European Commission proposes extension of e-commerce VAT rules

In a move to keep a level playing field regarding taxation of e-commerce transactions throughout the European Union, the European Commission has proposed extending to December 2008 a temporary directive on value-added tax for b2c online sales of digital products.

The proposal would continue applying VAT on all e-commerce sales of digital products, including music and software, to consumers within the EU until a permanent directive is formed, according to a statement on the EU’s web site, Europa.eu. It would also continue the policy of basing the VAT on the tax rate of the buyer’s country, rather than the EU-based seller’s country.

The current directive, which went into effect in July 2003 as a three-year measure, temporarily did away with a former rule that had also applied VAT on e-commerce sales of digital products sold to consumers based outside of the EU. If the current directive is not extended and the old policy returns, EU-based e-retailers would be at a disadvantage compared to e-retailers not subject to VAT when selling to consumers outside the EU, said European Commission taxation commissioner Laszlo Kovacs.

The continuation of the 2003 directive would also keep in place a system under which sellers based outside of the EU can simplify their VAT-reporting duties on sales of digital products to EU consumers by dealing with a single European tax administrator of their choice. VAT tax rates range from 15% to 25%.

The European Commission also reports that it is planning to propose a revision of the VAT system that would result in reduced and more uniform rates across the EU.