EU Commission's Attempt To Tax the Digital Economy


Posted on: 01 May 2014 by Hines Darrel

Digital goods suppliers have been identified as a business sector that has not paid its fair share of tax, specifically VAT.

The New EU VAT rules are the Commission’s attempt to streamline system of taxing the digital economy.

The topic is high on the agenda of most nations at the moment. Digital goods suppliers have been identified as a business sector that has not paid its fair share of tax, specificallyVAT. Numerous states in the US have already introduced a sales tax (the equivalent of VAT) on digital goods; South Africa has introduced a VAT on digital goods; while both the EU and the OECD have used expert groups to identify best practices for taxing the digitaleconomy.

It is no coincidence that these developments are taking place at the same time worldwide.The heads of government - no doubt conversing in various forums and conferences - know that they have been outdone by the speed at which e-commerce has grown. For example, e-commerce in the US is growing by 16% per annum, in 2012 the figure was $262 billion and it is expected to rise to $440 billion by 2017. want a piece of the pie. They have stood idly by as companies such as Apple, Amazon, eBay and Microsoft racked up billions upon billions of sales, all the while paying less and less tax.

For the EU the trend came to a head in 2013 when a report - commissioned by the EU - showed that some €192 billion was lost in the VAT system in 2011. That is 1.5% of total EU economic output. The losses accrued from fraud, poor book-keeping and simple non-compliance. This infuriated EU leaders and they have since sought to strengthen their system by incorporating their new EU VAT rules.

The reform that will kick in on January 1, 2015, is the fruits of that fury. The VAT system in the EU now returns to what it always should have been a tax on consumption. The digitalgoods sectors have been targeted as they are the most lucrative.

The new system, unsurprisingly, will benefit the larger EU economies. From 2015 onwards VAT on B2C sales in the EU of digital goods will be based on where the end consumer is located. Therefore, the countries with more consumers will benefit.

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