EU votes to tax online shopping

The law could trigger a new trade war between the Europe and the US.

European ministers have backed a law on internet sales which would remove a handicap for EU companies.

But the plan could trigger a new trade war between the Europe and the US.

The law obliges non-EU suppliers to impose a sales tax on software, music and other so-called virtual sales to European consumers.

It was agreed in a preparatory meeting last year and was rubber stamped by the 15 finance ministers meeting in Brussels on Tuesday.

Legal procedure means that the law has to be referred back to the European Parliament for consultations, which could delay the implementation.

Without taxes

So far the governments around the world have been slow to impose sales taxes on internet purchases in the hope of boosting a potentially lucrative market.

Consumers' purchases of virtual goods, to which the law applies, account only for 10% of internet sales. But the market is expected to grow, as connections become faster and more secure.

Some companies are worried that imposing taxes could add new layers to digital transactions, particularly for those who sell computer software on-line.

US against the law

The United States has pushed for a moratorium on sales tax on digital products until a "global consensus" could be reached. Washington hopes to persuade Brussels that the law is unworkable.

If it fails, the US is ready to file a complaint with the World Trade Organisation.

In two years of lobbying, Washington won some changes in the EU draft, such as allowing non-EU companies to register in only one EU country, instead of all 15.

Digital sales go Luxembourg?

Under the new law, European companies will pay only their home country's VAT.

Non-EU companies will have to charge customers the rate where the customer lives, ranging from 15% in Luxembourg to 25% in Sweden.

Spanish Finance Minister Rodrigo Rato, whose country holds the EU presidency, called the minister's decision "an important step forward, particularly in bringing new technologies into the European economy".

But even some European officials express concerns about the law, saying that it could end up with all the software companies registered in low-tax Luxembourg, emptying the state coffers of the other EU countries.