NCPA - National Center for Policy Analysis

Europeans Require U.S. Companies to Collect Taxes

January 16, 2004

The European Union is requiring U.S. companies to collect the value-added tax (VAT) for on-line purchase of American goods by European consumers. U.S. companies say compliance will be complex and costly.

The new system requires U.S. companies selling to EU customers to collect the VAT and remit it to the EU government. With more Europeans purchasing on-line, the hope is to generate substantial revenue for the EU:

  • The VAT of 15 to 25 percent on Europe's domestic goods and the decrease in shipping costs on imports has made Internet purchases an attractive bargain for Europeans.
  • A recent study indicates that approximately 190 million Europeans will shop on-line in 2004.

Non-European companies can respond to the VAT in three ways -- by registering their company in a country with the lowest VAT, by paying the tax in the country in which the customer lives, or by simply ignoring the new rule. However, businesses that do not remit the tax will be fined up to 200 percent of the VAT plus back taxes, although how the punishment would be enforced is uncertain.

U.S. companies also worry about the implications the VAT tax may have on efforts by state and local governments to tax domestic Internet purchases. Currently, a 1992 Supreme Court ruling protects U.S. companies from having to collect Internet sales taxes from out-of-state retailers, if they are not substantially and physically located in the state that collects the tax. Therefore, any changes would require Congressional action.

Source: Veronique de Rugy, "U.S. Companies Become EU Tax Collectors," Budget and Tax News, The Heartland Institute, December 2003.


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