Suspend online VAT, UK urges.

The UK is lobbying Brussels to abandon VAT on all electronic downloadable goods sold via the internet in the European Union.

Accountancy Age has learned the move, which could cost European exchequers millions of pounds in lost revenues, is part of an effort to head off another proposal seen by Whitehall as more damaging. Customs & Excise believes the alternative, known as the Swedish compromise, would be impossibly bureaucratic.

The proposal is sure to prove controversial as it comes in the middle of an election campaign in which tax cuts have become the key battleground.

On Tuesday shadow chancellor Michael Portillo launched a poster comparing Labour’s high tax agenda with Tory tax cuts.

UK officials are attempting to persuade the European Commission that scrapping VAT is the only short-term way of dealing with companies in third-party countries, like the US, that supply electronic goods to EU citizens without paying sales tax.

The UK move is also likely to upset Commission plans to deal with the problem. EC officials at a meeting in Brussels last week treated the UK idea with disdain but there is a growing feeling that a moratorium is the only solution. The commission is desperate to solve the problem of VAT on electronic goods but currently favours the Swedish compromise.

This would have third-party traders register in one EU state but levy VAT at the rate of the country in which each customer lives. The registration country would collect and redistribute VAT.

The UK is understood to have proposed the moratorium at a meeting just days after a VAT conference attended by senior Customs official Martin Brown and the Commission’s VAT expert Arthur Kerrigan.

Backing the moratorium, Chas Roy-Chowdhury, head of taxation at ACCA, criticised the Swedish compromise saying it would create ‘horrendous burdens’.

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