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EU mulls new Net taxes
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March 1, 2000: 3:32 a.m. ET
Report: regulators may impose new VAT rules on "virtual goods"
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LONDON (CNNfn) - European regulators are working on plans to introduce value-added tax (VAT) on a range of Web-delivered products, raising the specter of higher prices for online sales of software, music and video, according to a report published Wednesday.
The plans are part of a broader push to harmonize tax rates within the 15 members of the European Union by its executive arm, the Brussels-based European Commission.
The Commission is looking to levy VAT on so-called "virtual goods" delivered over the Net, based on the type and location of the end user, according to a report in the Wall Street Journal.
The report said that retail consumers would be taxed at the VAT rate applied where the seller of the goods is based, a reverse of the current system in which the products are taxed in the country of consumption.
For business users, the proposed changes are more far reaching, with the Commission considering a VAT charge based on the company's location. At present, virtual goods imported from outside the EU are generally free of VAT.
While the Commission has been at the forefront of attempts to boost the level of e-commerce among its member states, critics of the draft plans claim it would put EU countries at a competitive disadvantage and lead to "tax flight" by companies seeking to register for VAT in low-tax member states.
"This would give a competitive advantage to U.S. companies," Dimitri Kalogeras of the Eurocommerce small-business federation told the Journal. U.S. companies can currently access products such as business software over the Net without any equivalent sales-tax charge. "They would all go to Luxembourg, the Netherlands, the United Kingdom or Ireland where the tax rates are lower," added Kalogeras. 
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European Commission
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