VAT can be complicated which is why Patreon does its best to take care of most of the burden on your behalf. To start, EU VAT directives have enacted rules that say we must take care of the VAT burden for our EU creators. This is because we are bound by rules governing marketplaces and platforms (to get really nerdy we are bound by the Council Directive (EU) 2019/1995 - provisions relating to distance sales of goods and certain domestic supplies of goods).
What this Directive does is put Patreon in the middle of the Creator and the Patron. It splits the supply of content into two separate supplies:
Supply 1 - Creator provides content to Patreon’s platform
Supply 2 - Patreon provides content to the Patron
Let's take a look at local German law. German VAT treatment is based on the European VAT Directive described above. The relevant section of German tax law is 3 para. 11a VAT Act which splits the supply of content from Creator to Patron in two - just as described above and shown below.
So what does this mean for VAT?
Patreon does a lot for our Creators behind the scenes. Including collecting pledges on your behalf, ensuring you have access to your funds, blocking or holding funds due to policy violations or compliance reasons as well as ensuring the platform is properly designed and managed. These services (in exchange for the fee the Creator pays to Patreon) are what form the basis for applying the German tax law (3 para. 11a VAT Act).
Supply 1 - Creator provides content to Patreon’s platform
Patreon assumes that Creators are, in themselves, businesses. The supply of content is therefore a “B2B” supply. In B2B transactions, the place of supply for VAT purposes is where the recipient is. In this case, Patreon is the recipient, and as we are located in the US, this first supply is outside the scope of VAT.
Supply 2 - Patreon provides content to the Patron
Patreon assumes that Patrons are “non-taxable persons” i.e. individuals! The supply of content to the Patron is a “B2C” supply. The place of supply for VAT purposes is where the recipient is i.e. where the Patron is located.
Patreon is therefore responsible for applying VAT on Patron pledges based on where the Patrons are located and ensuring this VAT is remitted to the relevant tax authorities.
EU VAT MOSS Regime
Collecting VAT and paying it to all member states of the EU would be a lot of work. The EU recognizes this and has helped reduce the admin burden by introducing the MOSS regime.
Patreon is registered for the EU VAT MOSS Regime in Ireland - this means that while we collect VAT across all 27 member states, we file all the information and pay all of the VAT to the Irish tax authorities. The Irish tax authority is then responsible for sending the VAT funds to the relevant tax authorities across the EU. In other words, ALL of the VAT collected from Patrons is paid to the local country of the Patron.
The EU VAT directive (and more specifically in Germany the law as outlined in 3 para. 11a VAT Act) requires Patreon to register for VAT and not the Creator. It will be Patreon Inc.’s name on all VAT filings (as we are making the taxable supply).
Why is your local German tax office asking you to pay more VAT?
This is a very good question. Remember that tax legislation referenced above - 3 para. 11a VAT Act? It was introduced in 2015 but is still not frequently applied. Patreon, like many digital businesses, is a relatively new concept in the eyes of the tax law. We continue to work with local advisors to ensure we are up to date with changing legislation and are open with local tax authorities to ensure they understand our and our Creator’s business model.
In the meantime, should local German authorities request documentation regarding VAT charges on pledges made through the Patreon platform, it may be helpful to present the VAT charges CSV, which can be found in your earnings dashboard here, with the following explanation:
“Patreon Inc operates under EU Directive rules for Marketplaces. As such, all pledges that Patrons make to my Patreon page will have VAT applied depending on the jurisdiction in which they are located. The EU VAT directive (and more specifically in Germany the law as outlined in 3 para. 11a VAT Act) requires Patreon to register for VAT and not the Creator (which is me). Patreon Inc then remits this VAT to Irish tax authorities through the MOSS VAT regime under registration ID EU372009942.