As expected, the EU yesterday announced that it would bring taxation of 'imports' of digital goods by consumers into line with the existing treatment for supplies within the EU.
Frits Bolkestein, Internal Market Commissioner, said it would remove a major distortion of competition and give certainty to suppliers.
If the proposal passes into law, any non-EU supplier with sales to EU consumers (ie non-VAT-registered buyers) exceeding Euros 100,000 will have to register for VAT in one EU member state (any one) and channel its EU supplies through that member state in a fiscal sense, charging VAT at the rate obtaining in its chosen member state, and paying the VAT collected to that state.
The member state most likely to be used is Luxembourg, whose VAT rate is 15% (the lowest allowed), although it would be very tempting for the Isle of Man to reduce its rate from the current 17.5% to 15% to attract more e-commerce, if the UK would allow this. Whichever state got the business, would reap a rich reward. Would it have to give some of its gains to other member states? Not under current legislation.
But the proposals are likely to remain just that: proposals. First they have to be agreed unanimously by all 15 member states, and countries charging close to 30% VAT could see the rules as the thin end of a very damaging wedge which would tend to drive incoming e-commerce business into the arms of lower-tax competitiors.
Second, any foreign company falling under the rule cannot easily be obliged to fall into line unless foreign countries legislate accordingly, which seems an extremely remote possibility. The most important foreign country, the US, will be strongly opposed to the tax. Virginia Governor and Chairman of the Advisory Commission on E-Commerce (ACEC) Jim Gilmore said:
"Europeans tax everything and they're good at it. The Internet should be allowed to grow without burdensome tax regulations."
EU officials yesterday admitted privately that the proposed rules were unenforceable, but of course, in the Alice In Wonderland world of the EU, that won't stop armies of legislators, translators, interpreters and bureaucrats from wasting oceans of time and paper over them during the next six months, only to see them struck down when they reach the Council.
See the text of the EU Commission's Press Release at:
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