EU storm over Vat on digital downloads

9 Apr 2003

Forthcoming EU Vat legislation will have an impact on all businesses, European and non-European, that provide digitally downloaded services to EU-based individuals, PricewaterhouseCoopers (PwC) has warned.

Consumers downloading electronic books, music, film, games and distance teaching, for example, may see an increase in charges as companies strive to collect additional tax required by law to meet the new EU demands.

According to John Fay, PwC Vat partner, the new Vat regulations will be toughfor Irish businesses seeking to establish a threshold as a digital media hub for Europe. “These new rules will cause major challenges for businesses who have to adapt their systems to the requirements,” Fay said.

Currently only EU businesses in the 15 member countries (with a further 10 to join by May 2004) have to charge Vat, but from 1 July, all businesses will have to comply with this new ruling.

Suppliers outside the EU will have to charge the Vat rate in the EU country where the consumer resides. Consumers will no longer be able to order services from non-EU countries, such as the US, to avoid paying Vat on downloads.

PwC has launched a new website to help companies understand the likely impact of EU Vat on their revenues – The site will assist EU and non-EU businesses to determine where they decide to locate their businesses.

So far most EU states have not provided businesses with information about the registration procedures or related guidelines on how they will manage the new system, which gives them a tight deadline of 1 July to comply.

By John Kennedy