The Hindu Business Line : EU okays e-com VAT

Under the directive — due for introduction from July 1, 2003 — countries based outside the EU will have to levy VAT on electronically delivered services.

At present, non-EU companies can supply services to consumers, even within the EU, without having to impose VAT. This puts EU companies, who have to levy the tax irrespective of the place of consumption, at a disadvantage.

Now finance ministers are attempting to create a "level playing field" for European businesses by allowing EU suppliers to stop levying VAT on sales outside the EU.

The European Commissioner for Taxation, Mr Frits Bolkestein, said: "I welcome the decision of the Council to adopt these rules on applying VAT to digital products. They will remove the serious competitive handicap which EU firms currently face in comparison with non-EU suppliers of digital services both when exporting to world markets and when selling to European consumers."

But critics have pointed out possible flaws in the directive. Non-EU businesses will have to register with a VAT-registered European member country of their choice, using special simplified arrangements, and then levy VAT at the rate applicable in the member-state where the customer is resident.

For a trial period of three years, the country of registration will re-allocate the VAT revenue to the country of the customer.

Ms Christine Sanderson, tax partner and e-tax specialist at PricewaterhouseCoopers, said that this would mean non-EU companies have to account for the various VAT rates across the EU, whereas EU companies would not.

Speaking last December when the directive was under discussion, she said:

"A major flaw in this measure, which even the EU authorities acknowledge, will be the difficulty in enforcing compliance."The directive does not apply to business-to-business transactions, which account for 90 per cent of all e-commerce deals.

The new directive applies to items such as software and computer services generally, plus information and cultural, artistic, sporting, scientific, educational, entertainment or similar services, as well as to broadcasting services.

Some have argued that, as member-states do not charge VAT on books, newspapers and periodicals, this should be the case for digital downloads.

But the EU rejected this."By their nature, they are fundamentally different products and they should not necessarily be taxed identically," it said.

The Council already reached political agreement on the Commission proposal on February 12, 2002. However, formal adoption by the Council had to await the opinion of the European Parliament.

Gills in jail

BROTHERS Sewa Singh Gill (52) and Paramjit Singh Gill (39) both of Bisterne Avenue, Walthamstow, have been sentenced to jail for three years and twenty months respectively for cheating the taxman out of half-a-million pounds. Their sentences followed an international tax investigation by the Revenue's Special Compliance Office.

The brothers ran a business called `Club Tropicana', which manufactures and sells sports and leisurewear and also rents out commercial property and snooker halls.

When they were faced with the SCO investigation, the brothers were given the chance to make a full disclosure of their tax affairs, but instead continued to conceal the true position, a Revenue press release explained.

The SCO also went to India to interview a number of witnesses in Punjab, including two village headmen who eventually gave evidence in the UK trial.

The brothers failed to report details of bank accounts and interest received on those accounts in Jersey and Switzerland. The SCO investigation focused on the brother's denials of these bank accounts and their signing of false statements. These formed the basis of the charges on the indictment. At the trial, the prosecution alleged that deposits totalling £660,000 into the offshore accounts arose from unrecorded sales of Club Tropicana, but the defence argued that deposits came from farming income in India — the evidence of the head tribesmen from Punjab helped to rebut this argument.

The tax fraud covered a period from February 1982 to April 1993. When passing sentence on the brothers, Judge Bing commented: "I consider that these offences are serious and are a fraud on honest taxpayers. I have taken into account the period of time these offences cover and the great efforts made by you to conceal them."

There will be a Confiscation Hearing on August 27 at which the Revenue says it will seek to recover the benefit the brothers obtained from the fraud. The tax and interest lost to the Treasury exceeds £500,000.

Bias incorporated

THE UK Chancellor's recent Budget has caused incorporation fever, with many sole traders and partnerships considering trading through a company for the first time. The first £10,000 worth of profit is not charged to corporation tax.

However, the Treasury Minister, Mr Paul Boateng, has denied that this is what the Government wanted. In answer to a Parliamentary question on the subject, Mr Boateng said:

"Government policy is to stimulate enterprise in its various forms, and not to support one group of businesses over another.

"Both incorporation and non-incorporation offer a range of benefits to small businesses. The choice as to whether to incorporate or not is influenced by multiple factors, many of which are firm-specific. The Government takes the view that businesses themselves are best placed to assess the relative benefits of different legal structures, and to decide which is most appropriate for them." Critics of the Budget have suggested that incorporation is exactly what the Treasury wants, as this will generate more money for the Government.

Schools not spared

IN THE UK, schools colleges face having to divert more of their budgets to paying national insurance rather than educating children and students, it was revealed in Parliament.

Following Mr Gordon Brown's proposed 1 per cent increase in national insurance from April next year, the full impact of the rise on children and students was spelt out in a Parliamentary written answer by Minister Stephen Timms. He said the rise national insurance in 2003 would cost all English colleges (including sixth form colleges) providing further education about £25 million per annum.

Mr Timms said the costs to schools will be in the region of £4,000 for the average primary school and £20,000 for the average secondary school.

(Source: AccountingWEB)

Send this article to Friends by E-Mail

Stories in this Section
Trading with China

From crisis to crisis

Pension torpedo hits Royal Navy

EU okays e-com VAT

Evaluate GM crops critically and fairly

A raw deal for trusts

Scheming benevolence

Are MFs asking for more?

Export strategy: Focus shift called for

The economics of a scam