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Why is Dropbox charging Irish VAT to UK customers?

The UK left the EU to all intents and purposes on 1 January 2021.

Businesses providing digital services to Britain from outside Britain are obliged to register for British VAT from that date and their invoices should show a British VAT number: "If you’re selling digital services from the EU to the UK you will need to register and account for VAT." from paragraph 2.5 on https://www.gov.uk/government/publications/accounting-for-vat-on-goods-moving-between-great-britain-and-northern-ireland-from-1-january-2021/accounting-for-vat-on-services-between-the-uk-and-eu-member-states-from-1-january-2021

A search shows that Irish VAT is not applicable to supplies such as these outside the EU, because the place of supply is considered to be where the service is used (not supplied). British VAT is probably applicable, in which cases a British VAT number should be quoted on Dropbox invoices.

Dropbox should supply a VAT invoice with a British VAT number on it. The Irish VAT invoice is incorrect. This would mean that the VAT is payable to the British government (and reclaimable if the customer is VAT registered in Britain).

Please can anyone explain why Dropbox invoices charge Irish VAT?

Many thanks.

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Megan

Hi @Richard T.21, let's see what we can find together!

Since this would require some account specific info, do you mind if I reach out to your Community email?

I'd be happy to have a look into this with you, and see how we can go on about it.

Keep me posted.

Richard T.21

Thank you for your reply.

I don't think this has much to do with account specifics at all - it's pretty general - but if you want to reach out to me, please feel free. Please could you confirm whether or not you work for Dropbox for me?

Just for clarity: I am in the UK (England, in fact - the address Dropbox has on file says that, too). Dropbox invoices come from an Irish-based company (Dropbox International Unlimited Company) at a Dublin address, charge VAT, and have an Irish VAT number on them (and not a British one). You have charged in GBP.

Do you generally charge Irish VAT to British customers, and provide invoices to British customers with Irish VAT numbers on them? If you can answer that particular question for me, I can decide how to take the matter further with you. To me, it looks like Dropbox is not correctly operating VAT (per UK VAT regulations, and based primarily on an invoice Dropbox raised in the last few days), but I am happy to be proved wrong.

Mark

Part of this is a large VAT issue that the whole EU put in (the UK did it before the EU). Part of this legislation was to start charging VAT dependent upon where you buy - so things like Alibaba now do the same when you buy.

See https://www.citizensinformation.ie/en/money_and_tax/tax/duties_and_vat/value_added_tax.html. for some more info.

Richard T.21

Dropbox is providing digital services. The rules are simple both in the EU and in the UK. If you supply from outside the country to another country, and you are within the rules for VAT registration (threshold limits apply), then you should be charging the VAT rate and account for it within the country receiving the digital services. Irish VAT should not be charged. British VAT should (providing that Dropbox have hit the registration threshold and have therefore registered for British VAT).

Dropbox don't seem to be doing this. Why?

tmax100

Was there ever an answer to this question - did it ever get resolved?

I notice they are still charging VAT on exported services to the UK

Or is it because the service is deemed to take place in Ireland ?

Mark

@tmax100 wrote:

Or is it because the service is deemed to take place in Ireland ?

Pretty much yes 🙂

I'm charged VAT now for most services and products I buy online regardless of where they are based. VAT laws have started catching up with e-commerce.

tmax100

Hi Mark thanks for reply

When you say e-commerce is catching up, do you mean we are right that EU VAT should not be charged on services to end users outside the EU

I run a business where we export and import goods - Before Brexit my French End Users would pay UK VAT on our products, but French BUSINESSES would give me their French VAT Number which allowed us to Zero VAT (Intra EU VAT Rate 0%) - They would of course charge French VAT to their end users.

Since Brexit their is no VAT on any of our exports - The 'Z' Zero Rate is applied

I suspect Dropbox are collecting VAT from us, then their internal accounting system is applying Zero export VAT therefore not handing it over to the Irish VAT authorities - I could be wrong of course 🙂

I 'X'ed (Twittered) Dropbox yesterday, and they referred me to the email chain - I'll post back here if I get anywhere - Probably won't

Twinkle2

I have the same issue, and twice I have queried why Dublin (EU) VAT was being charged to me in UK. This year I got an obscure reply, which included:

'Certain non-profit or educational institutions can receive tax exemptions on rgw Dropbox team and Professional subscriptions. However, we're unable to offer tax exemptions for Dropbox Plus subscriptions at this time.

Please note that our Plus subscription is a product for personal use rather than a business product, we are obliged to charge tax on it in certain jurisdictions. We are also unable to exclude this from your payment.

You may be able to use the invoice found in your account to claim tax back from your tax authority but unfortunately we can’t exempt your account from tax or refund the tax paid.

Dropbox Plus invoices are created in such a way that we cannot adjust the billing information displayed.'

Our accounts team flagged this when it first happened, and because the VAT amount is £16.53 it does not warrant hours of our time dealing with Dropbox 'support', which seems impenetrable. Other US Dublin-based software and IT companies, for example Adobe, issue correct 'tax exempt' invoices to UK clients. If there is a loophole we are missing, and their invoicing is correct, then I would be grateful if this can be explained to those of us in UK who are staring at our screens, unable to locate their GB VAT number.

1aurabrown

It is not up to Dropbox to decide whether a plus account is used for business or personal purposes, thus it is not up to them to decide whether or not to charge VAT. Is there a regulator in Ireland or EU-wide to whom this can be reported?

Richard T.21

I regret that you are incorrect. The VAT you are being charged by other companies is British VAT as that complies with UK laws on this. It is not VAT charged for the country of supply, but where it is supplied. These companies are supposed to account for VAT to the British authorities.

Dropbox is the same. They should not be charging Irish VAT to customers outside the EU, as it is considered an export from the EU country's perspective, and they should (subject to thresholds and correct VAT registration) be charging UK VAT and including a UK VAT number on their invoices.

Richard T.21

What a master lesson in obfuscation and avoidance their response is!

Richard T.21

I think the matter shoulkd be taken up with HMRC in the UK. Dropbox appear not to be properly accounting for VAT on their services provided in the UK (unless, their sales turnover falls short of the VAT threshold). The Irish authorities probably couldn't give two hoots as, presuming Dropbox account to them for the VAT they have collected, they are making money when the nature of the export says they shouldn't be.

DavidNightfly

Richard was this resolved? I am a UK customer that has been charged IE VAT ($33.17) on my invoice and don't understand why or how an Irish company can charge this to a UK customer?

Richard T.21

It wasn't resolved, regrettably... I have spoken to a number of their customers who've switched to other synchronisation service providers because of this issue.

DavidNightfly

Thanks Richard,
I am a professional VAT registered online seller and can't charge VAT selling to Europe since Brexit and so don't see how Dropbox IE can charge UK customers VAT without a UK VAT number, seems wrong.

Richard T.21

Definitely wrong according to both the government of the UK and of Eire. It's on their respective websites.

JasperLeonson

I have also similar doubt. Thanks for the clarification! I wasn’t aware of the distinction regarding VAT charges based on the location of the supply, not where the company is based. It helps me to clear things up regarding Dropbox and other companies charging VAT. I’ll make sure to check if the VAT number is correct on future invoices.......