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Tuesday, 8 February, 2000, 12:15 GMT
VAT plan for 'virtual' internet sales

sony internet site

The European Commission has said it is studying a proposal to impose value added tax (VAT) on sales of music, software and other "virtual" goods over the internet.

The tax is already imposed on items such as books and CDs sold over the internet in European countries.

Details of the proposals are expected to be announced shortly - possibly within the next two months.

"We have in the pipeline a proposal on internet commerce, but it is not commerce in the sense of distance selling of physical goods," Commission tax official Stephen Bill said.

"The proposal would deal with the purchase over the internet of virtual goods - sound, music, etc - which you can download," he said.

The proposal will be aimed primarily at large US suppliers that escape the VAT net when selling virtual goods.

Companies that cross a certain threshold will be forced to register for VAT in the EU, while smaller firms are expected to continue to be exempt from the tax.

"The indications are that the internet is giving rise to huge operations like, Sony and Time Warner because the beauty of the internet (business model) is that it cuts out the middlemen," he said.

Admin worries

The American Chamber of Commerce recently said it feared the proposal would be complex to administer.

Mr Bill said there had been discussions with the United States over whether downloads could be classed as taxable services falling under world trade rules, and not over the principle that internet supplies be taxed in the country of consumption.

No details were given of how the Commission believed EU countries could collect tax due, but he said the proposal would aim to be as simple as possible to administer.

Mr Bill was speaking at a news conference to present a Commission report highlighting failings in the administration and problems in the collection of VAT in the EU.

A big and growing problem for tax administrations was how to collect VAT due on goods and services sold at a distance, including via the internet, he said.

Tax free internet

The proposals would appear to undercut plans put to the WTO in 1998 by President Clinton to ensure that trade in digital goods remained tax free.

The WTO agreed a one-year moratorium at that time, which was due to be discussed in the Seattle trade talks which collapsed in December.

The taxation of e-commerce is also becoming increasingly controversial in the United States, with many state governments urging the imposition of local sales taxes on internet sales.

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See also:
24 Dec 99 |  Business
1999: the year of the net
30 Aug 99 |  Business
E-commerce threat to taxman
23 Nov 99 |  Business
EMI aims for digital dividend
02 Dec 99 |  Business
WTO tackles the internet
06 May 99 |  The Economy
Euro e-trade rules agreed
22 Apr 98 |  Business
US pushing for Internet pledge

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