This story appears in the
January 2003 issue of
Entrepreneur.
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You knew it was coming. Internet taxation can't be avoided
forever. The European Union (EU) is putting into effect a law that
requires collecting taxes on the exchange of digital goods like
software and music downloads. If you own a U.S. business in this
field and sell abroad, you will have to collect the Value Added Tax
(VAT) based on where the buyer is physically located. And you have
until July 2003 to get ready.
The VAT varies by country, topping out at 25 percent in Sweden
and Denmark. Collecting those taxes means registering with a member
state of the EU and upgrading your e-commerce system to handle the
new demands. Another option is to simply get out of the European
market. Keep in mind, though, that the new policy only applies to
businesses with at least 100,000 Euros in annual sales.
Proponents say the new policy levels the playing field for EU
businesses, which are already required to collect the VAT.
Opponents, the U.S. government for one, feel compliance will be too
heavy a burden.
No provisions have been made for enforcement, and many analysts
expect administration to be difficult and some businesses to simply
ignore the new rules. The implications of the new law could be
far-reaching. One possibility is that a tangle of hodgepodge tax
laws could be applied to the Internet by various nations before a
more global plan can be hashed out. Visit Taxation and Customs Union for more information
and the complete text of the directive.