Heritage Foundation Condemns Online Sales Tax Plans

by Mike Godfrey, Tax-News.com, Washington

31 May 2002

Writing in Capitalism Magazine this week, Senior Fellow at the Heritage Foundation, Daniel J. Mitchell, slammed the European Union's plans to force US companies to charge VAT on digital and online products purchased by EU citizens, arguing that such a move would undermine the United States' competitive position, and breach the privacy of European and US citizens alike.

'You don't have to be an economist to know that when tax collectors from the European Union complain about 'certain distortions of competition' and announce a need to 'correct' it, a blueprint for higher taxes can't be far behind,' Mr Mitchell wrote on Thursday.

He went on to suggest that the VAT collection scheme represents the next step in the European Union's campaign for tax harmonization, arguing that high tax EU member states realise that their taxation levels are making their businesses uncompetitive in the global arena, and are trying to force lower tax countries to increase their tax burden 'so that all contries are equally non-competitive'.

Dubbing the European plans 'an OPEC for politicians', Mr Mitchell warned that tax harmonisation would harm America's competitive position, reasoning that: 'Consumers know they can save at least 15% by buying online products from US businesses. This means more jobs for America, but it's also good for Europe, as it puts pressure on politicians in places such as Germany and Sweden to reduce tax rates.'

Adding that if companies are obliged to verify the names and addresses of online customers, a great deal of privacy will be lost as a result of the EU proposals - which were endorsed by the 15 nation bloc earlier this month - Mr Mitchell warned the Bush administration not to rely on the Paris-based OECD to settle the dispute.

'We'd be better off just telling the Europeans to drop any notion of interfering with American tax policy. It's time they learned that the best way to 'correct' high taxes...is to lower them,' he concluded.

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