European Commission

Foreign countries and local governments don't share the Federal government's laissez faire attitude. Foreign nations argue that because much of Internet trade will be conducted by Americans, they stand to lose a fortune on duties that would be applied to exported goods. [1].

The European Commission has produced extensive recommendations and provided for detailed discussion of priorities to facilitate trade and stimulate transatlantic economic activity. [2].

In an earlier communication, entitled "A European initiative in electronic commerce", the Commission stressed the need for a tax environment allowing electronic commerce to develop. This calls for legal certainty (so that tax obligations are clear, transparent and predictable) and tax neutrality (same tax burden on electronic commerce as on "traditional" commerce).

The communication stresses the Internet's commercial potential and considers the problems encountered by the administrations in imposing indirect taxes on goods and services purchased on the Internet. Guidelines are proposed in preparation for the European Union's contribution to the Ottawa Conference.

The Commission has outlined six points as a basis for discussion:

• no new tax will be levied
• all electronic transmissions and intangible property supplied via the Internet are regarded as provision of services, subject to VAT
• services used in the European Union are taxed by the Member States of the Union, whatever their origin. Similarly, services supplied by Community operators to parties in countries not belonging to the Union are not subject to VAT (tax neutrality principle)
• the levy of tax on electronic commerce must be adapted to trade practices and must not complicate the task of operators. It is essential to ensure proper coordination between operators and tax administrations so as to ensure efficient levy of taxes
• mechanisms for verification must be introduced to guarantee taxation of services provided within the European Union via the Internet by companies and private individuals
• services provided on the Internet will mostly be invoiced electronically. Operators would be able to meet their obligations through electronic VAT accounting and tax declarations based on Community rules to be drawn up. By establishing an international framework for cooperation it will be possible to apply this principle to all international electronic invoicing.

These principles constitute a basis for discussion within the European Union and at international level and lay the foundation for taxing electronic commerce, enabling European companies to benefit form the same taxation system for all forms of sale.

Electronic commerce offers enormous opportunities for consumers and for business in Europe in terms of job creation, welfare enhancement, cohesion, integration and competitiveness. By the year 2000, 250 million people are expected to be connected to the Internet worldwide and the value of the global electronic commerce market is estimated to reach 200 billion ECU. In many sectors such as financial services - where recent surveys indicate that 60% of companies will use the Internet for transactions with customers by the year 1999 - Internet based transactions are already having a great impact on the way business is conducted.

It is vital for tax systems to provide legal certainty (so that tax obligations are clear, transparent and predictable), and tax neutrality (so there is no extra burden on these new activities as compared to more traditional commerce). Electronic trade in goods and services clearly falls within the scope of VAT, in the same way as more traditional forms of trade do. There is therefore no need to introduce new, alternative taxes, such as a bit tax within the EU.

The Agreement to eliminate tariffs on information technology goods by 2000 is a concrete step. However, for the liberal global framework for electronic commerce to become a reality, agreements on cooperation at the global level on a series of specific issues will be needed. These include the protection of privacy and personal data, and the recognition of digital signatures, taxation, encryption, domain names and trademarks, legal protection of databases and the establishment of basic uniform commercial practices.

The European Comission also wants to promote a favourable business environment by creating awareness among businesses and encouraging them to make use of electronic commerce themselves; also by encouraging public administrations to take a more pro-active line, particularly in the areas of customs and taxes.

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References

[2] Transatlantic Business Dialogue. Brief of meeting held on 11/7/97 [On line] (last updated Aug 28,1988) http://europa.eu.int/search97cgi [back to text]