Labour MP Graham Allen, heaped scorn on the plans – agreed to at the last meeting of the European Council of Finance Ministers Brussels – where it was decided that VAT is to be collected by the vendor business at the tax rate of the country where the customer is based.
This is regardless of whether the website is within the jurisdiction of the state concerned or even inside the EU.
The new Directive and Regulation is designed to remove the present trade distortion caused by rules requiring EU suppliers to levy VAT, but not other overseas suppliers, who are able to export software and other digitised products into EU states tax-free.
A UK Customs spokesman expressed confidence in collecting 80% or more of the tax due, claiming businesses conducting most of the current internet trade had agreed and that arrangements for small overseas traders to comply would be as painless as possible.
He said suppliers outside the EU would be required to register with the tax authority in a member state, which would handle the collection of tax due and pass it on to the states where the customer is resident.
The spokesman added: ‘The law will make it clear that if you want to do business within the EU you will have to comply with EU tax law.’
Also at the meeting, the British delegation successfully negotiated further proposals for ‘a comprehensive electronic solution for the taxation of such items’ which member states have agreed to put in place by 2006.
The spokesman was unable to explain precisely how this would work, but denied there would be enforcement via Internet Service Providers.