EU Plans to Tax Internet Sales

Arctic Fox writes: "In a bid to help European online sales, the EU is planning to tax online transactions. The article on Yahoo, says that the taxes will apply only to products downloaded from the internet, such as software,videos and music. They may elect to tax physical items (books, hardware,etc) at a later date. American companies will be forced to charge European customers the appropriate VAT in their home country. No details on how this will be enforced."

Europeans are already over-taxed

[Anonymous Coward]

The European governments already exploit the people way to much. This is just another example of it. The governments are way too powerful over there. Remember that for much of the 20th century, large parts of Europe were happily goosestepping under the great regimes of national and international socialists.

How it will be enforced

[leviramsey]

The EU can't do much about sites run strictly by outfits in the US. Mom and pop type online stores are far too numerous (and many don't even ship to Europe, anyway).

What ths is really aimed at is the Yahoo's and Amazon's, who do maintain a presence in the EU. Because they have offices and such in the EU, that does place them under EU jurisdiction, to some extent.

Amazon has at least one order fulfillment center in the EU (I want to say in Rotterdam, but I could be wrong). Yahoo has offices in Munich, Paris, London, and other EU cities.

In short, if you don't want to be charged, the best course may simply be to never physically do business in the EU. Don't open a Parisian office. If you need to be in Europe, Switzerland's not in the EU.

Impact?

[neksys]

The Deloitte [deloitte.ca] and Forrester [forrester.com] research companies measure progress in the growth of e-commerce and forecast that by the end of 2002, online sales are expected to exceed $1 trillion, consisting of business-to-business sales of $842 billion and business-to-consumer sales of $180 billion (5). What effect could an Internet sales taxes have on these projected online sales? A study by the National Bureau of Economic Research found that the imposition of sales taxes could reduce online spending by as much as 30%. A 30% reduction in projected online consumer sales of $180 billion means $54 billion in lost retail sales. A 5% tax rate on the remaining $126 billion in sales would yield $ 6.3 billion in new sales tax revenues, but result in a net loss of $ 47.7 billion to the economy. Even if a 3% sales tax resulted in a more moderate 10% reduction in online sales, the $18 billion loss in sales volume would far exceed the $ 4.86 billion in new sales tax revenues.

These are striking numbers, even if US-centric. The EU should really be careful before instituting any such thing...

Re:This is the way it should be

[errxn]

Maybe, just maybe, because it's not the *job* of the government (well, the US government, anyway) to provide/administer/control health care to the masses? See, the funny thing is, when you don't live in a socialist country, you don't just get everything handed to you on a silver platter. You do, however, get the freedom to choose what you want and don't want.

Besides, the government does a bad enough job with what it's already responsible for, why should we trust it to manage health care?

Re:HUH?

[Anonymous Coward]

That was my first impression, too, but I did something that might seem a bit extreme: I read the whole article.

Basically, they feel that it isn't fair to EU firms that EU residing consumers can buy digital products cheaper from American comapnies than EU ones. Therefore, they want to impose a tax on anything digital an EU citizen buys from an American company online. Their reasoning is that this will bring the price up to the same leel as the EU firms' products and then the EU consumer will buy from the EU form.

Of course, if they still buy American, the EU doesn't care - they just got an increased budget.

So the difference from today

[Bender Unit 22]

So the difference from today is that it will save customs for a lot of work since they currently are sending me a bill for the taxes after I got the package. They are also months behind as it is.

Anyway before ranting about having to pay taxes on internet sales, I just wanted to say that the taxes already are there if you follow the law, but with the change so that the internet companies have to charge for the taxes, it should be easier for us buyers to get stuff from the internet without having to deal with all those mails and bills from customs afterwards.

The only big hurdle is I see it is a way to implement it without killing the small shops outthere.

Re:HUH?

[Anonymous Coward]

"how exactly will TAXING online transaction HELP online sales?"

The aim is not to help 'online sales' but to help EUROPEAN online sales. Online sales in the EU are already taxed, outside the EU this is usually not the case, thus products and services can be had for significant saving by shopping online outside the EU.

The aim is to discourage this by taxing implementing the same tax inside and outside the union.

Personally, I usually end up paying a ridiculous import duty here in Ireland anyway so this will make no difference to me.

Re:Unconstitutional?

[Andy Tai]

In a Yahoo-France case, a US court has ruled that a French court judgement is unconstitutional (with respect to the US Constitution) and cannot be enforced.

