Lauren Gibbons Paul

LAST ISSUE, WE REPORTED ON THE HUBBUB SURROUNDing taxation of Internet transactions in the U.S. Now, another precinct has been heard from. In June, the European Commission submitted a proposal requiring foreign companies that sell digital goods over the Net to charge value-added tax (VAT) on every purchase made by European consumers. To become law, the draft must be passed by all 15 member EU states.

The proposal would force non-EU companies with European Internet sales of more than $96,260 to register in one EU nation--then charge VAT based on that country's rate. Currently, services delivered over the Internet to European consumers are taxed according to the provider's location. The scheme would apply to a range of digital items.

The European plan was not met with joy in the U.S. and Asia. "The proposal is inconsistent with the principle of neutrality," says Peter Merrill, principal director of national economic consulting at PricewaterhouseCoopers (PwC), in Washington, D.C. The proposal also raises some thorny legal and technical issues. Says Ken Wasch, president of the Software and Information Industry Association, which represents high-tech companies: "It is doubtful, under public international law, whether the EU has any authority to impose such a legal obligation on U.S. entities." Figuring out if a buyer resides in Europe could be tough. "When companies sell digital goods, it is often impossible for the vendor to know with any degree of certainty the location of the customer," Wasch says.

Etailers echo Wasch's assertion. Joseph Howell, CFO at Redwood City, Calif.-based EMusic.com, says the music etailer doesn't require customers to enter a home address when ordering a product. And he insists EMusic.com has no way of checking the validity of home addresses customers do enter. "We sincerely wish to be good corporate citizens," Howell says, "but this proposal is unworkable for our current business model."

All this maybe moot if just one of the 15 EU member states nixes the proposal. Then again, if passed, the law could do wonders for the economy of tiny Luxembourg. Notes Collin Farrell, PwC's ebusiness services Asia Pacific leader, tax: "It is difficult to see why anyone should register outside Luxembourg, with its 15 percent VAT rate."

AVID READERS

In a survey of employees, nearly a third said they send up to 10 personal emails from work daily. This may not be a hot idea. Another poll showed that a quarter of U.S. corporations read workers' email.

(Source Vault.com, American Management Assn.)

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