EU extends b'cast, download VAT rules

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BRUSSELS -- The European Union's rules for charging value-added tax on broadcasting and digital downloads were extended through the end of 2008 by EU finance ministers meeting in Brussels on Tuesday.

The rules require sellers to collect the tax on broadcasts and goods delivered via the Internet to individual consumers. They are contained in the EU's 2002's e-commerce VAT directive, but this was only designed with a limited shelf life and was due to expire at the end of this year.

Plans to make the e-commerce tax permanent failed earlier this year as finance ministers disagreed over a broader overhaul of VAT rules, which is still being debated.

In a joint statement, the ministers said that "the e-commerce directive will be prolonged from Jan. 1 until the end of 2008." But they also agreed "to take forward work on the VAT package as a matter of priority, with a view to preparing a comprehensive solution by June."

A reform package currently being discussed by EU finance ministers aims to simplify how the sales tax is applied to services -- and includes services such as broadcasting, telecoms and advertising. All tax changes in the EU require unanimity among the 25 -- soon to be 27 -- member states, creating a high hurdle in the way of any reforms. VAT accounts for a fifth of the tax revenues of EU national governments and two-fifths of the EU's own budget.

The 2002 rules apply to tax services in the country where the customer resides rather than where the supplier is located. They also charge VAT on online retailers from outside Europe. The directive applies to digital downloads, online subscriptions, purchases on auction Web sites like eBay and music services offered by the likes of Apple and RealNetworks.

The standard rate varies amongst the EU member states, from 15% in Cyprus and Luxembourg to 25% in Denmark, Hungary and Sweden. The standard VAT rate also applies to the vast majority of content supplied via traditional media, including music, software and video.

The directive says no obligations will be imposed on non-EU suppliers selling to business customers in the EU "since the VAT will be paid by the importing company under self-assessment arrangements." But the rules require suppliers of digital products from outside the EU to charge VAT on sales to private consumers.
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