Taxation and the Internet - International E-commerce And Taxation

INTERNATIONAL E-COMMERCE AND TAXATION

Discussion of e-commerce taxation in the global arena primarily concerns industrialized nations, where most e-businesses are based and where the vast majority of online transactions occur.

As of 2001, downloads of digital goods made in the EU were subject to value-added tax (VAT) rates of the supplier's home country, while physical goods ordered online were assessed at VAT rates of the country in which they were consumed. Goods and services purchased from EU vendors by non-EU customers were generally zero-rated. Non-EU retailers selling digital goods and services to EU purchasers were not subject to VAT, giving countries such as the U.S. and Canada a pricing advantage in international e-commerce. New legislation was under consideration by the European Commission (EC) and the Organization for Economic Cooperation and Development (OECD) in the early 2000s. It was intended to ensure that online services and digital goods sold to individuals would be taxed where they are consumed. Non-EU vendors would register for VAT in one EU state and account for VAT on items and services delivered to EU residents at that country's rate.

International authorities are concerned about the potential tax revenue losses that may accompany un-taxed e-commerce. However, they have proceeded cautiously regarding international e-commerce taxes. As in the U.S., foreign governments and industries have been loath to retard the early expansion of e-commerce, and special taxes levied only on e-commerce have met widespread rejection.