Europe to levy VAT on digital goods

The move aims to close the competitive gap between EU and non-EU businesses, but industry observers do not believe it will work.

Bernadette Smith, tax adviser at law firm Tarlo Lyons, said imposing VAT on non-EU companies could work, but doubted how quickly it could be achieved.

‘Member states are divided over how it should be implemented,’ she said. ‘There is little consensus. The problem is that everyone is trying very hard to fit digital transactions into the existing tax framework, and it doesn’t fit.’

Smith said another problem was that the US had no understanding of VAT. ‘When I talk to people in the US about VAT, they just glaze over. They have nothing at all like it, and just put it down to a cost in Europe,’ she said.

‘If the tax is made to work, it should be fair with no undue responsibility on a supplier which is not familiar with the tax system.’

The European Liberal Democrats oppose the tax. MEP Diana Wallis said: ‘A tax on e-commerce does not encourage growth of trade over the internet.’

She acknowledged the competition gap between EU and US companies, but said the proposals were too complex, and would be difficult to implement and enforce.

Wallis said: ‘The short-term aim is admirable but the method is misconceived. I would have liked the parliament to agree to scrap VAT on e-commerce altogether, rather than levying it on non-EU countries wishing to trade within our borders with digitally delivered goods.

‘How will the proposals be implemented? How will the tax revenues be distributed? These are questions which remain unanswered.’

The proposal will now go to the Council of Ministers for final approval.

Links’s E-business feature

This article first appeared on Additional reporting by staff.

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