Europe acts on net tax loophole.

A push by the European Commission to close a loophole allowing non-EU countries to sell goods on the internet free of value added tax could encourage companies to indulge in ‘VAT-rate shopping’, tax experts have warned.

‘The move will allow tax rate shopping and cause huge distortions within Europe,’ said Tony McClenaghan, VAT partner at Deloitte & Touche.

Proposals being considered by the EC this week could put an end to non-European businesses, in particular US companies, selling goods such as books and CDs tax free.

If member states approve the plans, those hit will have to select a member state in which to register ‘virtually’ and pay tax accordingly. Rates vary widely, with Luxembourg and Maderia offer the lowest at 15% and 14% respectively.

US broadcasters with European subscribers to major events like SuperBowl would also be liable for tax.

One solution being offered to those wishing to cut tax liabilities emerged this week is the form of Sealand, a concrete fortress off the coast at Felixstowe, Suffolk, once used by British servicemen to shoot down German planes.

A group of US entrepreneurs, HavenCo Ltd, have turned it into the world’s first ‘data haven’ offering companies a confidential and tax free location for their web servers.

The group says the island is independent, although the UK government disputes this.

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