EC Urges Ministers To Extend E-Commerce VAT Legislation

by Ulrika Lomas, Tax-News.com, Brussels

18 May 2006

European Tax Commissioner Laszlo Kovacs has warned member states that European e-commerce companies face higher VAT bills if they refuse to agree to an extension of the E-Commerce VAT Directive.

The EC wants to extend the directive until 31 December, 2008. Without this extension, the rules for taxation of services supplied by electronic means as well as via radio and television broadcasting services would revert to those prevailing prior to the changes introduced by the Directive.

If allowed to lapse, 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 EC warns.

“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" stated Taxation Commissioner Laszlo Kovacs.

"I also request support from the EU Council to adopt as soon as possible the two proposals on the place of taxation of services and on the One Stop VAT Shop scheme, which will in essence give permanent effect to the measures in the e-commerce VAT Directive," he added.

A report of the European Commission to the EU Council has concluded that the e-commerce VAT Directive has operated in a satisfactory manner, and has achieved its objective of creating a level playing field for the taxation of electronic services.

The EC recommends that the legislation either be extended until the end of 2008, or until more permanent wider measures are in place.

The Directive on e-commerce took effect on 1 July 2003 and introduced rules ensuring that electronic services supplied for consumption outside of the European Union are exempted from VAT.

Also, non EU-operators benefit from simplified registration and reporting obligations, allowing them to deal with a single European tax administration of their choice.

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