European backers, Reward tiers, Duty and Tax hassle

[imhotep]

I just wanted to share how unevenly spread the lower level reward tiers are for a European backer. This is a bit long post but please bear with me. There will be cake at the end.

The thing is that when you get to the physical product level (>=$50), value added tax (VAT), customs duty and shipping prices are added.

Here in Finland, the customs officers are very effective. We have to pay 23% VAT and (most likely) about 3.5% duty is collected. These are collected from the price including shipping costs.

The thing is that these costs are collected only if their total exceeds 10 €, i.e. about $13.08. With $15 shipping costs for international backers, this threshold is exceed by just a little bit. This means that the price for the $50 reward for us Finnish citizens will be 1.23 x 1.035 x ($50 + $15) x 0.765 €/$ = 65.9 € = $86.2. Without tax and duty, the price would be 49.7 € including shipping.

As a side note, in this Kickstarter backing case it is interesting to ponder what really is the value of the product vs. the donation vs. the reward... If the price cannot be shown, it will be based on a somewhat arbitrary judgement of the "value" of the items for the customs purposes. Most likely, the amount pledged.

Now, here is my few cents. If InExile could split the reward value to that of the digital items (not included in the shipment) and physical products (included in the shipment), the value of the shipped product would be lower and we could get this tax and duty free altogether. This would meant that it would be a lot easier to hop to the $50 tier and pay only the $65 not $86.2. So, the physical product should have a separate invoice declaring its value. Otherwise, one has to use the full value pledge invoice to get the item from customs. I believe that this would encourage many backers in Europe and not only in Finland to increase their pledge.

I understand that pledging is not buying and these rewards are separate from them. But I argue that a lot of folks at these lower tiers are partly in for the reward. And it is not these tax and duty costs alone, but the hassle to deal with the customs office. You either have to declare the items you self (in various ways) or pay a third party (the post office) a beefy price to do it. It just adds too much trouble. Clearly marked/invoiced low priced items go through customs without (too many) problems and end user interaction.

[imhotep]

To make things clear, here is the idea in a nutshell:

PROBLEM: For us, the lower level reward tiers are not $15, $30, $50, $75, but $15, $30, $83, $115 due to shipping, tax, and duty. In addition, there is hassle with the customs office.

SOLUTION: InExile declares a separate value for the shipped items and digital content. Give separate invoices and include only the corresponding one with the shipment of the boxed game (and also send a copy of the invoices via email).

OUTCOME: The reward tiers become $15, $30, $65, $90, as we get the shipped items without additional costs other than the international delivery. The boxed game ships through the customs without hassle.

[infestor]

although i never had issues with the tax leeches (skat) here in denmark (once ordered 2000$ of hardware from germany) this topic made me depressed.

[imhotep]

By looking at the reward levels purely from the customs duty perspective, the boxed game shipment can be valued at $20 plus $15 for shipping at the $50 and $75 reward tiers. I am just asking for InExile to acknowledge this so that more people can increase their pledge. It comes at no cost (except minor invoice work at the shipping stage) to InExile.

I am not encouraging any duty fraud such as the typical "sent as a gift" or "value under $10", but true valuation of the parcel contents.

[Aarionn]

I live in Germany. Customs officers here are very ... efficient ...

I think inXile has to, imho, when sending packages internationally to consider not stating the real value of the pledge made.

For example, if regular boxed game would worth $30 and CE $50, than my pledge of $250 should not be written on the package as the value, but $50.

It is even more noticeable for $1k pledge where physical item is same as $250... and we would end paying taxes on $1k....

Furthermore, it is worth of thinking further how to tackle this as we are not buying this game but investing in it for rewards. So this should be considered as a gift!

Let's see what inXile thinks.

[Librarian]

As a German backer I am in the same boat.
But while I think it would be nice if inXile could find a way to make the aspect of shipping the physical product a bit easier on us you have to keep in mind that it's still a long way off and probably not on any priority list for a long time.

I already considered the potential extra costs when throwing my money at them and after 20 years of waiting for this game I think I can deal with it

[Kiya]

I personally don't have any problem if I end up having to pay import duties either for the same reasons

The point is that for many others who have pledged or are thinking of pledging the idea of having to sort out the import duty taxes may be something that prevents them from increasing their pledges to obtain the higher tier rewards - which means less money for the project in general. So this is something of a priority that really could do with being adressed in some way by somebody official.

[imhotep]

I live in Germany. Customs officers here are very ... efficient ...

I think inXile has to, imho, when sending packages internationally to consider not stating the real value of the pledge made.

For example, if regular boxed game would worth $30 and CE $50, than my pledge of $250 should not be written on the package as the value, but $50.

