European e-commerce tax laws to be extended

Without an extension, EU suppliers could become be subject to VAT even for services supplied to clients outside the region

The European Commission wants to extend the existing rules about VAT on European e-commerce transactions.

The extension would go to 31 December 2008 to give Europe enough time to get more permanent measures passed.

The directive on e-commerce took effect on 1 July 2003. It means that electronic services supplied for consumption outside of the European Union are exempted from VAT.

Without an extension, the Commission warned, the rules for services supplied electronically would revert to those in existence before the directive was introduced.

That would mean EU suppliers would be subject to VAT even for services supplied to clients outside the EU — and they would face competition from suppliers in non-EU countries that would not be subject to VAT at all.

Taxation commissioner, László Kovács, said in a statement: "I urge the EU Council of Ministers to rapidly reach an agreement on this extension as I cannot imagine we would revert to the rules prevailing before the e-commerce directive was introduced."

He also called on the EU Council to adopt the two proposals which would give permanent effect to the measures in the e-commerce VAT directive as soon as possible.