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29 Aug 2000
Dear Dr. Ecommerce:
I have a question concerning VAT. I have read all the questions and answers on this site as well as articles about the new EU proposals in e-Policy news,but can't find the answer to my specific query. As I understand it the new VAT proposals had to be devised as existing rules never envisaged online delivery made possible by ecommerce.Thus in keeping with the principle of charging VAT in country of consumption the new changes have been proposed. But under the new rules when an EU company supplies online to an EU consumer in another member state VAT is still to be charged in the suppliers member state. My query is that surely this in direct contravention of the principle of taxing in the country of consumption? The more I think abut it the more confused I get!
Please help.
Carl
Dear Carl:
Hello again and don't worry. You're not the only one confused by VAT. Indeed, I don't know anyone who isn't confused!
The real problem, frankly, is that in many cases it is very, very difficult to determine the country of consumption. Here's an extreme example:
A Finnish woman riding the train from Amsterdam to Lisbon uses her mobile telephone and a laptop to access the Internet (connecting to her German based ISP). While crossing the Netherlands-Belgian boarder, she downloads an electronic book to read on her laptop. She takes a nap and then starts reading the book in France, continues in Spain and finishes just moments before arriving in Lisbon. Where's the country of consumption? That's just one example. But it only takes a little imagination to devise dozens of situations in which the country of consumption is unclear, particularly now that mobile e-commerce is beginning to take off. It's simply easier and more realistic to apply VAT at the rate of the point of supply.
In any event, bear in mind, that the person who consumes the product will actually pay the VAT - even if it is at a rate different to that of her country.
All the best,
Dr. Ecommerce