Taxation - Euro VAT 'not fit for Web age'

Tax experts from top European companies have called on the European Commission to update its VAT rules to keep up with the booming electronic commerce market.

The commission claims the current tax system can handle internet business transactions by levying VAT at the point of consumption. But tax experts argue there is uncertainty over whether an internet server supplying a service constitutes a taxable presence. They also question how tax authorities will track the distribution of CDs downloaded over the Web.

The companies have formed the European e-business tax group, advised by PricewaterhouseCoopers and including Microsoft, Ericsson and IBM. It will submit proposals to the commission by the end of May for changes to the sixth VAT directive, which dictates most of the UK’s VAT rules.

Christine Crockford, group VAT manager for Ericsson, said the industry coalition wanted a clearer and more detailed tax treatment of e-commerce.

She called on the commission to come up with an effective mechanism for collecting VAT over the Web. ‘Technology could be produced to collect VAT electronically from consumers during online transactions,’ Crockford said.

‘The EC has said tax on e-commerce has to be simple, practical and fair,’ she added.