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EU Approves Tax on US E-Commerce

From July next year, U.S. and other non-EU companies will have to be registered with a tax authority in one of the 15 member states and be required to levy that country's VAT rate on all applicable Internet transactions. The member country will then distribute the taxes collected to other countries, based on where the actual sales are made.

"I welcome the decision of the Council (of ministers) to adopt these rules on applying VAT to digital products," European Commissioner Frits Bolkestein said in a statement. "They will remove the serious competitive handicap which EU firms currently face in comparison with non-EU suppliers of digital services both when exporting to world markets and when selling to European consumers."

Under U.S. rules designed to boost e-commerce, business is not taxed for selling digitally delivered products - items such as children's games, music or other services that are sent electronically to a consumer's home computer.

U.S.-based companies make up a large chunk of firms selling such goods via the Internet to private customers. Thanks to the international nature of the Internet, which is not impeded by geographic boundaries, they gain easy access to the EU market.

The VAT liability will also cover electronic services that are downloaded or consumed online, as well as subscription-based and pay-per-view radio and TV broadcasting. EU companies, which already charge VAT on such Internet transactions conducted with the bloc's private citizens, will, however, be exempted from VAT for services they provide to non-EU residents.

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