The Council is adopting the European Commission's proposals for
a Directive and a Regulation which will apply to products such as
software delivered on-line as opposed to in a physical form, as
well as subscription-based and pay-per-view radio and television
broadcasting.
Under the new rules, EU suppliers will no longer be obliged to
levy VAT when selling these products on markets outside the EU,
thereby removing a competitive handicap. Current EU rules, drawn up
before e-commerce existed, oblige EU suppliers to levy VAT when
supplying digital products even in countries outside the EU.
The proposals are designed to eliminate an existing competitive
distortion by subjecting non-EU to the same VAT rules as EU
suppliers when they are providing electronic services to EU
customers, something which EU businesses have been actively
seeking.
The VAT rules for non-EU suppliers selling to business customers
in the Union (at least 90% of the market), will remain unchanged,
with the VAT paid by the importing company under self-assessment
arrangements.
However, the new rules will require for the first time that
suppliers of digital products from outside the EU will have to
charge VAT on sales to private consumers, just as EU suppliers have
to do.
Non-EU suppliers will be required to register with a VAT
authority in any one Member State of their choice, and to levy VAT
at the rate applicable in the Member State where the customer was
resident. In other words, the VAT rate applicable to non-EU
suppliers' sales to consumers (so-called B2C) will be the same as
the rate applicable to their sales to businesses (so-called B2B).
The country of registration would re-allocate the VAT revenue to
the country of the customer.
The Council of Finance Ministers agreed on 13 December 2001 that
this system concerning how the non-EU suppliers should fulfil their
obligations and concerning revenue re-allocation should be applied
for three years following implementation of the proposal and could
then be extended or revised.
The Council can formally adopt the Directive once the text
agreed has been translated into all eleven of the EU's working
languages. However, before it can adopt the Regulation that
establishes the procedures for co-operation between Member States'
VAT authorities, it must re-consult the European Parliament.
Among the criticisms that have been made of the proposal are
concerns that the EU should not take action before a global
consensus on how to tax electronic commerce has been agreed. The
Commission and Member States argue that introducing a moratorium on
tax of electronic commerce would be unworkable and would
discriminate unjustifiably against traders selling tangible goods.
European business is already subject to tax on the provision of
electronic services and this proposal is only about extending
taxation to non-EU providers of electronic services to EU
customers.
The Council contends that it is simply implementing what was
agreed at an OECD conference in 1998 on the taxation of e-commerce.
The principles from that conference are known as the "Taxation
Framework Conditions.” These establish that the rules for
consumption taxes (such as VAT) should result in taxation in the
jurisdiction where consumption takes place and, for these purposes,
the supply of digitised products should not be treated as a supply
of goods.
The changes have been attacked by Kenneth Dam, the US Deputy
Treasury Secretary. In a statement last week, Dam criticised the EU
for implementing its proposal instead of waiting for the OECD to
complete its work on a global approach to the taxation of
e-commerce. Last month, the Information Technology Association of
America criticised the plans, saying they will harm US on-line
sales to EU consumers.
