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
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.