EC pledges to tackle telecoms VAT dodge

A major VAT loophole for telecommunications users and providers will be closed by the European Commission before the end of the year.

Alarm bells started ringing at the Commission after Customs & Excise alerted it to a major dodge for non-EC telecom companies. A side effect of the EC’s 6th VAT Directive’s ‘place of supply’ rules has been for non-member states’ businesses to provide phone, Internet and even satellite broadcasting services to any person or company in the EC free of VAT.

The directive, introduced in 1979, failed to predict the massive growth in global communications, leading to the glaring tax loophole. Hong Kong and US providers were quick to take advantage of the scam, at the cost of domestic concerns including BT and Mercury.

One of the loophole’s growing spin-offs are companies offering cheap international phone calls from bucket shops.

A BT spokesman said: ‘A level playing field is all we desire. Some may not think it fair if companies can offer a competitive service without paying VAT.’

A Customs spokesman added: ‘The law is a little out of date and Mercury and BT are not happy about the unfair competition. All 15 EU member states are agreed that something must be done.’