses in the UK that it's often known as 'VATMESS'. Campaigners have asked the UK government to suspend the system while the EU parliament reconsiders the effect on small businesses.
Changes and clarifications have simplified some things. For instance, businesses under the UK VAT threshold can charge VAT to customers in the EU but not in the UK. But at the same time anyone who had their system set up had to change it.
All that work pushed the founders of Ghost to consider whether the UK was the best place for the legal entity behind their foundation -- and they ended up deciding to move it to Singapore.
Another question is what advantage the foundation gets by moving out of the UK, when the EU tax rules say they still have to charge VAT to UK and EU customers, and register for 'Non-Union VAT MOSS', which used to be called VAT on eServices, or VOES.
"Businesses outside the EU (for example, the USA) that supply digital services to consumers in one or more EU member state are also affected by the changes," states the HMRC guide to VATMOSS. "They will either have to register for VAT MOSS in a Member State, or register in each Member State where they have non-business customers," says the HMRC flow chart on VATMOSS.
Amanda Solomon, head of tax at Kemp Little, explained Ghost's situation: "While Ghost may be moving to Singapore, if it supplies digitised services to private customers within the EU, it will still be required to account for EU VAT under the VATMOSS system."
"It would not have to be registered in the UK through HMRC but it would still be required to be registered somewhere in the EU," she continued. "While dealing with HMRC can be highly frustrating, at least they speak and communicate in English, which is an advantage over registering for VAT in other EU Member States where you can encounter language difficulties unless you are fluent in the local language, particularly given the complexity of the system. Moving to Singapore would not therefore generate any VAT savings for either Ghost or its customers."
Yet the blogpost announcing the move announced that Ghost will no longer charge VAT to those customers; "If you are in Europe, we will be able stop charging you VAT, so prices can go down by 17-27 percent."
When we asked Ghost about their understanding of the legality of not charging VAT, Ghost co-founder John O'Nolan only said: "We're actively in the process of figuring out all of the details around our move, and will certainly share more once completed."
But that doesn't mean the Singapore business doesn't have to charge VAT to EU and UK customers, register for VATMOSS, and submit quarterly VAT returns and pay that to an EU tax authority. The EU tax rules say they do.
Over the past two decades open source has gone from a fringe interest to a mainstay of the technology industry. The importance of open source code and prominent issues like security flaws in major open source projects have led to open source foundations becoming more and more important, which means the decisions they make matter.
The foundations are not just for fundraising and patent protection, although Ghost notes: "As a non-profit, no individual stands to gain if we pay more tax or less tax. The foundation either has more, or less money to spend on its mission to create free, open source software -- that's all."
There's a disclaimer in the Ghost blog post: "Does any of this post constitute legal or financial advice? NOPE." But at least one other UK business, CMS vendor Perch, is "very interested" in Ghost's move because of how time-consuming VATMOSS is.
It's a complicated area and a complicated argument, but given the ease with which digital goods can cross borders, it's likely one we'll see time and time again.