IP/06/621

Brussels, 16 May 2006

VAT: The European Commission proposes to extend the Directive on electronically delivered services

The European Commission proposes to extend the period of application of the "e-commerce VAT" Directive (COM (2002) 38) to 31 December 2008. Without this extension, the rules for services supplied by electronic means as well as to radio and television broadcasting services would revert to those prevailing prior to the changes introduced by the Directive (see IP/02/673 and MEMO/03/142). This would mean that EU suppliers would be subject to VAT even for services supplied to clients outside the EU and they would face competition within the EU from suppliers in third countries that would not be subject to VAT at all. The proposal does not contain any other change.

“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" said Taxation Commissioner László Kovács. "I also request support from the EU Council to adopt as soon as possible the two proposals on the place of taxation of services and on the One Stop VAT Shop scheme^[1], which will in essence give permanent effect to the measures in the e-commerce VAT Directive".

Why is there a need to extend the Directive on e-commerce?

A report of the European Commission to the EU Council concludes that the e-commerce VAT Directive has operated in a satisfactory manner and has achieved its objective of creating a level playing field for the taxation of electronic services. It recommends to extend the period of application of this Directive to 31 December 2008 or until more permanent wider measures are in place.

Without this extension in time, the VAT rules would revert to those prevailing before the e-commerce Directive was introduced.
The temporary provisions contained in the Directive will be given permanent effect when the EU Council of Ministers adopts the proposals from the Commission on the place of taxation of services (COM (2005) 334; see IP/05/997) and on the simplification of VAT obligations (the so-called proposal for "One Stop VAT Shop"; COM (2004) 728; see IP/04/1331).

The extension proposed should allow sufficient time for the adoption of these proposals.

Background

The Directive on e-commerce took effect on 1 July 2003 and introduced rules ensuring that:

• electronic services supplied for consumption outside of the European Union are exempted from VAT;
• when supplied for consumption within the European Union, they are subject to EU VAT.
• non EU-operators benefit from simplified registration and reporting obligations allowing them to deal with a single European tax administration of their choice.

The novel nature of this single point for VAT compliance was a contributory factor to the insertion of a review clause which obliged the Commission and the Member States to re-visit the issue before 30 June 2006.
Further information on current legislation on VAT applied to electronically delivered services is available on the following website:

http://ec.europa.eu/taxation_customs/taxation/vat/traders/e-commerce/index_en.htm

^[1] The One Stop VAT Shop scheme would allow traders to carry out their VAT obligations for all EU wide activities in the Member State where they are established. Traders could use a single VAT number for all supplies throughout the EU and make their VAT declarations via a single electronic portal.