A new EU directive, that goes into effect on July 1, will require all Internet firms to account for value added tax, or VAT, on “digital sales.” Computerworld reports how overseas Internet retailers may see their European profit push derailed by one of the oldest drags on business: tax.
The effect of the law will be an additional 15 to 25 percent levy on Internet transactions such as software and music downloads, monthly subscriptions to an Internet service provider and on any product purchased through an online auction anywhere in the EU.
The VAT tax is not new burden for European dot-coms that have been charging customers VAT since their inception. Their overseas rivals though have been exempt, making foreign firms an obvious choice for the bargain-hunting consumer. David Melville, general counsel of UK ISP Freeserve, a division of French ISP Wanadoo, rejoices:
It’s a massive competitive disadvantage. It’s good to see at last it being eroded.
Freeserve has lobbied furiously for the past two years to get the loophole closed, saying its chief rival AOL UK, the Internet unit of AOL Time Warner, saved 150 million pounds ($249.7 million) in tax payments over the years.
Shock, horror! How about lobbying the EU comissariat to abolish the internet sales VAT in the EU instead?! I thought not.
For example, on eBay, a UK seller will pay six pounds to list an automobile and 35 pounds for real estate, both 20 percent increases that include the UK’s 17.5 percent VAT charge. Some analysts predict that the new tax will decreases sales in the short term, which will hurt American dot-coms such as eBay and Amazon, given their expectations of higher growth in their overseas business.
But European firms feel justice have been done.:
The old way certainly gave non-EU companies a leg up during a very crucial stage in the development of the market.
Please note the assumption that it is acceptable for governments to meddle with competitive markets and ‘equalise the race’. The EU businesses behave in a way that is not surprising, they are happy to see their overseas competitors weakened, however, I fear their victory is rather Pyrrhic.
And exactly how are they going to enforce this? What is to stop an off-shore non-EU company with no physical presence within the EU from just ignoring them and declining to charge the EU tax for downloadeable products and thereby gaining an advantage for both themselves and their happy customers?
Exactly. Note AOL’s relocation to Luxemburg…
The last time I ordered something from the US over the internet the post office opened my mail and charged me VAT. They also charged me £15 for the privilage of having my mail opened. This meant the effective overall tax rate was 30%.
The thing I bought should have been exempt from VAT since it was a medical item, I didn’t complain since I thought I had already spend enough money on it and I didn’t fancy my chances of getting my money back.
I doubt they can enforce the tax with regards to downloads of music and software as outlined by Perry above, but I suppose for physical goods such as books, cd’s etc. the VAT could be passed on as a form of import duty.
In other words, you couldn’t have your bargain priced cd delivered from outside europe without paying the VAT to the delivery company who might be charged up front before bringing goods in.
Unlike Della, I’ve yet to have any internet ordered goods from America intercepted but I’m sure it will happen one day.
Alan
Given the potential revenues derived from taxing internet transactions, I suspect it will not be long before the Raptor IP scanners are modified to scan for such transactions and log them for taxation purposes.
All the government agents have to do is prove you made the transaction, the tax is then recovereable by “traditional methods” as Al Capone discovered.
The real problem with the evolution of such a system is its accountability and privacy invasion. Because of the sensitive information gathered everyone would probably agree it should be to kept secret and secure.
But as we all know secrecy, security, governments and personal liberty don’t mix too well.
The last time I bought DVDs from Amazon in the US, I was charged VAT, plus a ‘handling fee’ for the act of charging me VAT, which increased the effective tax rate to something like 35%. Thanks to the combination of this and the shipping charges, they ended up sufficiently expensive that I have not bothered buying any similar things since. Because of the “region coding” of DVDs, it is not generally possible for me to buy products in the UK equivalent to those I like to purchase from the US – the range of DVDs available in the UK is much smaller and they have fewer special features – so I have spent my money on other things.
I just this week ordered a newspaper article from FAZ online (Germany). I was charged 1 Euro on a 3 Euro purchase. I thought Americans were exempt!
Hm. I’m just sure there’s a gray market in here somewhere for me. I’m not looking to make a living, just fund my airfare back and forth to the UK as required.
Anybody need a DVD mule?
The European Union is insane. The hunger for power and control is insane. The hatred of the US is insane. This whole roiling mess is powered by criminal lunacy.
I would love to here you all’s perspective on the idea of a rising Euro-state and the pseudo-manifesto posted by Jurgen Habermas here.
Mike van Winkle: it must be a joke because no one is actually that incoherent, right? Right???
