Under the new rules, any company not registered in the EU but which has annual sales of internet services and paid-for TV in excess of 100,000 Euros (£62,000) to EU customers will have to register in a member state and pay VAT at the prevailing national rate.
The Directive will not affect the delivery of tangible goods such as books or CDs ordered on-line.
Non-EU companies currently selling products on-line such as books and CDs are presently exempt from VAT while their EU competitors are not. The new laws aim to create a level playing field between European companies and those outside the EU.
However, Stuart Eizenstat, US deputy treasury secretary, said Washington had “serious concerns with both the substance and process” of the proposed Directive and added that the EU could hinder the development of e-commerce.
Tax consultants have suggested that the scheme will be difficult to enforce on non-EU companies and therefore it can only work if non-EU companies co-operate voluntarily.