Of course the French can rule that the US judgement is unconstitutional (with respect to France) because it interfers with the enforcement of French law.

In the age of the Internet, the overlap of national soverengities may just increase

This is news?

[sph]

They may elect to tax physical items (books, hardware,etc) at a later date.

Come on, is this 2002 or 1992? Seriously, the other part of the news (i.e. taxing online transactions for online goods) is totally valid, because it's not being done yet, AFAIK.

There is a concept of EU's taxation area, which includes pretty much the whole EU with a couple of exceptions (like Jersey). Since something like 1993 there has been the EU "Single Market", and most physical goods imported from elsewhere have been subject to VAT. If I order something from for example the US or Australia or Japan I have to pay VAT if the package gets caught in the customs. If I order something from the UK or France or Germany, who cares, it's from the taxation area, and taxes are assumed to have already been paid. Many European online vendors have VAT already included in their prices, and for example Amazon.co.uk [amazon.co.uk] charges the VAT based on the destination country.

At least some Canadian online vendors go around VAT by sending their shipments to the customer from some country in the EU. The package isn't subject to VAT if it's sent from France or Belgium. I don't know the legality of this, but the concept sounds somewhat dubious, despite allowing cheaper prices for the customer.

At least in Finland the key is to order less in one package, because our customs don't bother to charge less than 10 euros. I have something like 90 DVD titles (some of them being 5-6 disc boxes), with almost all of them being ordered from the net, and only 15 of them originate from the EU taxation area. I haven't paid VAT (22% in Finland) or customs (3.5%) for a single one of the imported ones, because I order only one or two discs at a time.

More information about VAT is available at European Union's VAT info page [eurunion.org].

Re:This is the way it should be

[errxn]

Correct you are! I sure as hell wouldn't want to send a kid to a public school in this day and age. Not when the schools are more concerned with teaching Political Correctness than anything else.

Re:This is the way it should be

[nanoakron]

Looks like I'm going to have to bite:

*(wake up, socialism does not work in the real world! It results in a crap economy, crap education, and crap health care, and eventually, pissed off citizens!)

As opposed to American capitalism which pisses off the citizens of many *other* nations around the world (but let's not forget McVeigh shall we) and results in 9/11...

Crap economy: Germany? Britain? we're certainly not as large as the USofA but we're definitely in the top 5 year in, year out. And you'd better watch out for that China, it's a doozy!

Crap education: Hmm...I won't even bother..."your country's to enforce it" hah! And in order to be a sovereign nation, you need a sovereign, but hey, who cares...

Crap healthcare: Whose country recently made a film called 'John Q' about a young boy unable to get a heart transplant because his HMO wouldn't pay? Whose country turfs patients out onto the street with chronic illnesses when their insurance runs dry? Where would you rather come down with HIV? The USA where your drug bill alone sets you back in the region of $7,000+ p.a. or Europe, where treatment's free at the point of service?

Your arrogant belief that 'because I'm fine, I don't care about anyone else' is precisely the insular, blinkered view America has of the world. Did you ever study citizenship? The rights of the state are accorded in response to the citizen assuming societal responsibilities - and the most important of those is the responsibility to your fellow citizen. What better way to show what a good American you are than by ignoring those who are most in need.

-Nano.

A lot of people here have missed the point

[wackybrit]

in saying.. "How is this going to help e-commerce??" and so on. It's simple.

Europeans already pay VAT (Value Added Tax) on purchases made within their own countries or the EU as a whole.

This means that buying stuff from the US can work out cheaper than buying it from your own country. So, by forcing US companies to tax EU citizens on purchases, this will force consumers to buy from e-commerce sites in the EU.

This sounds fair enough, but it's actually extremely unfair. For a start, many things are far cheaper in the US, or aren't ever available in the EU.

I'm a big Jewel fan, and her album came out in the US last year, so I ordered it from Amazon.com and paid about £15 in all, including delivery. Amazon.co.uk wanted £20!

I'd fully support the EU's ideas on this one if things in the EU were competitively priced. They're not. The EU business world is governed by cartels intent on driving prices as high as possible. It's only in the past year that CD prices have come down to US levels.. we used to pay up to three times more just five years ago!

So if the EU wants us to buy from EU stores, perhaps the EU should be a bit more like the US and open up its economy and not be so bureaucratic! If the US can have cheap gasoline and cheap CDs, I'm sure as hell the EU could too (since the EU is technically richer than the US and all).

