EU logjam delays update to e-commerce tax law

A logjam in the Brussels lawmaking machine has forced theEuropean Commission to extend its existing rules governingvalue-added tax (VAT) on e-commerce until the end of 2008, theCommission said Tuesday.

The law covers all services supplied by electronic means,including websites, radio and television broadcasting services, andapplies to all European Union (E.U.) countries.

The law passed in 2002 expires at the end of next month. Theplan was to replace it with two general laws covering all VATpayments, not just electronic ones. However, the 25 member statesof the Union have failed to reach agreement on the new laws.

If the VAT on e-commerce law was allowed to expire without areplacement, Europe-based e-commerce firms and broadcasters wouldbe at an immediate disadvantage to competitors based outside theUnion, because they would still have to pay VAT. It would also meanthat E.U. suppliers would be subject to VAT even for servicessupplied to clients outside the E.U.

The 2002 law forced all e-commerce companies selling to Europeancustomers to pay the VAT charged in the country where the buyer islocated. It also lifted liability on European firms selling theirproducts or services electronically outside of the Union.

“We had to prolong the directive, otherwise the system wouldcollapse,” said Valerie Rampi, the Commission spokeswoman on taxissues, at a press briefing Tuesday.

Union-wide tax laws require unanimous support among the 25member states, which is never easy as national governments areloath to give up any of their fiscal powers to Brussels.

In 2002, when there were just 15 E.U. member states, the onlyway to secure an agreement was by inserting a clause calling forthe law to be reviewed by the end of June 2006. Without a review,the law would be suspended.

Lazlo Kovacs, the European commissioner in charge of taxationissues, urged the 25 member states “rapidly” to approve theextension of the existing law. “I cannot imagine we would revert tothe rules prevailing before the e-commerce directive wasintroduced,” he said in a statement.

He also urged the national governments to speed up work on thenew laws: one proposal covers where tax for all goods and servicessold in the Union should be imposed. The other proposal aims tosimplify the process of paying VAT by creating a so-calledone-stop-shop for VAT payments.

“I also request support from the E.U. Council to adopt as soonas possible the two proposals on the place of taxation of servicesand on the One Stop VAT Shop scheme, which will in essence givepermanent effect to the measures in the e-commerce VAT Directive,”Mr Kovacs said.

The two new proposals for VAT laws can be found at the followingsites:

Facts about the existing VAT on e-commerce directive can befound at

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