With widespread anticipation that fast internet connections will become ubiquitous, there is an expectation that the downloading market will take off. At present, typical dial-up internet connections make the sale of downloads such as large software programs unrealistic.
There is already a legal anomaly with software sales in the UK. A court’s ruling from 1996 suggests that the on-line sale of downloadable software is a supply of services whereas the on-line sale of the same software in a package – which is posted to the buyer – is actually a sale of goods. With any sale of goods, there are implied terms of satisfactory quality and reasonable fitness for any particular purpose made known to the supplier; but these terms do not apply for the supply of services, being replaced with the lower obligation of skill and care in the provision.
In June last year, the Commission said that non-European companies must charge VAT for on-line sales of “virtual goods” and that the companies could choose the EU country in which they wanted to register and pay VAT. The level of VAT in the EU varies from country to country. The lowest rate is in Luxembourg, at 15%, making it the obvious choice of VAT registration for any US company. Other EU countries objected. France called for US companies to register in all EU states – to which the US, inevitably, objected. Belgium instead suggested going ahead with the plan to register in any EU state but requiring that the revenues are shared among all EU states.
FT.com reports that the UK government considers it would be virtually impossible to enforce VAT rules for on-line sales. The EU’s proposal would exempt such sales by EU companies that are currently required to charge VAT for on-line sales outside the EU.