Opposite Goal

[rnicey]

This will of course have the opposite effect of making them money. Some entities increase charges when they need to make more money, this is typical of more socialist ideals and popular in Europe*. Others lower prices to make more money. This often sounds odd, but it's the principal of the bargain and reliance on good old marketing and upselling. Typically more a US ideal.

In England they need more money for whatever, so they raise taxes. In the US they lower taxes to stimulate the economy and produce more overall wealth.

As a US based company with British tech we get to see both sides of the coin quite clearly, and as a money making machine we're very confident of which works best. Here we sit processing an awful lot of credit card transactions every second, mostly for US customers because it's easy. Do you think any court in this land will force us to spend heaps of money supporting foreign tax laws? Do you think we're going to release those records without such an order?
Even if we were forced to charge said tax, what would actually happen is it would be cheaper and more cost effective for us to not do business with those countries. End result: Those countries have less imports from the US. Their loss not ours. A good lesson in shooting yourself in the foot.

Same thing. Thinking of opening an office in London... Any idea how much company tax and fees they pay over there? Waaay to much. End result is we declined and the UK lost out on a company branch that produces loads in tax every month. Greed got them poor. Plain old stupid.

Robert
WebsiteBilling.com Inc.

* Typically, IMHO, etc. etc.

Re:This is the way it should be

[Malc]

And you'd be depriving your child[ren] the best part of education and the most important part of growing up: parents. Your children might end up with a good education, but they will probably have emotional problems.

To HELP online sales? I think not...

[prisoner-of-enigma]

I'm at a loss to understand how some idiotic tax (in an area that is already well known for outrageous VAT taxes) is supposed to help sales. Basic economics will indicate that if an item becomes more expensive, fewer items will be sold. Since the tax goes to the gov't instead of whoever is actually producing, selling, distributing the item, that money is for all intents and purposes LOST.

Very, very shortsighted. Historical evidence unequivocally shows that for the last 100 years, every time taxes have been lowered and economic boom came to fruition within 2-4 years (economic inertia). This boom has ALWAYS offset the short-term lowered tax revenues caused by lowering taxes in the first place. Pity that most politicians only think 2-4 years ahead, and thus do not realize (or don't want to realize) this obvious truth. If you don't believe me just go to www.omb.gov (Office of Management and Budget) for the lowdown on the economic figures for the U.S.

You'll note that Reagan lowered taxes and increased spending, resulting in a deficit. He was widely criticized for it, but the 80's were huge boom years. Apart from a very short (only 1 economic quarter) recession in 1990, the economy STAYED in high gear until the tech crash of 2000-2001. During the longest economic expansion in U.S. history (which started under Reagan, not Bush #1, and certainly not Clinton), tax revenues INCREASED to the point where we were whacking away at the deficit in huge chunks. During that same time period government spending INCREASED as well, something that should've caused more deficits, but didn't due to the greatly increased tax revenues.

Under Clinton taxes were radically increased. You'll note that about 4 years later the economy abruptly reversed. I'm not blaming Clinton for the recession (overenthusiastic investors are largely to blame), but it can be said that he did little to thwart it. Now Bush #2 is in the center seat, and he's cutting taxes. I have every reason to believe that we'll deficit spend for 1-2 years, but in the long run it will pay us to have done things this way.

The EU has never gotten this idea, and the absurd VAT tax is just another example. Governments and politicians don't EARN or PRODUCE wealth, they TAKE it and SPEND it without regard to who they took it from. There is no way in hell MORE taxes will lead to a BETTER economy. History does not lie.

Re:A lot of people here have missed the point

[wackybrit]

A fair point, but taxes should not be used to control consumption in an open economy. In an open economy, prices are used to control consumption, and taxes are an artificial method of jacking up the price.

If there was less oil to go around more people, the price would go up automatically. The fact that the price of gasoline is so low in the US tells us that there's plenty of supply to meet the demand.. hence the price should remain low.

Environmentalists should not be protesting about gasoline. They should join the rest of us who are pissed off at the oil companies for buying out all of the people who come up with cheap/clean alternatives to the internal combustion engine. With our technology nowadays, there are better solutions, but we never hear of them.

Internet taxes inter-state coming soon

[Anonymous Coward]

The lure to tax and spend politicians is too great to ignore. Just as the wash room attendent Dave Dinkins in collusion with Vallone, the city council speaker quickly raised the gasoline tax at the end of the gulf war when the gasoline price was finally receding, the ability to tax inter-state internet sales is too attractive to tax and spend politicians.

