Value Added To internet sales in EU

From July 1, the Net will have to face up to a sobering new fact of life. Suppliers of digital services from outside the European Union (EU) will have to pay tax on sales to punters inside member states.

So, what does this mean? Basically John in the UK or Pierre in France, for example, buying stuff online from, say, a US company may now face price hikes of up to 25% as the non-EU seller will now have to pay VAT (Value Added Tax) applicable in the country of the buyer.

The new rules apply to a number of e-services such as Web hosting and downloaded games, music and software.

One of the most vocal of those calling for the bulldozers to be allowed to re-landscape the footie pitch is UK ISP Freeserve, which went to extraordinary lengths to highlight the fact that rival ISP, AOL UK, does not pay VAT.

In all, Freeserve estimates that the loophole has saved AOL UK a whopping £150m since it launched an all-out attack on the unfairness of the tax loophole in summer 2001. And there lies the root of the problem. While ISPs such as Freeserve had to pay VAT, AOL UK didn't. It's a competitive advantage that some think just went too far.

Crucially, for customers in the UK, AOL said that it would absorb the tax hike and has no plans - at the moment at least - to pass on the charge to its UK customers. Hmm, I guess we'll see how long that lasts.

News source: The Reg

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