EBay Hit By New European VAT Rules

by Ulrika Lomas, Tax-News.com, Brussels

06 June 2003

The world's largest internet auction site, eBay, has fallen foul of new European Value Added Tax rules which require certain European internet sites to collect VAT on their sales and which mean higher listing fees for eBay's sellers.

As a result, eBay is restructuring fees on its nine European sites to take account of the new tax and these will come into effect on July 1st. Rates of VAT at present vary greatly across the EU from 15% in Luxembourg to 25% in Sweden and Denmark. Reports indicate that eBay's UK site, the most lucrative European market along with Germany, will raise its fees from £5 to £6. However, eBay said fees will not rise in its other European sites including Spain, Italy, France, Belgium, Holland, Austria and Switzerland.

Reaction to the announcement has been mixed and even eBay's European vice president Michael van Swaaij seemed unclear as to the impact the VAT levy will have on the company's performance. "We cannot predict exactly what's going to happen with us raising the prices in Germany and the UK, van Swaaij told Reuters. "We assume this will have some effect."

Nevertheless, while analysts predict that the higher listing fees will deter sellers in the initial stages of the new fee regime, the long term outlook for the highly profitable auction website remains healthy. "We would be aggressive buyers of eBay on weakness, as business fundamentals remain compelling and potential near-term impact from fee increases is already reflected in guidance and estimates," said Dina Hauser an analyst at US Bancorp Piper Jaffrey in a recent assesment of the firm for investors, Reuters reported .

EBay's European operation was one of the biggest growth areas in the first quarter of the year, and altogether, the international section of the website generated $137.5 million in revenue equalling 29% of total sales.

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