TaxAdministrationEurope resists US pressure on online VAT

Europe resists US pressure on online VAT

The European Union Council of Ministers has resisted pressure from the American government over its plans to reform VAT charged on digital products, in a move that will favour EU-based suppliers over competitors in the US.

Sealing a formal political agreement on the proposal and sending it back to the European Parliament for further discussion, ministers stuck to their line that foreign importers of digital products, such as music or computer software downloaded from the internet, should pay VAT, as the goods are consumed within the EU.

This despite a strong worded statement by US deputy treasury secretary Kenneth Dam, who said the Bush administration has ‘serious concerns about the European Union proposal’.

The US objections particularly focus on the fact that under the new system, non-EU sellers of digitally delivered goods or services would have to charge VAT, at the rate applying in the European consumer’s country of residence. Conversely, EU companies selling digital products to EU consumers would continue to charge VAT at the rate of the companies’ country of establishment.

Dam added: ‘US sellers may be required to charge VAT on sales to an EU consumer at a rate higher than their EU competitors’. In addition, US sellers may be subject to more onerous administrative and compliance requirements than are placed on their EU competitors.’

He claimed the proposals may break OECD guidelines and World Trade Organisation rules.

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