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EU Stymies E-Commerce With VAT Ruling
May 10, 2002
The European Union has ruled that all non-EU retailers must charge a value-added tax (VAT) on sales of virtual or downloaded products sold within the union, matching the VAT charged by their EU counterparts, the BBC reported May 8. Brussels argues that non-EU Internet retailers, or remote retailers, currently have an advantage over their European competitors and that the tax is necessary to level the playing field.
Though the decision will please EU sellers of downloaded products like music, video games and software in the near term, it ultimately will stifle the growth of e-commerce within Europe and hurt remote retailers in other parts of the globe.
The new rules -- set to take effect in July 2003 -- will place additional burdens on remote retailers of virtual products, requiring them to register in an EU country and to pay the VAT charged by that country. VAT rates range between 15 and 25 percent across the EU. This will give Europeans fewer reasons to go online. In much the same way that the lack of a state sales tax on most intrastate Internet sales encourages Americans to buy over the Internet, the absence of a VAT on remote-based sales and downloads gave Europeans a reason to shop online.
The EU had an alternative means of improving the competitiveness of European companies that actually would have encouraged further growth of Europe's fledgling e-commerce industry. Brussels could have encouraged member states to do away with the VAT on virtual or digital products sold over the Internet, or to compromise on a lower VAT rate. But member-states are too dependent on VAT revenue to consider either a reduction or elimination of the tax on virtual products. Instead, the decision to apply old VAT rules will hamper a new industry that is struggling to gain a market presence.
The new regulations and tax could make sales to Europe economically unfeasible for some remote retailers, and U.S. trade groups like the National Association of Manufacturers claim the rules will be used to discriminate against U.S.-based businesses through the licensing process or application of higher VAT rates to foreign sellers. Washington already has expressed its opposition to expanding the VAT, and Brussels is sure to hear even louder complaints from Washington after its latest ruling.
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Dan
EU Stymies E-Commerce With VAT Ruling . . .