The European Commission proposed earlier this month to extend
the period of application of the E-commerce VAT Directive to 31st
December 2008. It prevents EU suppliers being subject to VAT for
online services supplied to clients outside the EU.26 May 2006
Without this extension, the rules for services supplied by electronic means as well as to radio and television broadcasting services would revert to those prevailing prior to the changes introduced by the Directive. This would mean that EU suppliers would be subject to VAT even for services supplied to clients outside the EU and they would face competition within the EU from suppliers in third countries that would not be subject to VAT at all.
The proposal does not contain any other change.
Taxation Commissioner László Kovács said: “I urge the EU Council of Ministers to rapidly reach an agreement on this extension as I cannot imagine we would revert to the rules prevailing before the E-commerce Directive was introduced."