Leader – New tax for a new economy.

Buy a CD off the internet and while you may be paying a price quoted in sterling on a website, don’t be surprised if it lands on your doorstep with a Hong Kong customs declaration attached. Even the taxman struggles to keep up with changes in cyberspace.

The European Commission is now looking to catch up. There are already rules that require non-European companies selling tangible goods over the net to European customers to register for VAT in the EU, and officials are seeking to extend the arrangements to intangible goods and services like music and software. Under these rules companies would be able to register in a single EU state and charge VAT at that state’s rate.

But how successful can officials expect to be in a game where the goalposts are constantly shifting? And how positively are US companies likely to view a massive additional administrative burden imposed by Brussels if they are brought into the VAT system for the first time?

All this may raise more questions than answers, but it puts the resumption of the UK double taxation row into perspective. This week saw Vodafone threaten to quit these shores if the government does not reverse its decision.

The complete realisation of that threat is as unlikely as an unqualified volte-face by the government. But both sides are neglecting the bigger picture. They should save their energies for addressing the issue of taxation in the new economy, not the old.

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