|The European Union is preparing attack the fragile Internet economy further with a new regulation requiring companies outside the EU to collect VAT on digital services effective July 1. European Council Directive 2002/38/ECM says that: 'Digital delivery within the EU of software and computer services generally, plus information and cultural, artistic, sporting, scientific, educational, or entertainment services specifically, will be subject to VAT. When such services are supplied for consumption outside the EU, they are exempt from VAT.' |
This rule will affect private individuals more than business customers, as it means higher prices for European consumers and more expense for those companies outside the EU that do digital business in Europe.
The directive covers pretty much every electronic service you care to imagine: website supply, web hosting, supply and updating of software, supply of images, text and information, supply of music, films and games, including games of chance and gambling games, as well as cultural, artistic, sporting, scientific and entertainment broadcasts and events.
This means a consumer in the UK can expect to pay VAT on digital goods acquired from a company based outside the EU. It also means that the vendor will have to handle the collection of such tax and deliver the money collected to the EU. The only major online services company to have announced plans to collect the tax is eBay, which confirmed its intention to do so on 8 June.
Robert Wientzen of the US Direct Marketing Association said, 'The EU is setting up a discriminatory price structure against non-EU companies. The Internet and e-commerce are borderless, they cannot be and should not be weighed down by geographic political controls. Such a broad taxing scheme will act only to limit the growth of e-commerce in the EU.'
'It is extremely burdensome and costly for every non-EU website operator to register and comply with the maze of regulation that the EU has established,' added the DMA’s Charles Prescott.