Brussels, 19/10/2000 (Agence Europe) - The first debate at the Ecofin Council, at the beginning of the week, on a new VAT regime for electronic commerce showed that the proposal by the European Commission is far from gaining unanimity. Not that the Member States bring into question the objective of the directive, which aims to correct a real competitive handicap on the part of European companies compared to third country operators, but many challenge the solutions envisaged, for fear they will lose potential tax income.
The essential aim of the project under debate is to apply the rule of taxation in the place where consumption occurs, that is, where digital products are downloaded from the Internet (videos, software, music, games, etc.) and where radio and television broadcasting services are received, in compliance with the principles approved during the OECD ministerial conference in 1998, in Ottawa. The online payments made by operators located in third countries would thus be taxed within the European Community, by the clients if they are liable to VAT or by the operator. Payments by Community operators to non-European clients would, on the other hand, be exempt from taxes, a situation that is exactly the opposite to what is happening at present.
Third country operators that are not physically established in the EU should register in order to pay VAT, when they trade with private consumers. In a concern for simplicity, the European Commission proposes that they choose a single place of registration, among the States in which they have clients, and that they pay the VAT at the rate in force in that country. But there's the rub. Due to the divergence of national VAT rates, Member States fear that third country operators will register in mass where rates are the lowest, in Luxembourg for example (where the normal rate of VAT is 15%). This country, moreover, is the only one to have clearly supported the European Commission's proposal, on Tuesday. Most other Member States insisted that this would not result in effective taxation in the country of consumption and supported a suggestion made by the French Council Presidency, which provides for the registration of third country operators in each of the Member States where they carry out operations. Belgium proposed a second alternative, which would consist in central registration in a single Member State with breakdown of receipts on a macro-economic base between Member States where consumption takes place.
There is also divergence over the volume of sales after which a foreign operator should register and on the threshold of VAT franchise from which that operator could benefit. The European Commission proposes a threshold of EUR 100,000 turnover within the Community, after which registration would be compulsory, as well as VAT franchise for the same amount. In a draft compromise, the French Presidency provides that the Member States could impose the identification of operators within the threshold of VAT franchise, fixed at EUR 5,000 per Member State (that is, up to EUR 75,000 within the Community).
The Presidency hopes to reach an (unanimous) agreement on these questions during the Ecofin Council on 27 November. European Tax Commissioner Frits Bolkestein, on Tuesday, called on the Fifteen to give priority to strategic long-term considerations rather than short-term calculations. "It is urgent to put an end to the current anomalies, to develop electronic commerce in Europe. It is difficult to understand that some States focus all their attention on the place where third country operators are registered", he commented. "Their concerns only cover virtual receipts, since, for now, none of them receive VAT on this kind of service. If we impose over-complicated and costly procedures, many foreign operators will make the choice not to register at all". This debate only concerns, moreover, sales to private consumers, since, for inter-company trade, it is a provision that the service recipient should pay VAT in the country where the receiver is established, specifies the Commissioner's spokesperson. At the present time, sales to individuals only represents 10-15% of the sales of on-line digital products.