Liberty Belle,
Couldn’t agree more, the EU looks more and more like a Fascist version of the USSR, and there are still a lot of really stupid (imo), people who cannot see it.
I will no doubt be accused of being over-dramatic for that last paragraph, and how dare I compare the EU with other Fascist regimes such as Hitlers’ Germany. This is Fascism in it’s infant stage, all the pieces are falling into place for the EU to become a fully fledged totalitarian police state of the worst kind. This is a take-over by putsch rather than revolution.
There will still be the “Little Alices'” of this world who will deny the reality of the situation, and who truly believe that it can not happen here.
The Brits who think that it is so clever to make jokes about this very serious threat, – you know, that old myth that the ‘Brit sense of humour will see us through’, when really it is just an outward sign of laziness and moral cowardice.
Funny how ranting is so addictive!….
Ernest Young – Yes. It is a fascist state in the making. It doesn’t even bother to disguise its intentions. But it will grow very quickly and ruthlessly. I think within five to 10 years there will be no way out. Except war. And by that time our Armed Forces may have been ceded to Brussels as a “joint resource” along with our North Sea oil.
Perry: I dunno. I always feel a little cheap taking shots at English compositions by people for whom English is a second language. But, you have to admit, that “day on which the newspapers informed their astonished readers of the oath of loyalty to Bush” thing had a certain je ne sais what-the-hell about it. A sort of “…we must go forward, not backward, upward, not forward, and always whirling, whirling towards freedom!” quality.
All of this is a little incoherent. First of all the AOL deal isn’t a retailng issue, instead VAT was charged on Freeserve subscriptions and not on AOL, tax or don’t but please treat them both the same. I’m fairly sure that this would be levied on similar services in many states in the US.
As for charging VAT on sales over the internet it seems bizarre to pick on Europe for this. Apple’s music store adds sales tax depending upon your state. It may have been nice to avoid VAT but it is hardly unreasonable to charge the same tax whether foreign or domestic.
As for hurting Amazon and eBay? Well not on books which are VAT free, possibly on CDs and very little on most auction sales.
“Apple’s music store adds sales tax depending upon your state. It may have been nice to avoid VAT but it is hardly unreasonable to charge the same tax whether foreign or domestic.”
In the US, sales tax cannot be collected by a state on mail order or internet transactions if the seller has no facilities in that state. Apple charges sales tax on internet sales to states where it has stores. If I buy something by mail or the internet from a retailer who has no facilities in my home state, there is no sales tax. The legal jargon for this is a requirement that a company have some “nexus” with a state before it can be subjected to the sales tax in that state. There are a couple of reasons for this.
First, a company that has no facilities in a state has no representation, direct or otherwise, in that state’s government. It has no employees that vote in that state, it has no plants that it can threaten to move, it has no way to protect itself from predatory taxation. The phrase “no taxation without representation” is still fondly remembered on this side of the pond.
Second, a company that has no facilitites in a state is not drawing on any of the benefits that the tax allegedly goes to fund. It has no need of the police, fire, etc. services, and imposes no burden on the state that needs to be defrayed.
The flip side of this is that many states have “use” taxes that they charge to the consumer for any items the consumer purchases but has not paid sales tax on. Compliance with this is completely voluntary – you have to declare these items to the state, as it has no other way of knowing about them – and consequently nobody pays use tax.
Not sure how this maps onto the EU VAT. Is the VAT collected by the EU? If so, does it get allocated back to the national governments to spend?
BTW, I think we should all start referring to EU “directives” in scare quotes. Who the hell is issuing these “directives” anyway? How is it these “directives”, issued by god knows who, have the force of law? At what turning point, exactly, did the British electorate agree to be governed by faceless, nameless bureaucrats? I was out of the country at the time.
I’m out of it all of the time.
Err, maybe I should re-phrase that.
Liberty — fear not. We’ll stand with you when it becomes necessary to liberate the UK from the EU by force of arms.
Looking forward to it, actually.
Force of arms? I thought we could just bribe those in power…
…it’s worked well in the past!
I did get a mail-order Internet purchase opened and seized by customs here against import duties, but when I went to the office and heard the amount, I simply refused to take custody of the item, while informing the seller what had happened.
Hungarian customs and post do steal a little bit from the mail, but to their credit, on that occasion they sent it back to the US as rules stipulate.
And what is “all Internet firms”? All those inside the EU, or is there a serious expectation that firms worldwide will obediently take the initiative to register with the EU, as if that was an easy or cheap process?
