Bid to solve taxing issue of online shopping

Date: 28/05/1998

By Peter Chapman

EU EFFORTS to embrace electronic commerce will continue next month when European Commission tax experts unveil draft principles on charging value added tax for goods and services bought online.

The move comes ahead of the first key discussions on the issue with other countries at a conference organised by the Organisation for Economic Cooperation and Development (OECD) in Ottawa this October.

"The issue is being studied by the EU's taxation policy group and will be looked at by finance ministers in June. There is some urgency because they need to settle EU policy ahead of this Ottawa meeting," said a UK tax official.

He said the Commission would follow up the discussions between member states' experts with a policy paper in time for a later meeting of EU finance ministers, possibly in July. "It will be more a set of basic principles than proposals for legislation," he added.

These basic principles will be 'neutrality and non-discrimination' to ensure goods traded online do not benefit at the expense of those sold by traditional means.

Commission tax experts stress, however, that much more remains to be done before the Union emerges with a rule book for electronic commerce. "As far as actually emerging with any kind of VAT system, we are far away from that," said one.

The debate will focus mainly on products delivered physically after being ordered online. But it will also consider the way taxes are levied on goods and services such as music and books supplied directly over the Internet.

"This is not a big area yet. It is still slow, but that will not last forever. There may be more opportunities and it is an area where we will have to watch developments," said the official.

Other issues to be grappled with include the rules on how suppliers in one EU country charge VAT and other indirect taxes on sales to a second member state or third country outside the Union, and vice versa.

"For trade between the EU and third countries the biggest problem will be knowing the location of the parties. For example, if you have a supplier in the US, how will he know who and where his customer is when he is accounting for tax," explained the official.

The initiative coincides with ongoing moves to enshrine the principle of a duty-free Internet for international trade.

World Trade Organisation members are set to negotiate detailed changes to its rules over the next year to ensure there is consistent duty-free treatment of trade in goods and services such as books, pictures and music supplied directly over the Internet and other networks.

However, officials stress this does not mean electronic commerce will be totally tax-free. "It has never been proposed that existing taxes would not be levied on goods sold over the Internet," said one.

Commission tax experts to unveil draft principles on charging value added tax for goods and services bought on-line.