Internet Businesses with European Sales Face Taxation

The European Union (EU) is considering a new program that will “level the playing field” by making U.S. high-tech companies subject to the same type of Value Added Tax (VAT) that European companies enjoy. Initial reaction among U.S. companies is that this program will discourage sales in Europe or, at least, will result in a higher price structure for items sold via the Internet to European customers.

The VAT rate is 15% to 25% on non-physical goods, such as software and data. Estimates are that the tax will cost U.S. companies $2 billion over the next five years.

Although the actual logistics of collecting the tax from small companies may be difficult, larger companies, such as Microsoft, Dow Jones, and others that sell software and data online, will probably not want to appear to be tax evaders, and will find a way to absorb the tax.

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