Brussels, 11/06/2001 (Agence Europe) - The electronic commerce companies active in Europe gathered within the European e-business Tax Group, are displeased with the slowness seen in the adoption by the EU of the VAT on digital services Directive, which would allow them, in their eyes, to be competitive in Europe in a sector in full growth (downloading of music and video by PC or UMTS etc.). According to Inge Lejeune, spokesperson for the association, the Directive would put an end to the distortions to competition for European companies, which are between 15 and 20% more expensive than American and Japanese competitors for products sold by the Internet on the European Union market, the latter not being required to pay VAT. Mr Lejeune fears that if the situation continues, several European companies will have to move away from the EU.
The association supports the latest project by the working group on tax issues. The "final" text is supported by fourteen Member States, with the notably exception of the United Kingdom, which joined the United States in favour of a tax moratorium on these transactions. Close to the guidelines set by the countries part of the Organisation for Economic Cooperation and Development (OECD) in Ottawa, the compromise foresees that: 1) digital services provided from third countries are taxed at the normal rate set in the country where the service is consumed; 2) the companies working from third countries may register with the tax administration of a single EU State to undertake the provision of services in other Union countries. For example, an American company could register in the Netherlands for services provided in Belgium and Greece. It would pay the VAT rate applicable in Belgium or in Greece to the Netherlands administration, which would retrocede the amount to the State where the consumer is located. This mechanism is a "third way" located mid-way between the Commission proposal and that by France.
As a reminder, the Commissioner responsible for Taxation Frits Bolkestein, concerned with allowing free tax competition between the Member States, had proposed that a third country company be registered in the EU country of its choice and pay the VAT rate applicable in that country. The proposal, aimed at favouring the State with lower rates (such as Luxembourg) was dismissed - unsurprisingly - under the French Presidency, France proposed that VAT be declared and paid in the State of consumption, without this position coming to fruition. The working group on tax issues and Coreper had been entrusted with finding a solution, and it was in March that the latest compromise was finalised. Only the British government, hardly inclined to justify to its citizens a new tax system, was opposed to this text, and proposed a short-term moratorium, of two or three years, on the taxation of this kind of service. The Fourteen rejected the British proposal, by asserting that is would be difficult to withdraw later on, that it does not correspond with the OECD guidelines and that it would introduce distortions to competition. According to an observer close to the Commission, the ball in now in the court of the Heads of State and Government, who will have to express themselves on this issue during the Gothenburg European Council.
According to figures published by eMarketer.com, a website providing statistics on the Internet, electronic commerce in Europe represents USD 44 billion in 2000. The share of commerce with the consumer (B2C) is USD 19 billion, while the rest is allocated to business to business (B2B). eMarketer.com forecasts that B2C commerce in Europe will represent more than 182 billion in 2004, while B2B would fall to USD 797 billion. In 2000, the highest figures for electronic commerce have been seen in Germany (USD 9.5 billion) and the United Kingdom (USD 8.8 billion).