The European Commission wants to impose value added tax on goods bought via the Net from outside the EU.
Currently, private European consumers who buy products or services on the Web from companies outside the EU do not pay tax. But the EC's new policy paper on electronic business says that, if ecommerce expands rapidly, "the absence of such taxation would lead to unfair competition for EU operators" because they do have add VAT to their prices.
The new set of guidelines, which now goes to national governments for debate, aims to ensure that taxation is "certain, simple and neutral in order to avoid any distortion of the market and to promote the growth of ecommerce", the Commission said. The main principle is that goods sold electronically should not be subject to new taxes, but should not escape old ones either.
"Electronic commerce is only in its early stages, but its development could soon become a major source of growth and job creation," said fiscal commissioner Mario Monti.
"We need to find solutions, in cooperation with all interested parties at community and international level, so that the tax system does not impede the development of this highly promising sector," he added.
The Commission wants member states to support the guidelines ahead of the OECD ministerial conference on ecommerce issues, to be held in Ottawa in October.
The Commission's guidelines cover six main points, but do not deal directly with future changes to the EU's own internal VAT system.
The first proposal is for "no new taxes" with "all efforts concentrated on adapting existing taxes, and more specifically VAT, to the developments of ecommerce. No new or additional taxes are therefore to be considered," the paper says.
The second guideline is that electronic transmissions should be treated as services for VAT purposes, as should products such as software that are downloaded directly from the Web. Software that is ordered online but delivered manually would be counted as goods, not services, for VAT purposes.
The third covers the knotty issue of intangibles - such as music, video or software - supplied from outside the EU. These present "the greatest challenge in terms of collection of VAT", the EC believes. To prevent unfair conditions for EU suppliers of these goods, it is proposing that services supplied online should be taxed within the EU, whatever their origin.
The fourth proposal focuses on "making compliance easy" for ecommerce operators through methods such as automated documentation, while the fifth, "ensuring control and enforcement", is to provide assurance that tax is effectively collected.
The sixth guideline on "facilitating tax administration" suggests that paperless electronic invoicing should be made possible at international level and accompanied by electronic filing of VAT returns.
Electronic sales in the EU are expected to be worth Ecu5 billion by 2001, including goods and services, ordered and paid for online, irrespective of their mode of delivery.
Only a proportion of this will be from non-EU sources and only a further fraction will be 'direct' services delivered online.
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