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Dear Dr. Ecommerce,

Does the EU have a directorate working directly with the taxation issues of e-commerce? For example taxation of digitized goods, cross-border transactions, legal entities when ISPs are used etc.

VAT harmonisation in the EU is sufficient for physical goods but what happens when a product is downloaded from a web-page hosted by a server in the Bahamas? This does not amount to much at the moment, but at the speed things are developing, a couple of years is quite a while. Even physical goods "escape" VAT when the purchase amount is under a certain limit.

Thank you in advance,

Jake

Dear Jake:

Your questions are valid, but there are no clear answers for many of them. Indeed, these very issues are keeping the boys and girls in the Taxation and Customs Union Directorate General more than a little busy. They are the ones looking after these issues and you'll find a number of useful documents and links on their web pages (http://europa.eu.int/comm/taxation_customs/index_en.htm)

You should also take a look at our page on taxation at http://www.ispo.cec.be/ecommerce/legal/taxation.html and, in particular, the E-Commerce and Indirect Taxation communications and the VAT & telecommunications proposal.

To take the example you give of a server in the Bahamas, the issue actually depends on the physical location of the company using the server. If the company is registered in a member state, it is liable for taxes in that member state. It should also charge VAT on products - irrespective of whether the product is digital and downloaded or tangible and delivered by courier - sold to persons in other member states.

If the company is not registered in a member state then, in theory, the customer should pay any customs duties and vat on the purchase when the goods arrive in her country. When the customer is a consumer and the product digital, this is rarely done in practice. But when the customer is a company and the cost of the purchase is significant enough to include in the ledger, then the purchasing company will want an invoice and, as a result, be liable for any taxes and duties owed for the product.

Finally, these are very broad generalisations of the situation based on my understanding of tax law. You really need to look at the legislation for a full understanding of the laws and how they could be applied in various situations.

Dr. Ecommerce