The Council of Economics and Finance Ministers adopted definitively, without discussion, the Directive and a Regulation based on Commission plans to create a level playing field for the taxation of digital e-commerce in accordance with principles on the taxation of e-commerce agreed at a 1998 OECD Ministerial Conference.
The rules will ensure that when these services are supplied for consumption within the European Union, they will be subject to EU VAT, and that when they are supplied for consumption outside the EU, they will be exempt from VAT. The rules do not apply to sales to businesses.
The rules will apply, for example, to software sales where the software is delivered by downloading, rather than by disc. US companies have complained about the proposal because it means that they will now be expected to detect EU-based customers and charge VAT to these sales, something that EU companies have already had to do. In the US, companies are currently exempt from levying sales taxes on e-commerce transactions following a decision taken by the US Government which was intended to encourage e-commerce.
Non-European internet companies selling into the EU will be required to register for VAT in one Member State. The rate of VAT paid to that Member State on each transaction will vary according to the location of the consumer to whom they are selling. The taxes collected will later be distributed to the country in which the transaction took place.
European Commissioner for Taxation Frits Bolkestein said today:
"I welcome the decision of the Council to adopt these rules on applying VAT to digital products. They will remove the serious competitive handicap which EU firms currently face in comparison with non-EU suppliers of digital services both when exporting to world markets and when selling to European consumers."
Member States must implement the new measures by 1st July 2003.