EU planning tax on US companies

Kickaha

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EU plans to tax Internet sales, angering US trade authorities
Tue May 7, 4:36 PM ET

By JIM KRANE, AP Technology Writer

NEW YORK - The European Union (news - web sites) agreed Tuesday to impose a new tax on products downloaded from the Internet — including software, videos and music — aiming to help Europe's Web-based businesses compete with U.S. companies.

EU Taxation Commissioner Frits Bolkestein said the new tax rules "will remove the serious competitive handicap which EU firms currently face."

Bolkestein complained that U.S. giants of the industry levy no taxes from online customers. The effect has been to give a sales tax loophole to European buyers, who find cheaper-priced goods on U.S.-based sites.

Although U.S. businesses are the focus of the legislation, the tax affects all non-European Internet businesses selling digital products, whether in the United States or elsewhere, said Nicholas Colannino, a European Commission (news - web sites) spokesman in New York.

A separate measure that taxes "hard" shipped goods, such as books, could be considered in the future, Colannino said.

The U.S. has complained the EU taxes pre-empt ongoing talks on Internet taxation at the Organization for Economic Cooperation and Development. U.S. trade authorities have said they may lodge a complaint against the new tax at the World Trade Organization (news - web sites).

The European Commission said, however, that the tax "complements the international process at the OECD."

The tax, to be enforced beginning July 1, 2003, would take effect when an Internet customer in, say, Belgium, purchases MP3 music files from, say, San Diego, California-based EMusic.com.

EMusic.com would have to determine electronically that the purchaser is located in Belgium. Using that information, EMusic's computers would add the appropriate Belgian sales tax to the purchase.

This formula marks a significant change from the current tax rules, which permit EU residents to buy the same MP3 from EMusic.com without paying tax. But if a European customer buys the MP3 from, say, Stockholm-based eClassical.com, an online vendor of classical music, tax is levied on the sale.

Under the system, as now, European consumers will pay only their own country's so-called value-added tax. U.S. companies will be forced to charge customers the prevailing rate in force where their customers live.

Each of the EU's 15 countries taxes different products at different rates. General value-added rates vary from 15 percent in Luxembourg to 25 percent in Sweden.

The U.S. Treasury Department (news - web sites) fears U.S. firms will be required to charge the EU's value-added tax at higher rates than their EU competitors. The department — and American vendors — also worry that EU rules will breed a complicated, difficult-to-enforce tax system that hampers e-commerce in general.

"We continue to be concerned about the potential for discrimination inherent in the new EU VAT regime that applies to downloaded products," said Treasury Department spokeswoman Tara Bradshaw.

Before Tuesday's decision, EU authorities considered handing U.S. companies the same advantages as European competitors, by allowing them to charge a single EU-wide VAT rate.

But member states blocked that idea. They feared companies would all set up for business in low-tax Luxembourg.

The tax has nothing to do with the ongoing U.S.-EU trade spat over American tariffs on foreign steel, Colannino said.

"There's no link at all," he said. "This has been in the works for a while."

___

On the Net:

http://europa.eu.int/comm/taxation_customs/whatsnew.htm
 

Kickaha

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Okay, my questions is how will this be enforced?  

<font face=arial size=1><blockquote><hr noshade size=1>The U.S. Treasury Department (news - web sites) fears U.S. firms will be required to charge the EU's value-added tax at higher rates than their EU competitors. The department — and American vendors — also worry that EU rules will breed a complicated, difficult-to-enforce tax system that hampers e-commerce in general.<hr noshade size=1></blockquote></font>

So the U.S. government disagrees with this but then shrugs their shoulders and says "what can we do"?  I don't get it.  What if company A decides to sell something to someone in the EU but doesn't charge a tax or pay a tax to the EU?  What then?  Will the EU taxing authority be knocking on their door?  Will the U.S. government be knocking on their door?
 

Marty

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Only with the consent of Congress.  Clinton bought into this economic "globalization" concept.  I call it global "socialization".
:mad-fumin-red:

Article l; Section. 10.

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws: and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Controul of the Congress.

No State shall, without the Consent of Congress, lay any Duty of Tonnage, keep Troops, or Ships of War in time of Peace, enter into any Agreement or Compact with another State, or with a foreign Power, or engage in War, unless actually invaded, or in such imminent Danger as will not admit of delay.
 

karstic

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If those companies have any kind of brick and mortar stores in any EU country, that country could deal with the brick and mortar end of the business by means of fines etc.
 

Kickaha

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The thing is, they're trying to make it sound as if they have no choice in the matter.  "Oh well, there's now a global tax.  Sure wish there's something we could do, but there isn't.".  Again, I'd like to know who's going to come knocking at my door when I tell the EU Tax man to go pound sand.  Those having business directly in the EU, like Karstic says, are in a different position.
 

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