14 February 2002
CIMA has warned that the European Finance Ministers (Ecofin) adoption this week of the so-called 'Swedish Presidency compromise' for taxation of digital products downloaded from the internet, is an unconvincing system that will be hard to implement and is potentially open to fraud.
The proposal, likely to become law once it has been ratified by the European Parliament, means that the non-EU suppliers of digital goods would have to register with at least one EU member state. Suppliers would also have to record all sales to individual countries charged at a local VAT rate. The scheme is designed to remove the competitive distortion currently facing EU companies who have to charge VAT when trading in the same single market.
Charles Tilley, CIMA Chief Executive, said:
'The proposed system is likely not so much to remove the current competitive distortion, as simply skew it the other way. It will therefore not create a level playing field. The non-EU businesses will now have to grapple with the various VAT rates throughout the EU. As well as invest in a temporary collection mechanism to be replaced - at a cost - after three years, once the proposed EU electronic portal system has been developed.'
He added: 'The proposed system will be difficult to implement and police, as there is little incentive for non-EU businesses to comply. In addition, there is a danger that companies could set up subsidiaries in EU countries with the lowest VAT, such as Madeira with a 12% rate. Private individuals can also register email addresses or websites in sub-domains belonging to lower tax jurisdictions'.
He concluded: 'The priority of any e-taxation legislation must surely be to create a level playing field, and for this to work in practice, it will need to be simple and robust. The speed of technological change alone has the potential to make hasty regulations either damaging or completely obsolete'.
You can download a CIMA Technical Briefing on internet taxation.
If you would like more information please contact Lottie Muir
Phone: +44 (0)20 8849 2407
Email: lottie.muir@cimaglobal.com
Fax: +44 (0)20 8849 2471
