European E-Commerce VAT Plan Raises Red Flags
US companies charge the EU move would put them at a competitive disadvantage
WASHINGTON, DC - The European Union plan to tack a value-added tax on electronic commerce may place heavy burdens on US companies and put them at a competitive disadvantage in the expanding EU marketplace, according to an business executive in recent testimony before the Senate Foreign Relations Committee.
Testifying recently before the Senate Foreign Relations Committee's Subcommittee on European Affairs, Karen Myers, director of tax and trade policy with EDS, a Plano, Texas international business management firm, said that, while not opposed to the application of VAT to electronically delivered goods and services from abroad, US industry believed the EU's approach would place unfair obligations on non-EU companies.
"In trying to level the playing field, the European Commission has created a trading environment that discriminates against US and other non-EU businesses," stated Ms. Myers, who testified on behalf of the US Council for International Business (USCIB), a national pro-trade group headquartered in New York.
The EU directive on the application of value-added tax to electronically delivered goods and services takes effect July 1. For the first time, EU member states will be obliged to apply their VATs to e-commerce transactions between non-EU firms and EU consumers.
Accordingly, non-EU companies will be required to register with EU authorities and to levy, collect and remit the VAT tax applicable in the customer's place of residence. EU companies will be allowed to assess VAT at the rate of the member state in which they are based.
USCIB believes such disparate tax treatment between EU and non-EU firms will distort the EU market and create a discriminatory environment for non-EU companies, according to Myers, and may contravene World Trade Organization rules on liberalization of services trade.
Myers said the USCIB "is deeply concerned that the requirement for non-EU firms to collect VAT based on the location of their EU customers ignores the fact that most firms lack the technical means of verifying this information in a cost-effective manner."
She added that the EU directive also gives member states too much leeway in defining just what constitute electronically delivered services. What's more, a number of EU members still have not put in place implementing legislation just days before the
directive is to take effect.
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