THE DMA CREATES TASK FORCE TO RESPOND TO EU DIGITAL VAT TAX: Serious Legal and Implementation Issues Must Be Addressed with EU Regulators
NEW YORK, May 16, 2002 — The Direct Marketing Association (The DMA) today announced it is creating an industry task force to identify legal and implementation concerns with the European Union's (EU) new requirement for non-EU firms to collect and remit value-added-tax (VAT) from EU consumers for digitally downloadable goods and services. The task force will communicate industry's concerns to EU regulators prior to the new law's effective date of July 1, 2003.
"The EU is setting up a discriminatory price structure against non-EU companies, said H. Robert Wientzen, president & CEO, The DMA. "The Internet and e-commerce are borderless, they cannot be and should not be weighed down by geographic political controls. Such a broad taxing scheme will act only to limit the growth of e-commerce in the EU."
"It is extremely burdensome and costly for every non-EU Website operator to register and comply with the maze of regulation that the EU has established," said Charles Prescott, vice president international business development and government affairs, The DMA. "The new task force will identify the many questions in implementation that this Directive raises for non-EU suppliers of digital products to European consumers."
"There is no question that small- and medium-sized non-EU Web merchants will simply choose to stay out of the EU marketplace – thus reducing overall competition – rather than face these burdensome regulations," Prescott concluded.
The Directive does not answer some critical questions for distance suppliers. For example, although the currency in which the VAT must be remitted is stipulated, it does not cover the issue of handling refunds and currency fluctuation risks that merchants will inevitably encounter.
Under the new law, non-EU companies not having a presence in Europe, and thus not otherwise subject to the requirement to collect VAT, will have to register with the tax authorities in one of the 15 member countries of the Union. They must then collect VAT from consumer buyers at the rate applicable to the product in the country of the buyer’s residence and remit it to the authority with which they are registered, who will reallocate it. These VAT rates could be widely different, and determining the correct one will be the responsibility of the seller.
The tax collection and remittance obligation is intended to cover anything supplied either through the Internet or on-line through other media, including the telephone or wireless. This will impact publishers, many kinds of service and software suppliers, and educational institutions.
The new Directive covers "electronically supplied services," such as:
- Web site supply, Web-hosting, distance maintenance of programs and equipment.
- Supply of software and updating thereof.
- Supply of images, text and information and making databases available.
- Supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events.
- Supply of distance teaching.
The impact on universities and institutes who provide education programs through the Internet could be dramatically affected.