Art Case Triggers Euro Web Tax Debate

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BRUSSELS - The debate over whether artists are entitled to a share of subsequent sales of their work has gone online in the wake of Web-based art auctions -- and is triggering a Europewide argument about taxing the Internet.

A French court dramatized the dispute last month when it ruled that French buyers may not take part in online auctions unless they pay a value added tax on their purchase and use a state-approved auctioneer.

The case revolved around sales last year by, a French company that was the first auctioneer of pricey art. It argued that the auctions were held by its U.S. subsidiary in New York and that the computers were located in the U.S. Payment is made in dollars to an American bank.

Nart said that the sale had taken place outside France and was therefore not subject to French law. The plaintiffs, state-approved auctioneers, said the sale had been in France since Nart advertised it in French media, had offices in Paris and displayed the art in France.

The court held that the sales were illegal because the Web was an "infinitely expandable salesroom," and therefore the auction had been held in France and had broken French law. It fined Nart a symbolic one franc.

But European Web marketers fear the decision will go much further than that as governments seize on it as an argument for imposing a VAT on other Internet transactions.

Should the French government, for example, seize on the ruling as a chance to impose VAT on all Internet buying, it would put pressure on other EU members to do the same. That, in turn, would trigger other disputes.

"Then we would start with a debate about where this tax is to be collected," said Alastair Tempest, the industry's chief lobbyist here, "in the country of sale or where the consumer resides."

The French decision, Tempest said, will also jump-start a debate about the moratorium on Internet taxes. Europeans came back from the Seattle World Trade Organization meeting claiming the moratorium was no longer in force.

Their argument? They had agreed to a two-year moratorium, and since they didn't come to an agreement in Seattle, the moratorium no longer existed.

Lines of disagreement, however, are fuzzy, Tempest said. The U.S. has extended the moratorium for five years. The Europeans think it no longer exists but haven't decided what to do without one.

The UK and Ireland support the U.S. position because it helps establish new markets, and Prime Minister Tony Blair wants to make the UK the center of e-commerce. So long as the British economy is good, he can afford to do that.

Once it tanks -- and it may, given the current strength of the pound that is already cutting into British exports to the EU -- he may have to change his mind. Germany and France support a VAT.

One problem is a lack of European -- rather than national -- tax experts knowledgeable in applying a pan-European VAT. One German proposal would tax bytes going through the Internet via meters at every access point.

That won't pass but it is indicative of the kind of thinking going on in Europe this year, Tempest said.

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