Tax

As you may have read in Accountancy Age (17 May), the UK government has blocked a proposal put forward by the European Commission, and supported by all the other member states, to tax the supply of digitised products to consumers in the EU from suppliers established outside the Union.

The proposal would have meant that suppliers of digitised products such as music, computer games, films etc. established in, say, the US would have had to register for VAT in the EU. However, the proposal was a unilateral measure proposed by the EU alone and was unenforcable in practice.

The UK’s secret counter-proposal was that it would be better not to levy any VAT on digitised products supplied over the internet during a transitional period which could last up to five years. If adopted, the proposal would mean that all supplies of digitised products downloaded over the net would be free from VAT irrespective of whether the supplier was established in or outside the EU. Such a move would largely mirror the position on US internet sales.

Most EU member states are likely to reject the proposal because it has one major drawback: reduced revenue. But that is a short-sighted view and the proposal has a number of very positive features. It would help businesses in the EU by achieving a level playing field between EU and non-EU suppliers of digitised products. It would also provide a positive boost to e-commerce and the use of the net in general, which is in line with public policy in most member states. Lastly, it would give more time for the EU and the OECD to work together to develop a global and enforceable solution to the taxation of e-commerce.

Given all of this why has the UK taken so long to publicise its proposal?

Having rejected an idea which was clearly unworkable in practice, and put forward a much more practical and far-sighted solution, why has Gordon Brown waited until this week to make his views known? Perhaps the imminence of the general election and the possibility that this might have been seen as a controversial tax proposal led to an uncharacteristic outburst of shyness. This is a pity since this is a radical and welcome solution to a problem that the Commission and the other member states have deliberated over for nearly five years without any noticeable progress.

– Tony McClenaghan is partner in charge of indirect taxes at Deloitte & Touche.