The European Union’s 15 member nations have introduced a value-added tax on digital sales to residents by non-European companies. By 3rd July, non-EU companies have to register with European tax authorities to levy, collect and remit the VAT on sales of various digital goods and services. A directive issued by the EU in May 2002, mandates companies that do not have a physical presence in an EU member nation to assess the tax at the rates charged by the countries where individual customers are located.
Computerworld reports that this imposition has forced many U.S. businesses to undertake months of legal and technical preparations. The VAT in the EU countries ranges from 15% in Luxembourg to 25% in Denmark and Sweden and as a result, some U.S. companies have had to choose between two costly alternatives: updating their e-commerce systems to track sales and initiate VAT payments at the various rates, or setting up new operations in one of the member countries so they can apply its tax rate to all digital sales throughout the EU.
Scott Pendergrast of Fictionwise, an e-books seller, said it would not have been economically feasible to invest in a European operation. Instead, he is preparing to collect the tax in different countries, although reluctantly.
I think paying it is ridiculous, and it’s unfair for a foreign government to make me a tax collector. I have enough trouble keeping track of the the U.S. tax code.
Others are questioning the ability of the EU to enforce the tax on the grounds that European courts would not have jurisdiction over them. Jon Abolins of Taxware, an e-commerce software developer, has been advising companies not to do so, because there is speculation that EU countries might not fight to protect the intellectual property rights of sellers that fail to collect the VAT.
There is so much wrong with this picture one does not know where to begin. First, of all, taxing on-line transactions is not specific to the EU, merely another thieving hand of the state. Secondly, the EU approved the VAT plan after content providers based in Europe complained that they were at a competitive disadvantage because they already have to collect the tax. A classic interference of the political into the economical, so beloved of the EU commissioners. Thirdly, in a typical EU fashion the law is ambiguous as to how companies are to determine the location of the buyer and near unenforceable by the vendors. They will spend hundreds of thousands hard earned profits on installing systems designed to assess and collect the VAT and on third-party vendors tracing the IP addresses of their customers.
And, if the EU governments feel they are not getting enough, they can send the tax authorities after the companies for not collecting the taxes for them. Welcome to the EU, the land where business is just another branch of the state.
Yes, I would urge companies with no physical presence in the EU to just ignore the sons of bitches and in fact advertise the fact they are not collecting the tax to gain a competitive advantage on downloadable sales.
It would not be the first time someone on this blog suggested that.
“Secondly, the EU approved the VAT plan after content providers based in Europe complained that they were at a competitive disadvantage because they already have to collect the tax. A classic interference of the political into the economical, so beloved of the EU commissioners.”
so instead of being nice and just do something about the taxes already there, like cut them or something, they decide to set up another one….smart, really smart. Oh, I doubt the EU were actually sincere when listening to the complaints – they directly saw a new tax around the corner and more control over things.
“Thirdly, in a typical EU fashion the law is ambiguous as to how companies are to determine the location of the buyer and near unenforceable by the vendors. They will spend hundreds of thousands hard earned profits on installing systems designed to assess and collect the VAT and on third-party vendors tracing the IP addresses of their customers.”
woohoo, IP tracking – maybe the EU want a piece of that too?
I can’t have been paying attention. Surely I have missed something?
Joe’s Batteries in East Armpit, Arkansas sells me a packet of Energizers and declines to charge me VAT.
And precisely *what* is the deeply delusional EU going to do about this – invade Arkansas?
I do hope President Bush has the strength of character to tell Prodi et al what to do with this astonishingly arrogant programme which, in essence, seeks to extend EU writ across the world like an imperial fiat.
The phrase ‘too damned big for their boots’ springs to mind…
Ah, I see (I think).. I missed the word ‘digital’.
And I’m damned if I can see any difference. I still defy the massed armies of EU customs and excise men to invade the USA, Australia, India, Japan or from wherever else I choose to buy cybergoods.
G Cooper – That should read: Too damned big for their jackboots.
Anyway, the way they will enforce it is, packages coming from the United States will be opened and VAT assessed. The customer will then get the choice of paying the VAT or not being allowed to take delivery of the item.
Nice if business tycoon Berlusconi could kick ass on this one.
Liberty Belle writes:
“Anyway, the way they will enforce it is, packages coming from the United States will be opened and VAT assessed. The customer will then get the choice of paying the VAT or not being allowed to take delivery of the item.”
They already do, sad to say. But the volume of mail is such that it’s a hit and miss business.
The difference here is the brass neck that makes them think they can order companies in other countries to obey their pettifogging rules and regultions.
Only the EU could have invented and imposed VAT, truly a disgusting tax and a tremendous burden on small businesses.