While mail order catalog sales are generally exempt from sales taxes in most states, internet sales are the same, except a different medium is being used to place the order. That's it. The only difference.

In most states, businesses are not exempt to the sales tax on mail order sales, or internet sales, due to the use tax. Same tax, different name. How is this enforced? If you run a business, just about anything you purchase for that business is a deductible business expense. When you put that business expense into your tax returns for the writeoff, that becomes auditable, and traceable. So you have two choices. Pay the use tax, or roll the dice and risk getting nailed in an audit, and opening up a whole can of worms to see if you paid use taxes on other deductions. The third choice is not claim the business deduction, which is more costly than paying the use tax.

So businesses in the US, my friend, pay sales/use tax on inter-state internet purchases already.

Re:A lot of people here have missed the point

[vrt3]

Prices that are set by demand/supply give the best possible positive effect on society, so tells us free market theory. But that assumes that all costs are included in the price. Without government intervention however, only internal costs are included. For best effect, also external costs should be accounted for (such as environmental impact). This is what these taxes try to do, though not always in the best way possible.

Oh gawd this is too funny!

[Dragoness Eclectic]

EU shoots itself in the foot yet again...

Guess what? EU tax laws are NOT ENFORCEABLE IN THE UNITED STATES! Officials of American companies that don't have a foreign subsidiary that can be pressured (like Yahoo France was) will no doubt roll on the floor laughing hysterically, and then start counting the extra sales they'll pick up by underpricing the companies that do have to abide by EU stupidities.

The EU cannot enforce this outside the EU, and they know it--look at their FAQ! The "enforcement" section is all about voluntary compliance--which will no doubt be a lot like the "voluntary compliance" where customers are supposed to voluntarily add required state sales taxes to mail orders here in the U.S. NOBODY IN THEIR RIGHT MIND PAYS TAXES VOLUNTARILY!

If I want to give my money away, I give it away to a church or charitable organization, not the eternally-corrupt, wasteful government.

In the U.S., mail order companies are only required to collect sales taxes in states in which they have an actual storefront presence because there are Constitutional problems with forcing a private business to act as a tax collector in another state. The same laws and issues will prohibit any legal requirements to collect taxes for a foreign authority such as the EU. If Lousiana can't force a California mail-order business to collect sales taxes from a Louisiana customer, what makes those idiots in the EU think they can?

Re:A lot of people here have missed the point

[RalphSlate]

This means that buying stuff from the US can work out cheaper than buying it from your own country. So, by forcing US companies to tax EU citizens on purchases, this will force consumers to buy from e-commerce sites in the EU.

I don't dispute your point; if US companies don't charge the tax, European companies are definitely at a disadvantage. It also would prevent the EU from raising taxes to, say 50%, because that would cause everyone to start buying from the US.

However, the proposal (as I've read about it) is very one-sided. It neglects to take any account the fact that the merchant has to:

1) Know the tax rates of every EU country, and keep up to date on them.

2) Send money to these countries at some point in time -- when, monthly? Yearly? Maybe not all on the same schedule. And for all I know the EU may specify that I have to pay in Euros, meaning that there could be conversion issues -- for example, if I collect $100 US in VAT, which is 150 Euros, and then by the time I pay it 150 Euros might cost me $150.

I haven't read the proposal, but this seems at least possible. Plus US banks aren't that friendly to those trying to send money out of the country, and frequently charge very high conversion rates.

Finally, it neglects to consider the fact that a government outside of the US is trying to govern US citizens. Now I realize that there is contact between the citizen and a EU citizen, but as a US citizen I have no ability to voice my opinion, through a vote, as to laws that are suddenly applying to me except to not sell to EU customers.

I'm troubled that the EU could "govern" me somehow just because I have some kind of relationship with an EU citizen. This is an important legal concept. Could this extend to other things, like, for example, running a web page that a EU citizen can view? Could I be pulled into German court because I have a page which glorifies Hitler, even though this is permissable in the US? (not that I'd want to make such a page, it's just an example). Could I be pulled into court because I cursed at someone on Usenet?

The law may be fair now, but it could definitely be changed. What if the EU decided to "tax" bytes transmitted to it via the internet? Although it's far-fetched, it's not outside the realm of possibility -- after all, who ever thought that they would try and force US citizens to collect their taxes?

Ralph Slate