The UK government is against a proposal by other EU countries to
levy value added tax on all sales of digital products over the
internet, such as software or MP3 downloads, according to a report
by FT.com.
With widespread anticipation that fast internet connections will
become ubiquitous, there is an expectation that the downloading
market will take off. At present, typical dial-up internet
connections make the sale of downloads such as large software
programs unrealistic.
There is already a legal anomaly with software sales in the UK.
A court’s ruling from 1996 suggests that the on-line sale of
downloadable software is a supply of services whereas the on-line
sale of the same software in a package – which is posted to the
buyer – is actually a sale of goods. With any sale of goods, there
are implied terms of satisfactory quality and reasonable fitness
for any particular purpose made known to the supplier; but these
terms do not apply for the supply of services, being replaced with
the lower obligation of skill and care in the provision.
In June last year, the Commission said that non-European
companies must charge VAT for on-line sales of “virtual goods” and
that the companies could choose the EU country in which they wanted
to register and pay VAT. The level of VAT in the EU varies from
country to country. The lowest rate is in Luxembourg, at 15%,
making it the obvious choice of VAT registration for any US
company. Other EU countries objected. France called for US
companies to register in all EU states – to which the US,
inevitably, objected. Belgium instead suggested going ahead with
the plan to register in any EU state but requiring that the
revenues are shared among all EU states.
FT.com reports that the UK government considers it would be
virtually impossible to enforce VAT rules for on-line sales. The
EU’s proposal would exempt such sales by EU companies that are
currently required to charge VAT for on-line sales outside the
EU.