And yes, you’re quite right – too big for their jackboots indeed!
Let’s not forget the common external tariff as well for physical goods… Autarky good; trade bad.
You may have noticed UK Customs are quite keen on opening packages from abroad anyway, since they have powers to confiscate all sorts of goods as well as charging duties on them. Nothing brightens an official’s life more than exercising a little arbitrary power.
I would much rather force them to humiliate and inconvenience their own citizens by opening packages and forcing people to come to the local commisariat to pay the tax. Maybe that way some accountability can enter the equation, although most likely it will just make customers put pressure on foreign suppliers to collect the tax the e-z way.
I’m a little curious how they are going to apply this to downloads, though.
The South African authorities impose VAT on digitally ordered products as far as they can. They achieve this by opening packages at random as far as I can tell. In all the time I have been buying DVDs nd other small products on line, I have been asked for VAT (collected at the delivery end) maybe three times.
There seems little chance of the EU policing this by checking the avalanche of mailings. Sellers will probably have to sick a form on the packet showing the invoice details (and thus reflecting whether or not VAT was collected). Even so, it is likely to be entirely haphazard unless the EU employs vast armies of inspectors.
I am not clear what the complaint of European e-retailers is. The British ones that I know quote a British VAT price for UK buyers and a noin-VAT price for everyone else. So I can’t see a disadvantage there, as this is a merely domestic arrangement.
This is really knee-jerk protectionism of the most destructive kind, normally found only in the Third World.
I shouldn’t think it would survive a legal challenge. If I buy goods in France and take them home I am not going to pay French VAT and they are not going to bother finding out about SA VAT and trying to collect it. It isn’t their job and the SA authorities can’t demand it of them. The best they can hope for is to nobble me for it when I hit customs back home.
As I recall it was the big players who wanted this most, like Amazon, Freeserve and AOL.
Typical EUtopian law – unenforceable, and morally undefendable.
The reason for the tax coming about in the first place is particularly sickening. The EUrocrats have discovered that high tax is bad for business, and thus ultimately bad for the entire EU, but their response is to attempt to screw the entire world equally in a completely unenforceable and unrealistic way – because the more sensible option of cutting taxes at home to make business more competitive is anathema.
“As I recall it was the big players who wanted this most, like Amazon, Freeserve and AOL.”
That’s interesting, Dave. Are you sure? Are you sure these companies wanted this measure or that they merely complained about an ‘unlevel playing field’ which, as always, is caused by the imposition of the VAT on them in the first place?
“Even so, it is likely to be entirely haphazard unless the EU employs vast armies of inspectors. ”
Somehow, I doubt that the EUniks would shed a tear over either result.
Re David’s comment “Are you sure these companies wanted this measure …”:
Here in the U.S., one often sees large companies lobbying for what rational observers would see as onerous regulatory oversight, because the relative compliance costs are so much higher for their smaller competitors. (They can always lobby to ease the oversight later, after the smaller players are absorbed or bankrupt.) Perhaps this is a similar situation.
Tim,
Yes I am aware of the old corporate competition-hobbling trick and, of course, it does go on over here and in Europe as well.
I am not sure if it applies to this particular case though which is why I was genuinely seeking clarification.
This isn’t about stuff that gets sent through the post – they can already open and tax this to their heart’s content. What it is about is ‘digital’ products that are intangible and therefore unable to be stopped at a border.
Also, the EU has posted an FAQ, explaining how/why this is being implemented. Have a read – you’ll love some of the reasoning. Sample Quote:
Q: Won’t the Directive be difficult, if not impossible, to implement?
A: This view is at odds with conclusions currently being reached by OECD countries in a process that includes substantial business involvement. It can only be seen as representing the position of a business sector that is fundamentally “anti-tax” and simply does not want to see VAT imposed on e-commerce in any shape or form.
There’s planty more like that.
Many special thanx to the illiterate twat who found it smart to inscribe a svatiska on the so beautiful European flag…
Kodiak.
Kodiak, you do not have to like it but you do have to be polite. Personal insults are not tolerated on this site. If you persist in making personal invectives instead of reasoned arguments we shall start deleting your comments as soon as they appear.
Admin,
OK for courtesy.
Just don’t you know it’s a CRIME to post Nazi crosses on people, books, posters or stuff like that?
Would you be happy with my panting a “croix gammée” (Nazi cross) on your house?
Kodiak.
Actually it’s not a crime in Britain (yet) or the US, or many other countries. Defacing someone’s property would be, whatever you wrote on it. Defacing a symbol is a symbolic argument.
