Transatlantic tensions set to rise over online taxes

Date: 23/11/00

By Peter Chapman

For a while, the Internet, e-commerce and all things virtual were as virginal as a spring bride; untouched by regulators, tax collectors and governments.

But no sooner had their potential been envisaged than the hawks were out, trying to saddle the new medium with as many shackles as the rest of the economy.

Happily for business and net-users, talk of a 'bit tax' on information transmitted over electronic networks was stamped on at an early stage by the US and EU - despite the seemingly plausible arguments advanced by economists such as Maastricht University's Luc Soete, who claimed such a levy was necessary as the bits and bytes of the new economy replace the muck and brass of the old.

An uneasy moratorium on customs duties for online trade also seems to be holding among the world's main trade blocs, for the time being at least. But two 'live' EU proposals are still raising temperatures in Washington, and are widely expected to cause a fresh round of trade tensions between the two blocs.

One is a European Commission plan which, if approved, would impose tough restrictions on companies using e-mail to market goods and services. Under the proposals, which are fiercely opposed by US firms, companies would have to seek prior permission of potential customers before sending them commercial e-mails.

The move is seen as a way to combat 'spamming', where consumers are inundated with unwanted messages selling everything from get-rich schemes to oriental brides. But firms claim it would scupper legitimate mailings.

Another potential row is looming over plans by Internal Market Commissioner Frits Bolkestein to plug a loophole in the Union's value added tax system which allows foreign firms to escape the levy while EU firms are charged for goods which can be 'delivered digitally'.

In a move designed to appease foreign firms, the Dutch Commissioner offered them the option of establishing themselves for tax purposes in just one of the countries where they sell into the Union. But member states complained that this would mean low-tax Luxembourg would grab most of the spoils resulting from the measure. They are now arguing over a modified proposal which could force the (mostly US) companies marketing their wares over the Internet to register in all member states where they sell more than 5,000 euro worth of goods.

But the Commission and member states were rapped over the knuckles for this approach by the European Parliament earlier this month when the rapporteur on the issue, UK Liberal Diana Wallis, insisted the idea should be abandoned. "Rather than trying to impose complex administrative and bureaucratic solutions in a vain attempt to equalise the position between EU and USA, the Commission should seriously consider scrapping VAT on e-commerce within the EU. That would be a real signal to encourage e-business," she said.

Wallis added that the proposals would antagonise other countries just as the

international community was trying to negotiate a solution to the e-taxation problem via the Paris-based Organisation for Economic Cooperation and Development.

Article forms part of a survey on trade.