It is even more noticeable for $1k pledge where physical item is same as $250... and we would end paying taxes on $1k....

Furthermore, it is worth of thinking further how to tackle this as we are not buying this game but investing in it for rewards. So this should be considered as a gift!

Let's see what inXile thinks.

I fully agree!

And at least here in Finland, a gift received from outside the EU will still be taxed and a duty must be paid if the gift it is of any value. Hence, the actual price of the shipped game needs to be known and shown to prove it to the customs officer.

[Shaewaros]

This is an important issue, I'd like to hear an official response from developers to this question.

[Vaux]

This is reward so that means it's a gift
And the game cost only 15$ (and we pay for the development, not for the game himself)

In fact just send by USPS, that's generally not controlled

[imhotep]

This is reward so that means it's a gift
And the game cost only 15$ (and we pay for the development, not for the game himself)
In fact just send by USPS, that's generally not controlled

I beg to differ via first hand experience. Finnish duty officers are keen to inspect any parcel. Shipping via USPS does not affect that.

If the boxed game is a gift and is not bought for a price, the duties and taxes will be based on the value of the product. This valuation is done by the customs officers. Most likely the officer will not ever agree that the value of the game is $0 plus $15 for shipment. It would be unheard of - they are not fools. If the item has not been for sale on the market to determine the price, they will most likely generate some random average retail price for a PC game. But please note that it will be up to the customs officers to determine some arbitrary value for the product if it does not come with an invoice. And invoices do not usually come with gifts...

But when a backer only has a receipt for their Kickstarter pledge payment through Amazon payments, it is hard to show any other reliable value for the physical product. Surely the value is not the same as the pledged value. To determine the duties and taxes, they will most likely open the package to see what the gift is and how much it is worth. If there is a letter stating congratulation for giving us $250 and here is your reward, you will have a hard time convincing the officer that it is just a gift and you have not paid anything. Albeit the mechanism truly is that we are just gifting our money to fund the game development, they will surely consider it to be an attempt of a tax fraud where the buying is masked by using the term donation. The duty officers have seen all the possible tricks to counter duty and tax payment. Since this is the first time these sorts of crowdsourcing things are happening, there are no precedents for them to understand this mechanism. And it is not clear if pledging will be acknowledged as "not buying" by the legal system in all countries ever. In the worst case, a backer will end up fighting through the legal system if they do not wish to pay the taxes for the full pledge amount or leave the parcel at the customs to be disposed of.

I want to make it clear that the above described is the sort of hassle I do not want the backers to be thinking of. These things should be clarified so that we can increase our pledges without worries. I suppose that this is not so big problem for $10k backers loaded with money and able to pay the taxes or let their lawyers do the worrying, but normal average backers struggling between, say, $30 and $50 tiers and money for food.

It will be much better for InExile to clearly acknowledge some value for the boxed game, to state that value clearly on the parcel, and also to include a corresponding invoice or some other sort of statement of value. Looking at the $30 and $50 reward tiers, the boxed game is "worth"/"has a value of" $20 despite it has no price as it cannot be bought. Certainly, I am not stating that they have to acknowledge that this is buying, but I am arguing that some value must be attached to the physical reward, and that value should not include the value of the digital rewards and should not be related to the pledged amount.

If the issue is not handled at all, I can just Imagine the negative publicity when some juicy stories of tax and duty faiths start to arise. The press would just love to find these sorts of problems with these successful projects and their eager backers.

[JakBot]

I also think that duty fees don't apply here. We are not buying a product we're financing a development of a product. When and if it's finished, we'll get the product as a gift. The easy solution is naturally to send the packages out marked as gifts, but this should be cleared with a lawyer to avoid legal consequences for inXile.

I also live in Finland and sent this message to our local customs office (Sorry it's in Finnish). They only work during weekdays and having changed messages with various offices in the past the answer might take a few weeks, but I'll inform about the answer once I receive it:

Hei,

Internetissä toimiva Kickstarter.com sivustolla voi rahoittaa erinäisiä projekteja joista voi saada tarpeeksi suurta rahoitusta vastaan rahoitettavan tuotteen sen valmistuttua. Useat suomalaisetkin ovat osallistuneet projektien rahoitukseen ja isoimpina projekteina ovat olleet kaksi tietokonepeliä:

http://www.kickstarter.com/projects/667 ... -adventure
http://www.kickstarter.com/projects/inxile/wasteland-2

Suuremissa rahoitusluokissa peli lähetetään rahoittajalle sen valmistuttua. Esimerkiksi $265 (noin 200 €) rahoitusta vastaan saa pelin keräilyversion ja muuta oheismateriaalia palkintona. Kysymys kuuluu, meneekö tuotteista alv ja tullimaksu vai ovatko ne laskettavissa lahjoiksi, koska kyseessä on lahja rahoitukseen osallistumisesta? Mikäli tullimaksut pätevät, minkä perusteella arvo lasketaan? Tuotteita ei ole myynnissä, joten niillä ei ole varsinaista vähittäismyyntihintaa ja suurin osa 200€ rahoituksesta on mennyt pelin kehitykseen eikä korreloi tuotteen arvoa.