For myself, I think it is unfair and misleading to compare the EU with the Nazi state–there’s no murderous terror, much more law, far less personal freedom. The EU polity is heading for a new form of tyranny somewhere between late soviet communism and fascism. There’s no convenient symbol for it. No doubt in due course the pejorative connotation will attach itself to the yellow stars on a blue field.
Kodiak, it is not a crime and if you do not like it, you do not have to look at it. We shall be using the symbol as we see fit. Please read our comments policy below.
The article makes a points about the EU forcing businesses to behave as another branch of the state, this time its tax-collectors. The national socialist ‘economic’ policy was the same. They did not ‘nationalise’, merely forced companies to behave exactly as the state wanted… Hence the comparison.
Once again, personal insults will not be tolerated and perpetrators face obliteration (pixelated).
Guy,
Thanx for admitting than Bruxelles is not Berchtesgaden.
Do you think the poor XVIIIth-century redneck lost in the Appalaches or in the Alleghanies was feeling Washington to be a tyranny?
Are you serious when comparing Europe with USSR? Well, I’d love to be deported to a camp in Formentera or London or Florence…
Even if you admit that Europe is just a sad bunch of emasculated, pusillanimous bureaucrats ready to devour the poor brainwashed basic European citizens, at least there haven’t been no war between major States since the Treaty of Rome (a record in European 3.000-yo history!).
Even the 1914-like convocation of the Italian embassador to Germany that occurred yesterday didn’t result in the assassination of the Archduke of Austria (not even the Prince of Wales)…
Kodiak
Adriana,
Strange.
Personal insults not tolerated but gross abuse thrown at the face of Europe is fashionable…
Who was talking about “antiAmericanism” ?
Kodiak.
I am the last person to defend EU policy directives or new taxes, however I think a number of key issues are being missed here. Firstly VAT is a consumption based tax and therefore fair and reasonable conceptually.
More importantly VAT type taxes are a vital source of revenue for all governments in europe (and increasingly the world). What this law is trying to do is update tax policy for the modern world of online sales. Why should somebody that buys a CD at HMV pay tax, and someone from amazon not ? How on earth is that a fair and reasonable tax policy ? Sure there are implementation issues here, but the tax itself is fair, reasonable and a simple modernisation of an existing tax.
More importantly VAT type taxes are a vital source of revenue for all governments in europe (and increasingly the world).
Yep. That’s precisely the problem, Steve. The words ‘tax’ and ‘fair’ cannot appear in one expresion, unless one of them in negative…
Kodiak,
Yes, I am serious. It has a number of similar features, though it is obviously very different. No Gulag, clearly. But we are developing our nomenklatura nicely. The bureaucracy proposes and the “democratic” institutions do what they are told. (This has been the British system for most of the last 50 years, anyway, so it isn’t exclusively an EU fault.)
I don’t think the secretariat is either sad or pusilanimous. I know they work hard and take joy in their efforts to make the world a better place by the action of the state. But I also think they are often pursuing evil rather than good; and that even where the goals are good, seeking to bring them about by fiat is usually dangerous. (I’m fundamentally a Hobbesian, who sees the state as an evil sometimes necessary to suppress a greater one, rather than a light to lead us to virtue in the civil law tradition.)
I’m also serious about the comparison with classical fascism: the same sense of destiny, claims to social solidarity, cosiness with corporate governance (now called involving stakeholders)…
Meanwhile I hadn’t noticed an end to wars. Most of Europes colonies have since had wars. At home we had a long period on the verge of war (or in undeclared war) with the Warsaw pact, and it’s more plausible that this, and partial US occupation, kept the peace than any of the various euro-solidarity projects.
Steve Bowles makes a number of comments about VAT, but misses the point.
Leaving aside the (very important) question of whether any tax is ‘fair’, what is particularly iniquitous about VAT is that it forces ordinary people to become unpaid tax collectors and administrators.
In this it is co-opting ordinary men and women, on pain of a jail sentence, to do the government’s and the EU’s business.
It is also the most astonishingly bureaucratic system, with taxes being raised and reclaimed many times over before someone finally actually pays.
In doing so it creates a gigantic trail of administrative bureaucracy right across the EU – with the individual business being responsible not just for raising the tax, but making sure that it complies with the EU dimension.
While this may not be a problem for PanGlobalMegaStuff Ltd, it is very burdensome for small businesses to administer and the cashflow implications have wrecked, literally, thousands of companies.
It is a wicked taxation system which governments have only been able to impose because members of the general public (typified by Mr. Bowles) shrug it off as ‘someone else’s problem’. Had they any idea of what it actually involved, they might be a little less blasé about it.
Guy,
………..
