The European Commission wants no new taxes created for electronic commerce, will regard sales over the net as services for tax purposes, will ensure a neutral regime (e-commerce will be neither favored nor discriminated against vis-a-vis other forms of trade), as well as one that is easy to comply with, enforce and administer. These are the basic tenets contained in a set of guidelines published last week by the EC on the question of ‘E-Commerce and Indirect Taxation’, which will serve as the basis for Europe’s position at an OECD ministerial conference on the subject, to be held in Ottawa in October. In the meantime, the guidelines will be the subject of discussions between the Commission and the business world, the idea being to present a common front in Ottawa. The document reiterates the European position that, as no new taxes are to be created for e-commerce, the sales tax commonly referred to as value added tax (VAT) will be the instrument for revenue gathering from the flow of goods and services, be they actually delivered over the internet or just ordered electronically, then forwarded by mail. Officials in Brussels said this option might well increase the pressure for the separate member states to align their VAT rates, which currently vary from 1% to 20%, as that would avoid the use of e-commerce as a means of arbitration between differing rates. There is a practical problem involved, however, in that VAT tends to be collected at the point of consumption, whereas, for practical purposes, it would be much easier to do it at the point of sale, where e-commerce is concerned. There continues to be a visible difference between the European position in this area and that of the US, where direct taxation is the concern of the federal government, while state and local authorities draw their revenues for sales taxes. Indeed, commented certain Eurocrats, it is for that very reason that the EU’s positions are often closer to those of the Interstate Tax Commission. The differences are, in any case, ones of emphasis rather than substance, they argue. The document does not, meanwhile, touch upon the practical problems involved in keeping track of e-commerce. In other words, if a consumer in Europe downloads, say, an album sold by a US music store and pays by credit card, by what mechanism can that transaction be brought into the taxable realm? Though one official did suggest that if most e-commerce is carried out by a small number of megavendors, they may at some point be interested in registering with the European Union for tax purposes, which in turn might mean their including some form of automatic notification of transactions to the authorities. Another suggestion, originally floated by officials from Germany, was that the banking system might be roped in as governments’ tax representatives, but the financial community is, not surprisingly, distinctly lukewarm about the idea of playing tax collector. For the time being, the official went on, the Commission is merely studying the structure and protocols involved in banking and payment systems, together with identification procedures such as digital certification and the Open Trading Protocol, developed by a number of leading corporations gathered in the OTP Consortium.
