Paypal in Europe

This post is probably not relevant to people living outside Europe and/or those not having a PayPal account.

Many artists selling their art on an international basis use PayPal for the financial transactions.

PayPal has 35m customers in Europe, including 15m in Britain, which is the region's biggest online shopper. More than half of Britain's population is now online and more than half of British Internet users have a PayPal account. [Daily Telegraph "Paypal becomes a bank to fight off Google" 16 May 2007]

In Europe, on the 2nd July 2007, PayPal arrangements will change when the company which provides the PayPal service in Europe changes and moves location from the UK to Luxembourg where it has acquired a banking licence.

Currently, PayPal (Europe) Ltd. is the service provider for PayPal in the EU. PayPal (Europe) Ltd. is a UK company regulated and authorised by the Financial Services Authority (FSA) in the UK as an electronic money institution. This authorisation enables PayPal to provide its service throughout the EU.

From 2 July 2007, a new PayPal company, PayPal (Europe) S.à r.l. & Cie, S.C.A. (PayPal Luxembourg), will become the service provider for PayPal in the EU. This is a Luxembourg entity regulated as a bank by the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg equivalent of the FSA. PayPal Luxembourg will provide the PayPal service throughout the EU. [Paypal e-mail to all customers in Europe - my emboldening of the different status of the companies]

My background is in finance and the e-mail flagged up a few concerns for me - mainly the one highlighted by the Daily Telegraph (see below). So I started do some to research about what this all means and have come up with a few links (see below).

There appear to be two lines of thinking on this which in very broad terms might be summarised as:

• bank status required to enable more bricks and mortar based retailers to sell on-line (Daily Telegraph)
  
• the move is about PayPal's tax bill and the regulatory regime in Luxembourg (webmasters, accountants and tax advisers)

A word of warning - none of these constitute advice on my part. The Webmaster World thread in particular contains a lot of bias and opinion rather than fact - but read on and find out more.

First the Daily Telegraph take on the banking /retailing perspective.

This means it will no longer be authorised by the Financial Services Authority, which has overseen PayPal since it became an Electronic Money Issuer in 2004. [Daily Telegraph "Paypal becomes a bank to fight off Google" 16 May 2007]

And then some alternative views - first of all all whether or not PayPal is a bank or not, what that means and whether any change is actually happening.....

• Webmaster World has a thread debating this business issue. This starts by one of its members identifying and opining on a number of issues:
• Paypal is not a bank and should not be treated as if it were
  
• if you cash a cheque somebody gives you then they can't cancel it whereas PayPal transactions can be cancelled
• verification of an account if is linked to a direct debit mandate on your bank
  

First, Paypal is not a bank and it's dangerous to treat it like one. Deposits in Paypal aren't covered like deposits in banks. Paypal isn't subject to the same strict regulatory regime as banks. Further, they are now Luxemburg based and even less accountable.
['Oddsod' posting in "PayPal - the company that is too clever by half" in Webmaster World]

After a lot of discussion about whether or not PayPal actually sent people an e-mail (people may have deleted it thinking it was spam) this thread eventually establishes that the change is in the public domain and the whole point of going to Luxembourg is to become a bank.

However that's something which could have been done in the UK - although the regulatory and disclosure regime for tax purposes might not have been to PayPal's liking.

• Accman's blog highlights a significant number of issues of concern for accountants and tax advisers advising businesses using PayPal in Europe. These include:
  

I have seen recent reports that HMRC is planning a clamp down on eBay traders who are not declaring for tax purposes. Once PayPal has moved offshore, how will HMRC get hold of the information it needs to conduct enquiries? [Accman "PayPal moving to Europe" 26th May 2007]

• Richard Murphy, in his Tax Research UK blog post, PayPal goes to Luxembourg for all the wrong reasons highlights three reasons which he thinks are the real reasons for the move

There’s nothing that can be done from Luxembourg that cannot be done from the UK, where PayPal (Europe) is now. I think there are three real reasons:

1. Pay Pal will pay less tax;
2. Pay Pal will not be as effectively regulated;
3. Information exchange will be harder. Luxembourg tries hard not to play that game. And tax authorities are increasingly asking for data. If that information is located in the UK tax authorities can now get it. That will be harder from Luxembourg. It’s a tax haven that still promotes secrecy, after all.

I think those are the real reasons. And if that’s the case the use of such mechanisms as PayPal as part of money laundering will increase. In that case this move is wholly irresponsible.
(Tax Research UK: PayPal goes to Luxembourg for all the wrong reasons)

So that's what I've found so far. Unfortunately, I'm still none the wiser about what the implications are for me and people like me - although apparently the terms and conditions have changed. However I'll be keeping an eye out for any more information on this topic.

If you are concerned then I think my best advice is to get professional advice from whichever accountants / tax advisers you think might best be able to advise on such matters.

[Note: The image is of a Bust of a Child in the Cast Courts of the Victoria and Albert Museum. (It's a copy of original which is made of glazed terracotta is ascribed to the Florentine sculptor Andrea della Robbia 1435-1522), and is in the Musee National de la Renaissance in France. I always find busts have curious 'blind' eyes and it occurred to me that a number of people (including readers of this blog) may also be 'blind' to the change that will occur and associated concerns - hence the image!]

Links:

• PayPal (Europe) - until the change
• PayPal - regulated by the Finance Services Authority
  
• Daily Telegraph (16th May 2007): PayPal becomes a bank to fend off Google"
  
• Webmaster World
• PayPal - the company that's too clever by half started May 17th 2007
  
• PayPal officially a bank from 2nd July started May 22nd 2007
  
• AccMan: "PayPal Europe moving to Luxembourg" May 26th 2007
  
• Tax Research UK: "PayPal goes to Europe for all the wrong reasons" (June 2nd 2007)
  
• Wikipedia - PayPal