1/ NOMENKLATURA
There’s one in every country or system.
When you’re watching apes or ancient hominidae, you just have to extrapolate & complexify >>> you get modern man.
Aren’t anyway the Bush-Texan-oil-banking-etc or the Kennedy dynasties (or other more accurate examples I happen not to know) true instances of local nomenklatura?
………..
2/ “I don’t think the secretariat is either sad or pusilanimous. I know they work hard and take joy in their efforts to make the world a better place by the action of the state”
Thanx for them.
………..
3/ “But I also think they are often pursuing evil rather than good”
That sounds religious!
Excuse me, I don’t eat that kind of bread.
………..
4/ “and that even where the goals are good, seeking to bring them about by fiat is usually dangerous”
That’s more debatable.
Teamworking is usually is very widespread workstyle in businesses. So what’s wrong with States behaving so too?
………..
5/ “I’m fundamentally a Hobbesian, who sees the state as an evil sometimes necessary to suppress a greater one, rather than a light to lead us to virtue in the civil law tradition.)”
Your oustpoken candour is meritorious.
But, Hobbes or not, why do YOU think the State is NECESSARILY something bad for freedom or happiness?
………..
6/ “I’m also serious about the comparison with classical fascism: the same sense of destiny, claims to social solidarity, cosiness with corporate governance”
I remember having, years ago, read a book -I forgot the title of which- by (sorry…) Léon Trotsky that was written just before WWII or in the early 30s.
The book (so hermetical >>> I may not have caught the right meaning…) was dealing with the links webbing capitalism to fascism or nazism (it was about industry in pre-1933 Germany, Weimar Republic).
Your wanton assumption is at least as abstruse as Trotsky’s…
Or I may not have caught the right meaning again…
Kodiak
To Mr Cooper
As somebody that created and runs my own companies, I think actually I do have an inkling about what is involved. Its not actually all that difficult.
There is nothing ‘wicked’ about it and if you read my original post you would realise I did say there were problems with its collection. In a nutshell though it is not unreasonable for the entity receiving the revenue to be responsible for paying the tax on it. I would prefer that than having all the revenue go to the government first and then me claim back the non vat component
Steve Bowles writes:
“As somebody that created and runs my own companies, I think actually I do have an inkling about what is involved. Its not actually all that difficult.”
Not for you, perhaps. But try telling that to the plumbers, one-man garages, chimney sweeps and other small traders who are very intimidated by it and who have to tackle it on their own.
“It’s not actually all that difficult” is what’s usually said by someone who can afford to employ a book-keeper or accountant to do it for him.
VAT, the bastard son of purchase tax, is massively and unnecessarily complicated and causes huge distortions in the economy.
Of course, a simple sales tax is far too easy for the Eurocrats.
Kodiak wrote:
Just don’t you know it’s a CRIME to post Nazi crosses on people, books, posters or stuff like that?
Others have implied it’s not a crime. But if it is, then I’d praise Gabriel for his courage in flouting a fundamentally wicked law. It is, after all, his flag (or in this case his virtual flag), and he ought to be free to do with it what he wants (short of physically injuring somebody else, by say, strangling them, of course!).
This is no different than the flag-burning issue in America. Several states had laws against burning the US flag except for destroying an old damaged flag (in which case burning is the standard method for disposal). The Supreme Court rightly found these laws unconstitutional, as they violated the First Amendment rights of free speech.
Kodiak continued:
Would you be happy with my panting a “croix gammée” (Nazi cross) on your house?
The difference, of course, is that since my house is my private property, I have the reasonable expectation that my private property not be damaged by others. This is no different from the anti-globalisation folks who go around smashing the windows of McDonald’s and Starbucks restaurants. You would admit that this is just as much an assault on private property as somebody coming along and painting a swastika on the side of your house, right?
g cooper,
It won’t be EU customs and excise men. Far too uncomplicated. Each firm will need to pay tax to the member state and probably set up a fiscal representative to pay it for them. Oodles of cash for continental professionals.
Ted wrote:
“(…) I’d praise Gabriel for his courage in flouting a fundamentally wicked law”
Likewise dear elevated Ted, would you have praised the courage of some 1938 Kristallnacht Germans in flouting a fundamentally wicked law (eg: equality between “Aryans” & Jews) ?
Burn books, put Nazi crosses on flags, & then build a brand new Auschwitz…
Ted continued:
” You would admit that this is just as much an assault on private property as somebody coming along and painting a swastika on the side of your house, right?”
No I certainly wouldn’t.
Your accomodating attitude with Nazi crosses makes me puke.
And equally puking must be the 50 million WWII dead.
Your carelessness is really miserable.
Kodiak.