Calls to resolve online VAT puzzle.

The Institute of Directors has urged national governments to resolve the puzzle of how to apply VAT on sales of digitised products across the internet.

Discussions in the European Union over exactly how and where goods such as recorded music, video files and software should be taxed have so far failed to find a solution.

Currently, suppliers of downloadable electronic goods from outside the EU pay no VAT on their sales, while domestic traders must comply with tax law.

The UK had suggested a moratorium be imposed to level the playing field for European traders. But talks were put on hold before any decision was made.

‘It will not be easy to apply VAT to imported digitised products,’ said Richard Baron, deputy head of the policy unit at the IoD. ‘Unlike physical goods they cannot be held back from customers until VAT is paid.’

The IoD argues that any solution needs to be simple and business friendly to avoid damaging emerging markets for digital products.

‘The most important thing is to make systems as simple as possible so that businesses will be happy to comply,’ said Baron.

Baron reckons that registration for tax is a process which should be delegated to commercial organisations which could, in turn, register businesses in several countries.

The greater role of broadband makes the issue even more pressing, according to Baron. ‘Governments must move quickly to implement solutions which will last,’ he said.

Related reading