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Dr. Ecommerce:
We want to put our company on-line, but the matter of taxes and
customs is mind-boggling. Where can I get more information?
Rebecca
Dear Rebecca:
You've come to the right place. Here's a summary I've put
together based on our massive document heap:
Tariffs
An official EU position has not yet been formulated,
however, the issue was discussed at the WTO (GATS,
GATT, TRIPS).
A product ordered though the Internet and shipped though
conventional means is subject to the normal customs
regime. The actual method of ordering does not make a
difference. However, many packages, particularly small
ones cross national borders duty-free, because many
customs officials are either unaware of the commerce, or
because it is more trouble than its worth to collect the
relatively small duties on goods ordered.
The tariffs on a product ordered and delivered through the
Internet (eg software) is a complicated question. In May
1998, the World Trade Organization (WTO) approved an
agreement to temporarily refrain from imposing customs
duties on electronic transmissions. Goods ordered
electronically but delivered physically are not covered by
the agreement. USA would like to make permanent the
standstill on customs duties.
Classification issues
Customs duties apply to goods but it is unusual for them to
be applied to services. Services are governed by the
GATS-regime. There are discussions on the classification
of goods that can be delivered both electronically and in a
physical form (e.g. software). These different forms are
very similar and the question is whether the trade regime
applying to the electronic and physical forms should also
be identical. WTO does not have a comprehensive
definition either of services or of goods.
The WTO stresses the importance of maintaining the
principle that all services delivered electronically are
covered by the GATS. The question here is whether some
products delivered electronically should be defined and
treated as not being services (hence a different regime
would apply). Some intangible products could be regarded
and treated as goods even when electronically transmitted,
in which case the rules of GATT would apply. Typically,
whether GATS or GATT is applied is determined by the
nature of the products being traded, not by the means of
their delivery. However, some WTO countries have
pointed out that their customs valuation is based on the
medium as opposed to the content.
In the new WTO work programme on electronic
commerce an item of work is a complete analysis on
customs duties.
The World Customs Organisation (WCO) is also working
on this issue
Taxation
Taxation of electronic commerce is a complex issue
especially in consumer-to-business relations,
business-to-business commerce is more used to dealing
with international taxation rules and procedures.
Direct taxation
There remain questions on the place of establishment of an
electronic commerce merchant, international taxation
treaties, and jurisdiction.
Indirect taxation
DG XXI: Commission Communication on electronic
commerce and indirect taxation COM(98) 374 final.
http://www.ispo.cec.be/ecommerce/legal.htm#ecommerce
The communication was accepted by the July 1998 Ecofin
Council.
Principles of the communication:
- In the field of indirect taxation all efforts should to be
concentrated on adapting existing taxes and more specifically VAT to the developments of e-commerce. No new or additional taxes are therefore to be considered. - A transaction that results in a product being placed at the disposal
of the recipient in digital form via an electronic network is to be
treated, for VAT purposes, as a transaction of services. (These electronically
delivered products may also be delivered by more conventional means
in a tangible form and, according to their characteristics, be treated
for VAT purposes either as a sale of services or of goods. Products
currently treated as goods, such as supplies of music or video on disc
or cassette may be subject to customs duties at importation. Products
that, in their tangible
form are treated for VAT purposes as goods are treated as
services when they are delivered by electronic means.) - The E.U. VAT system should ensure that:
Services, whether supplied via e-commerce or otherwise,
which are supplied for consumption within the E.U. are taxed within the E.U., whatever their origin. Such services, supplied by EU operators for consumption outside the E.U. are not subject to VAT in the E.U. but VAT on related inputs is eligible for deduction. The above guideline does not prejudge the rules that will be applied within the E.U.
- Compliance for all operators in the field of e-commerce should be made as easy and simple as possible.
- The tax system and its control tools must ensure that taxation is enforceable on supplies of services received within the E.U., via e-commerce, by both businesses and private individuals.
- 6.Paperless electronic invoicing will be a characteristic of electronic commerce and must be authorised for VAT purposes for transactions within the E.U. The legitimate interest of Member States must however be safeguarded by the provision of sufficient tools for control and prevention of abuse when fixing the conditions for the use of electronic invoicing on a uniform basis within the E.U. Similarly, high priority should be given to creating a framework of co-operation between E.U. and other countries to ensure that conditions, equivalent to those provided within the E.U. are also created for international electronic invoicing.
- Subject to uniform EC conditions, fiscal administrations should allow for operators, participating in e-commerce to discharge their fiscal obligations by means of electronic VAT declarations and accounting.
The outcome of the OECD’s Ottawa conference
discussions on taxation was positive and stressed the
importance of on-going work in the area. Taxation should
result in the jurisdiction where consumption takes place.
The position adopted at Ottawa on consumption taxes
reflects the Commission’s communication. At Ottawa it
was recognised that new administrative or legislative
measures, or changes to existing measures are needed.
In October 1998, US Congress adopted the Internet Tax
Freedom Act (ITFA): provides for a limited and temporary
exemption from new state and local taxes on Internet
access.
The Commission believes that the EU VAT system can
continue to serve as a model for the taxation of global
electronic commerce.