TaxCorporate TaxInternet VAT resolved

Internet VAT resolved

The European Union has at last made a decision over the vexed issue of VAT on digital products but looks likely to incur US anger for the decision.

A Council of Ministers decision will mean that traders selling downloadable goods to EU citizens from outside the union – mostly expected to be from the US – will have to register for VAT in one member state.

States hosting a trader’s registration will collect VAT at the rate of the home country of the final consumer and then pass the money on to the relevant exchequer.

Debate over VAT on downloadable goods has raged for months and for some time looked intractable. Fears immediately arose that the issue could prompt another ‘banana war’ conflict with US trade authorities.

The US government has been opposing the proposal as it clearlydisadvantages American suppliers of products such as computer games andsoftware, digital books and music, plus subscription-based and pay-per-viewradio and television broadcasting.

Brussels has tried to downplay the affect of the new regulation, by stressing that 90 per cent of online services sold into the EU are business-to-business, not business-to-final consumer, and so no VAT would be payable.

Internal market Commissioner Frits Bolkestein welcomed the deal, which willremove a regulatory anomaly that forcing EU-based suppliers of digital goodsto charge VAT, even when the goods were consumed outside the EU, a situationcontrasting with that for more tangible products.

He said: ‘This measure will remove the obligation for EU firms to apply VAT when exporting to world markets and thus remove a major competitive handicap.’

Links

IOD in VAT call on digitised products

Calls to resolve online VAT puzzle

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