Brussels, 07/06/2000 (Agence Europe) - On Wednesday, the European Commission presented a draft directive on taxation of on-line services. This draft aims to modernise the legislation concerning VAT on services, which dates back to the 1960s, to take into account the emergence of new commercial practices on the Internet network. It targets all digital-delivery products (videos, software, music, electronic games, information, teaching programmes, websites) as well as radio and television broadcasting by subscription or "à la carte". The admitted rule would be that of taxation in the place of consumption of this kind of service, in conformity with the principles adopted during the OECD ministerial conference of 1998 in Ottawa. All the services provided in the European Union would therefore be subject to the European VAT while the same services provided to other destinations would not. This rule is already enforced for material goods bought through electronic networks and delivered by postal services.
The objective of the proposal is to create "a level playing field for EU and non-EU operators", commented the European Commission's spokesperson. The volume of commercial transactions on the Internet is still quite marginal but the current situation could create serious competition distortion and handicap EU service providers compared to their competitors, mainly American, he continued. The legislation currently in force does in fact provide for the EU electronic services to be taxed even if they are to be delivered in a third country, but the services from third countries are exempted from VAT even if they are delivered in the EU.
The new directive should put an end to this anomaly. For intra-Community commerce, it provides in the case of trade between companies for the company to which the service is delivered to pay the VAT (via its regular VAT declarations). In the case of services to individuals, the service provider would bear the cost, at the rate in force in the State where it is registered.
For third country operators, the Commission seeks to reduce as far as possible the administrative formalities to be carried out by companies. Those which are not physically set up in the EU should register to pay VAT but solely if they trade with individuals (which rules out three quarters of all transactions, between enterprises, where the receiver pays the VAT) and if the volume of their sales exceeds EUR 1000,000 annually. They could then choose a single place of registration, among the States in which they have customers, and apply the VAT rate in force in that place.
Some countries which, like Denmark and Sweden, apply the highest VAT rates of the EU (25%) already express reservation about this last provision, fearing that foreign operators will start flooding into more clement areas, such as Luxembourg, where the VAT rate is 15%. The Commission puts this risk to one side a priori. "I do not believe that the differences of VAT between the Fifteen are such that operators will make this a priority criterion in choosing their place of registration", said one representative. "This said, the Commission has always been in favour of reducing gaps in VAT rates in the EU, but the Member States are not ready for this. They will therefore have to live with these differences". The Commission nonetheless envisages reviewing the situation several years after the implementation of the directive, that it is planning towards 2003.
To be adopted, the draft should receive the unanimity of the Member States after the opinion of the European Parliament and the Economic and Social Committee. The full text of the proposal is available on the Commission website at the following address: http: //europa.eu.int/comm/taxation_customs/proposals/taxation/tax_prop.htm