Mr Bolkestein was speaking at a conference in The Hague yesterday. He explained that the Commission is looking at new means of collecting VAT in light of e-commerce and said that critics of the Commission’s proposals are “missing the point”. He explained:
“It is essential that taxation is not a barrier to the growth of e-commerce. Rather, it should foster a climate within which this growth can occur. Whilst onerous rules can be stifling to business interests, indecision on the part of governments or regulatory authorities can be similarly disruptive particularly where the existing rules produce perverse results."
In 1998, the OECD agreed that, for consumption taxes, the rules in any country should result in taxation in the country where consumption takes place. Mr Bolkestein observed that the current VAT rules do not meet this requirement because services delivered on-line by digital means were simply not envisaged at the time the current VAT laws in the EU were established.
Today, when these services originate within the EU, they are always subject to VAT irrespective of the place of consumption. On the other hand, those services originating outside the EU are not subject to VAT even when consumed or used inside the EU. He explained that the current EU proposal is to remove the obligation on EU suppliers to levy VAT on digital products sold to customers outside the EU. Non-EU operators will also face the same tax obligations as domestic operators when they sell to consumers within the EU. This will bring the EU’s VAT regime in line with the OECD proposals.
Mr Bolkestein said the OECD is now looking at how to adapt the current international taxation rules to e-commerce in view of direct taxes, as opposed to VAT. He suggested that the EU will support but ultimately await the outcome of this investigation before making its own proposals.