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EU Plans E-Commerce Tax

13 Dec, 2001 By: Hive News

European Union finance ministers took the first steps today toward taxing video downloads and other digital goods bought and delivered via the Internet, the Associated Press reported.

On a promise to revisit and possibly streamline the law in three years its sole opponent, Britain, withdrew its opposition to the plan for a value-added tax (VAT) on consumer purchases from non-EU vendors of "virtual goods." Products subject to the tax would include software, music, videos, photos and educational products.

Implications for American businesses, which still operate under a moratorium on Internet sales taxes domestically, could be huge because they are the primary providers of the targeted goods.

Agreeing to a key demand from lobbyists for the U.S., the plan calls for non-EU businesses to register in only one EU country, instead of all 15. That country's tax authority will then collect the VAT on digital goods and transfer the money to the treasury in the purchaser's country of residence, AP reported.

Consumers would have to disclose where they live so a U.S. company can determine how much to charge. VAT rates vary from 15 percent in Luxembourg to 25 percent in Sweden.

The EU ministers sided with 14 EU countries that said failing to impose the tax would give e-tailers a leg up on merchants who sell software and other digital products in stores—an argument that so far has failed to sway Congress here.

The agreement must be formally drafted anf approved at another meeting. The 15 EU countries then would have about 18 months to incorporate the directive into their national law.

Most e-commerce in virtual goods is between businesses, which get reimbursed for VAT in the EU.

But consumer demand is likely to increase as connection speeds and offerings increase. Still, it may take the West time to catch up with former Soviet nations in terms of connectivity. Many of those nations were too poor to upgrade communications infrastructure under Soviet rule and replaced lines with state-of-the-art fiberoptics after the fall of the Berlin wall.

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