E-Commerce Must Only Be Taxed In a 'Business - Friendly' Way

by Amanda Banks, Tax-News.com, London

10 October 2001

In a recently published research paper entitled 'E-commerce and consumption taxes,' the Institute of Directors (IoD) argues the need for simplicity in the taxation of software, videos and music downloaded over the Internet and calls on national governments to come up with business-friendly solutions to the problem of applying VAT to sales of digitised products to consumers abroad.

The paper recommends that governments remove the fine distinctions between products and enable businesses to employ more simple methods of determining in which countries their customers reside. In addition, they should treat electronic records and paper documents with equal validity.

In a statement released by the IoD Richard Baron, Deputy Head of the Policy Unit at the IoD and author of the paper, said: 'It will not be easy to apply VAT to imported digitised products: unlike physical goods, they cannot be held back from customers until VAT is paid. If solutions are to have any hope of success, governments will need to earn the support of businesses.'

He suggested: 'The most important thing is to make systems as simple as possible, so that businesses will be happy to comply. This starts with registration for tax purposes. Tax authorities should consider delegating the process to commercial organisations. Each one could register businesses in several countries, and all of these organisations would work to be as business-friendly as possible so as to win more customers.'

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