E-tailers might face euro taxes

Australian companies selling goods and services on the Internet may soon face taxation in Europe when selling to European consumers. Landmark proposals currently under consideration in the European Commission bring all companies selling to consumers in the European Union (EU) on the Internet into the European tax net regardless of the company's physical location.

The move is a strike to level the global e-business arena, according to analyst PricewaterhouseCoopers (PwC). Currently, European-based Internet companies must charge a value added tax (VAT) when selling to consumers in the European Union.

"The Australian Taxation Office, which has set up a working party on Internet taxation, will have all eyes on Europe in forming its own e-business taxation policy," said Paul O'Brien, PwC tax partner.

If this new tax gets the go-ahead, companies outside Europe would have to register for the VAT and add at least 15 per cent to the cost of items sold to Europeans online.

"The proposals will affect

a wide range of entertainment services enjoyed by private and business consumers including subscription and pay per view TV, streamed video and the downloading of games software, music, films and books over the Internet," O'Brien said.

Australian companies, many still shouldering the burden of GST compliance, may soon find themselves challenged with complicated new VAT compliance requirements as well.

"The current proposals are not all bad news," he said.

"For example, in respect to sales to private consumers, companies will only have to register for the VAT in one EU country, so an overseas-based company can choose Luxembourg, with the lowest VAT rate of 15 per cent.

"Also, only companies with annual sales of more than e100,000 ($157,040) will be affected."

The laws are designed to remove distortions of competition with European-based Internet companies, which already must charge value-added tax when selling within the EU.

O'Brien noted that the current Australian GST legislation does not adequately address Internet trading.

"The lost revenue is bound to shift the ATO's attention to the taxation of Internet transactions, especially in regards to sales by nonresidents to unregistered Australian consumers," he said.

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