I also hope I didn't actually give them a heads up to look for these packages . Well, they'll forget it in a couple of years.

[Tinkerbell]

I also think that duty fees don't apply here. We are not buying a product we're financing a development of a product. When and if it's finished, we'll get the product as a gift. [..]

There was exactly the same discussion for the Order of the Stick Kickstarter and there is no way to sent out the product itself (i.e. the game) as a gift. So at least we will have to pay taxes on the value of the game.

Best,

Tinkerbell

[imhotep]

I also think that duty fees don't apply here. We are not buying a product we're financing a development of a product. When and if it's finished, we'll get the product as a gift. The easy solution is naturally to send the packages out marked as gifts, but this should be cleared with a lawyer to avoid legal consequences for inXile.

Once again I stress that gifts are also taxed and duty must be paid. It changes nothing.

Here is an official guide about Customs and tax treatment of gifts received from outside Finland. It clearly states (section 2.2. on page 3) that anything worth over 45 € coming from outside the EU is not duty or tax free. And we are back to my previous posts, how to tell them what the product is worth to avoid arbitrary judgement.

I agree that InExile may have to be careful in their response to avoid legal problems. Basically, I am just asking that they clearly tell us the value they will be writing on the package when posting the boxed reward and whether they are willing to give us a separate "invoice" or "proof of value" about the physical product. All this should be communicated as soon as possible to allow backers to increase their pledges.

[JakBot]

@imhotep

True, if the item can't be sent as a gift as Tinkerbell suggests then it's safe to assume there will be duty fees to pay. As you suggest then the only thing that matters is at what value will inXile be sending the packages so it's up to them to answer, which might be difficult right now.

[Ekaros]

I would suggest hiring some proxy for EU, so having central distribution for this specific area if there is large demand...

[imhotep]

I would suggest hiring some proxy for EU, so having central distribution for this specific area if there is large demand...

That could be one solution. It might not help with the taxes and duties however. I think that if the import and "sales" of that third party exceed certain amounts per year, they have to collect the value added tax and pay it to the nation(s). So this approach might force every backer in EU to pay duties and taxes. But it all depends.. There are certain locations in EU that are treated differently regarding taxes etc... If done properly, this might work well.

Another solution is still to deliver the product directly to us. Isn't that a part what we are trying to accomplish: to cut unnecessary middle men from the chain. It works if it is done in a transparent fashion: we need a proof of the value of the physical reward including the shipping costs, preferably clearly declaring a separate value for each individual item within the shipment. This way, each backer's shipment is considered separately and there is a chance the value of each separate shipment is low enough not to pay tax or duty. The specifics depend on the destination country.

And as with higher reward tiers there is more stuff rewarded, we want the customs to see the value of each separate item within the shipment in order to get the value of each item under the minimum threshold of taxation if possible. Depending on the specifics of the situation, the shipment may be treated as a whole or the items separately.

In any case, I am stressing that the valuation of the reward should not include any value for the digital content (delivered separately) and not be directly related to the pledged amount.

I am eagerly waiting for information about this matter to be able raise my pledge. I am somewhat worried that in the worst case scenario I may end up paying VAT and duty from the full pledged amount, or at least from an arbitrary PC game retail price. Especially considering the fact that those prices arise from much larger budgets.

[Sole Song]

What we get via mail can be thought of as a gift of NO value, there is realy no connection between what we pledge, it bee $15 or $5000, and what we get. It is just a gift, a thank you for helping. Pledging is comparable to buying shares in a new company. If the company so choose to send us a T-shirt as a thank you gift with no value, nobody can tax us.

[imhotep]

What we get via mail can be thought of as a gift of NO value, there is realy no connection between what we pledge, it bee $15 or $5000, and what we get. It is just a gift, a thank you for helping.

It can be thought that way sure, but in the end, our gift has value in the eyes of the customs officers. It is a tangible good that can be sold to other persons for real money. So it has that value. The customs will not ever arrive at a conclusion that it has no value.

Sure, it has no price because it was not bought. But it has value. Those are separate notions.

[Lexx]

Good topic. I'd like to hear more about this issue as well. Pretty sure it won't be viewed as a gift, simply because of its value, so yeah, like written already, the optimal / correct way should be to assign it the correct product value (i.e. $50 or whatever it will be) and go by this then.