US Digital Industry Unhappy Over EU VAT Plans

by Mike Godfrey, Tax-News.com, Washington

09 May 2002

As predicted, the European Union's endorsement of plans to oblige companies in non-EU member states to charge VAT on downloadable and online goods and services has provoked howls of outrage from IT and e-commerce industry groups in America.

Speaking to Wired News, the President of the Information Technology Association of America, Harris Miller warned that: 'What you're doing is you're creating an unintended bunch of tax criminals because you're making a process that's virtually impossible to enforce.'

The ITAA chief went on to criticise the new laws, effective from July 2003, calling them: 'a classic attempt by the Europeans to set up a barrier to try to keep out competitors.'

However, the European Union views the situation differently, and believes that by exempting EU-based companies from charging VAT on online services sold within Europe, and obliging US and other companies to register for VAT in a member state, the 'serious competitive handicap' which European companies currently face will be removed.

The new rules will affect huge US e-commerce operators such as AOL and Time Warner, and there has been speculation over the possibility of retaliation by the American goverment.

According to reports, however, US Deputy Treasury Secretary, Kenneth W. Dam has called for both sides - which are also embroiled in several other trade wars - to hold their fire until a global agreement on e-commerce taxation currently being negotiated through the OECD, has been completed.

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