Commons body finds e-VAT loophole
Foreign suppliers of digital products will be able to choose the lowest VAT rate in Europe under a loophole exposed by a key Commons committee.
A report from the European Scrutiny Committee demanded an explanation from the government about proposals, already agreed to by the European Council of Ministers (ECOFIN), for an interim scheme under which companies in non-EU states will be ‘required’ to register for VAT but can opt to do so in the state which has the lowest rate.
The arrangements has already been described by one MP as ‘a tax dodgers’ charter’ because they require the co-operation of suppliers in countries outside EU jurisdiction.
The European Scrutiny Committee also revealed paymaster general Dawn Primarolo told them the final solution would involve computerised ‘charging, declaring, collecting and allocating tax revenues in relation to e-commerce supplies… achieving taxation in the place of the consumer’ by 2006.
This is bound to resurrect fears, discounted earlier by Customs, that the tax could be imposed via ISPs or payment systems like VISA.
Primarolo gave no further details to the committee, which also voiced the fear that the final solution, agreed as a concession to the UK at ECOFIN, would be ‘plagued by delays’ like other IT projects.
The MPs, in their report, demanded the Government explain the chose-your-own rate potential distortion ‘immediately’ together with an explanation why details were not provided sooner.
The Committee, which has power to demand a full debate on issues of major importance, ‘cleared’ the decision – already taken at a meeting of ECOFIN, despite the committee’s earlier reservations – but made their concern clear.
Some EU provision is urgently required because the existing law forces EU suppliers to add VAT while non-EU suppliers need not, giving them a huge trading advantage.