Just a minute here… I thought Value Added Tax was for new goods and services. Where, exactly, is the “value added” in a used car or a piece of real estate with existing construction?
To T.Hartin
I read a piece somewhere about three weeks ago that VAT was to replace sales tax in the States. It took pains to explain to the American rader how this great blessing functions in Europe. Now, it wasn’t April 1st and I always believe everyting I read, naturally. Was I dreaming?
Guessed: it would be helpful if you could remember the source. Since sales taxes are a state-by-state concern, it’s hard to see how anything could “replace” the whole system unless the tax were federalized. And that would be very big news indeed.
As I understand it, the seller charges the VAT and then remits it to the relevant authourity. To charge VAT you have to be a registered dealer, trader, whatever, with a certain level of sales. Private individuals who do not meet this criteria, do not have to charge VAT.
As for electronic sales, e.g. downloaded software, music, etc. this may be difficult to monitor, but would certainly be liable for the tax, if supplied by a bona-fide dealer, but not liable if supplied by one individual to another.
Companies such as E-Bay who provide a service for individuals to sell smalll numbers of items would not appear to have a role in the collection of VAT on the goods sold, but would charge the tax on the service provided if they were based in the EU. the responsibility for collection of the tax on the goods would lie with the trader – if their business was large enough. Maybe there are special rules for auction houses, but then does E-Bay qualify as an auction house?.
Beginning to look a bit like a nightmare, isn’t it?.
The VAT charge is in addition to any Customs and Excise duty due, which is probably why some folk had their parcels opened.
Re vehicles and property, VAT would be due on new and used vehicles sold by legitimate dealers, but not on sales by private individuals. VAT on property, frankly, I do not know, it never used to be due in the UK, only on the solicitors and agents fees Things are probably different in the EU.
Apologies for any errors, but it is difficult to summarize such a complex subject, please do not take the above as being definitive.
Kevin,
From a traders point of view, the added value is the difference between the price that the dealer pays for the vehicle and the price that he sell it for.
Doesn’t make sense does it, but then ‘The Enemy’ makes the rules…. for the moment!.
I don’t there is VAT on property in UK, but there may be in the EU.
Ernest Young writes:
“The VAT charge is in addition to any Customs and Excise duty due, which is probably why some folk had their parcels opened.”
Indeed, which is what leads to the criminal situation where you are charged VAT on the gross price *after* customs duty. In other words, you pay tax on the tax you’ve just paid the bastards!
VAT was the wake up call about the EU that most Brits somehow failed to miss. The sheer insanity of the way the system works, with chains of intermediaries between the manufacturer/importer and the final retailer each adding and subtracting VAT until the poor so and so in the street finally pays the bill, beggars belief. In between, myriad transactions will have taken place, each costing money to everyone but the government.
It is a disgusting system and entirely typical of the EU – invented and imposed by mad bureacrats who have never produced a damned thing in their wasted lives.
Does this essentially serve the same purpose as an import tariff? To discourage buyers from sending money to American firms by making it a lot less economically desirable to do so?
The “internet tax” debate has been fought here in the states a few times. Ron Kirk, former mayor of Dallas/former Senatorial candidate was a major proponent of a nationwide, all-encompassing internet tax. It’s coming eventually, I’m sure. There are plenty of politicians wringing their hands about all the tax revenue they’re missing out on.
guessed –
You are probably recalling an article speculating that the long-term goal of some reformers is to replace the current US income tax with some form of consumption or value-added tax.
So am I right in thinking that, under the EU, an “authorized dealer” in England can be required to pay the VAT to France even though the dealer has absolutely no contact with France, other than doing business with a French firm?
Does France set its own level of VAT in the EU, or are all EU countries supposed to charge the same VAT?
Messers Weasal & Hartin, yep Consumption Tax at national level, as I recall. Think it was on Worldnetdaily that I read it, My surviving impression is that this is scarcely a longterm issue anymore. Bush is almost ready to sign it into law … maybe. Can’t recall anything else.
I can tell you that VAT does not cross national borders in the EU. Member-to-member import/export is untaxed providing the correct commodity code is entered on the documentation. Non-EU imports are taxed at port of entry. The rate of VAT varies from member state to member state and also the range of products on which tax is levied varies. The UK doesn’t apply VAT to books and newspapers, food (not restaurant nosh, though), childrens’ clothes, postage stamps, insurance, private education … Quite liberal compared to many other member states. But, of course, tax harmonisation awaits us in the BNW of NWO.
George Will on consumption tax possibilities.