EU finance ministers were this week set to approve a value added tax directive to make sure telecommunications services supplied from outside the EU are taxed.
However, they will drop suggestions to extend the tax to TV and radio broadcasting services, European Commission sources have revealed.
UK and French authorities have made last-minute proposals to extend the coverage of the tax to TV and radio services because of worries over bundling of these services with telecom services in the latest digital pay-TV packages offered by companies such as British Sky Broadcasting.
‘The commission and all 15 member states would be happy to see it cover radio and TV as well, but the problem is that the original proposal is so far removed that making a substantial amendment would require a new proposal and going through the European parliament again,’ a commission source said.
‘We had expectations that the parliament would have proposed this amendment. I expect that the UK will withdraw and there will be a request for the commission to come back with a proposal shortly on broadcasting services.’
According to a diplomatic source, the Council of Ministers’ legal department had said it was too late to change the directive to cover TV and radio without going back to the European parliament.
An industry source said it was ‘no accident’ that the two countries pushing for the amendment are the UK and France where pay-TV companies, such as BSkyB, are based.
He noted that BSkyB was already offering a bundled digital TV/telephone service.
‘Once you move away from traditional telecoms you are in a whole area where the dividing line with electronic commerce and it becomes increasingly difficult. It not just the pipeline, you are also looking at what comes down the pipeline,’ he said.
In a recent UK court case, a Chinese TV channel broadcasting into the UK from Hong Kong was ruled to be based outside the EU for VAT purposes even though it ran its own studio, facilities and offices in the UK, he said. But he noted that the tax at stake was ‘relatively small’.
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