In June this year, the European Commission closed a tax loophole for US companies, when it said that they had to charge VAT for software and music sold over the Internet.
The proposal also said US companies could choose in which European Union country they wanted to pay VAT.
However, European governments are questioning the Commission's proposals. Until now, many US companies have avoided paying VAT because the current legislation does not take Internet sales into account.
The opposition from some European governments is because the level of VAT across Europe ranges from 15% to 25%, so most US companies are likely to opt to register in Luxembourg, where VAT is only 15%. But countries such as France argue this will deprive them of tax revenues, and thus US companies should have to register in all European countries.
The Belgian government has suggested that non-EU companies should only register in one country but that the revenues should be shared.
The Software Industry and Information Association welcomed the Commission's review of the VAT structure, but expressed its caution over multiple registrations.
On hearing of the story back in June, AccountingWEB-UK’s topic expert, Anne Fairpo said:
"This conjures up a picture of Customs officials throughout Europe randomly downloading software from the 'net, to check whether VAT is being charged - and then having to double check on each enterprise from which they download software, to ensure that their turnover levels, etc. are high enough to require them to charge VAT ... etc ... etc.
"It's a nice idea, but I suspect it'll go the same way as use taxes in the US - a theoretical tax, rather than a practical one. Apart from anything else, an online merchant may not know exactly where his customers are - online delivery means that the address provided on request need not be true; credit card verification systems matching address and card number are not global.
"In fact, there would probably be a better response if the EU created a use tax form of VAT - requiring individuals to declare on their tax returns any unVATed digital goods bought, and self-assess the VAT due. It would stand about the same chance of successful compliance ..."