Tax – Conflict over e-trading VAT.

European governments should publish proposed new rules for collecting VAT from online companies providing electronic goods from outside the community, according to a UK tax expert.

The proposals, known as the Swedish compromise, are before EU commissioners, and may have been passed to US officials. They have not yet been made public to tax experts in the UK and European states to consider.

Chas Roy-Chowdhury, head of taxation at ACCA, said: ‘It would be better if we had more transparency so we could see what is being discussed.’

The issue – how to collect VAT from non-domestic e-traders providing downloadable goods, such as music, to EU citizens – proved a hot topic last week at a conference of the European Federation of Accountants in Brussels.

Delegates expressed intense unease at the way the latest ideas for collecting the VAT were not publicly available. Controversy surrounds VAT on electronic products and EU states have been struggling to find a solution.

The first idea, from the French, was that e-traders from outside the community, supplying music from the USA, should register for VAT in all member states.

This resulted in a clash and fears of a trade conflict with Washington which countered with the suggestion that European companies could be forced to register in all 50 US states.

But the French plan was rejected because member states with lower rates of VAT would be more attractive to external traders. A single VAT rate across EU states was rejected because it could create a competitive disadvantage for domestic trade.

The ‘Swedish compromise’ envisages that a company would register with a single EU state which would then be responsible for collection and redistribution of VAT as well as possibly carrying out some form of audit.

It is not thought huge sums are at stake, perhaps 1% of online trade, but governments anticipate business to grow to huge proportions and believe a solution is needed to head off a potentially enormous loss of revenue.

Despite having a proposal for new rules the Commission seems to lack any firm idea of how they will be enforced.

During the Brussels conference Arthur Kerrigan, principle administrator of the commission’s Taxation and Customs Union, said it was a recognised fact that a solution to enforcement was needed but could give no indication of what it would look like.

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