The Council of Economics and Finance Ministers of the EU yesterday
reached agreement on how to apply VAT to digital products such as
the sale of software by download instead of posting it in a
physical form.
The proposal would require suppliers of digital products from
outside the EU to charge VAT on sales to private consumers.
However, for these suppliers, in the case of sales to business
customers in the EU (at least 90% of the market), the supplier
would continue to sell without having to apply VAT (which would be
paid, as now, by the importing company under self-assessment
arrangements).
Under the compromise reached, VAT would be levied on non-EU
suppliers' sales to non-business customers according to a system
whereby these suppliers would have to register with a VAT authority
in just one Member State, but the VAT levied would be the rate
applicable in the Member State where the customer was resident. The
VAT revenue would be re-allocated from the country of registration
to the country of the customer.
This system would be applied for three years following
implementation of the Directive and could then be extended, on the
basis of a proposal from the Commission, by a further Council
decision.
Taxation Commissioner Frits Bolkestein said: "This measure will
remove the obligation for EU firms to apply VAT when exporting to
world markets and thus remove a major competitive handicap.”
The EU's announcement did not address the question of how it
would enforce the proposal on non-EU businesses.
The Council instructed its experts to finalise the text for
agreement at a meeting taking place in February 2002.
