- The Washington Times - Monday, June 30, 2003

BRUSSELS, June 30 (Agence France-Presse) — Companies in the United States and elsewhere selling goods online to customers in the European Union starting today will no longer be able to escape taxes.

Under a new EU directive, a value-added tax will be levied on all online purchases made by a resident of the European Union, regardless of where the supplier is based.

The new rules will plug a loophole in the system that exempted U.S. firms while their European rivals were forced to account for the tax.

The directive was adopted in May last year by EU member states, which rejected U.S. government arguments that e-commerce should be given more time to bed down before it attracts VAT. Online purchases in the United States remain tax-free.

But, on the flip side, European companies will no longer be obliged to charge VAT when selling goods to customers in non-EU countries. According to the European Commission, that will remove a “significant competitive handicap.”

The directive does not standardize the VAT rate levied in Europe. That is a longer-term goal of the European Commission and some member states, but not Britain, which is fiercely opposed to tax harmonization.

The rate at which an online purchase attracts VAT will, thus, continue to depend on the EU customer’s country of residence. Standard rates of VAT range from 15 percent in Luxembourg to 25 percent in Denmark and Sweden.

The rules will apply to all goods bought online, including downloaded software or music.

In a bid to minimize red tape, non-EU companies supplying goods online can register with tax officials in any one EU country rather than with all the 15 bloc members.

The country where companies register will reimburse the VAT to the member state where the customer resides. Thus, a U.S. company registered in Luxembourg that sells an item to someone living in Denmark will have to charge 25 percent VAT.

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