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International standard adopted on cross-border VAT

More than 100 countries have endorsed new international value-added tax (VAT) guidelines proposed by the Organisation for Economic Co-operation and Development (OECD). 13 Nov 2015

This is an important step towards ensuring that consumption taxes are effectively paid in the jurisdiction where products are consumed, while minimising any distortion to international trade, the OECD said.

The decision was made at the annual meeting of the OECD global forum in Paris last week, the OECD said.

The final package of international VAT/GST guidelines includes recommended rules for collecting VAT on cross-border services, including internet downloads, to private consumers. Foreign sellers should register and remit sales of e-books, apps, music, videos and other digital goods in the country where the end consumer is located, the OECD said

The guidelines also include a recommended mechanism to help tax authorities gather tax from foreign sellers, it said.

The OECD is responding to growing concern from governments worldwide on the growth of digital services on which no VAT is sold. In 2014, e-commerce business to consumer sales are estimated to have reached US$1.4 trillion, up 20% from 2013. That figure is expected to grow to $2.4tn by 2018, the OECD said.

OECD deputy secretary-general Rintaro Tamaki said: "The effective and consistent implementation of the recommended approaches for collecting the VAT on these digital sales will help jurisdictions to protect their VAT revenues and level the playing field between domestic and foreign suppliers."

"It is very encouraging to see that a number of jurisdictions have already implemented the rules and the mechanism recommended by these guidelines, or have expressed their intention to do so. They expect that these reforms will contribute considerable revenues to government budgets," Tamaki said.

In March the Court of Justice of the European Union (CJEU) ruled that France and Luxembourg must stop applying reduced levels of value-added tax (VAT) to electronic books.

Since 1 January 2012, France has applied a reduced VAT rate of 5.5% to the supply of electronic books, and Luxembourg has used a "super-reduced" rate of 3%.

The full rate of VAT is 20% in France and 17% in Luxembourg, but books, in physical or electronic form, are taxed at the lower rates.

Both France and Luxembourg had argued that electronic books are covered by 'Annex III' of the VAT Directive, which allows reduced VAT on certain goods, including paper books.

However, the Court agreed with the European Commission's argument that as the Annex refers to the "supply of books … on all physical means of support", it is only applicable to "the supply of a book found in a physical medium".

The UK zero rates the supply of paper books but charges the full 20% rate of VAT on supplies of electronic books.