EU Will Come To Decision On Taxing Digital Downloads By June

Ulrika Lomas, Tax-news.com, Brussels

26 March 2001

Recent news reports would suggest that the taxation of digital downloads to European consumers could be looming very close. The EU Commission first announced its intentions last year, when it said it would tax consumer purchases of digital goods on the Internet. Since then, both US and European companies have been voicing their disapproval, but it seems to have made little difference. The governments of the EU are now said to be discussing a revenue-sharing plan that would pave the way for a tax on music and software downloaded on the Internet from outside Europe by EU citizens.

The new proposal is going to cause a few ructions to say the least. European online sellers of digital goods, such as computer games, are already subject to VAT on sales to EU customers. Under the latest proposal, non-European companies selling to EU consumers would be taxed, but at the same time sales by EU companies outside the EU would be exempt from taxation. The US - being the country with the most digital goods to download - could only see it as grossly unfair.

EU ministers seem, however, to have backtracked on their opposition to permitting non-European sellers to register in only one EU country. The fear amongst many high tax governments was that vendors would choose to register in a country with low rates of VAT, such as Luxembourg (15%) or Madeira (12%). Now Erkki Liikanen, Member of the European Commission responsible for Enterprise and the Information Society, is saying that a compromise to share the tax revenue is being discussed. Bloomberg last week quoted an interview with Liikanen, in which he said: 'You could still register in one country but then through modern software you share the revenue among the countries on the basis of the destination of sales.'

EU finance ministers hope to come to a definitive agreement on the taxation of digital downloads by June. Liikanen said: 'It will not be administratively heavy and complicated. That has been the aim and why the Commission proposed that companies should register in one member country.'

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