Marketers Oppose European Commission's VAT Decision

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Direct marketers are strongly opposing a European Commission plan that would essentially force the United States to apply a value-added tax to exports of products and services -- such as downloaded software, music, videos and electronic information services -- sold through the Internet.

The guidelines, which were announced in Brussels earlier this month, state that U.S. Internet companies whose products and services are purchased widely across the European Union must register in one EU country and pay the VAT that that country imposes.

Currently, EU member states charge sales tax on digitally downloaded goods; however, the United States does not. EU officials argue that this puts their companies at a disadvantage with American competitors. EU officials believe approximately 29 percent of current U.S. downloaded purchases are made from EU-based computers.

The proposal has been forwarded to the European Union's Council of Ministers for adoption, which could take place once the European Parliament and the European Union's Economic and Social Committee have provided their opinions. If it is agreed upon, the ruling could be implemented in October.

The Direct Marketing Association opposes the plan, stating that collecting taxes overseas would impede export growth of U.S.-based companies and expose them to tax audits from governments with whom they have no representation.

"Not only is the EC trying to press American companies into becoming their unpaid tax collectors, but adoption of this policy will have a detrimental impact on U.S. exports to Europe," said Jerry Cerasale, senior vice president of government affairs at the DMA. "Collecting taxes for foreign countries will place a major financial burden on remote sellers."

The DMA is concerned because remote sellers, such as Internet companies and catalogers, will be exposed to audits from local, state, national and foreign governments. Companies will also be forced to incur costs related to the collection of sales taxes and to handle the accounting necessary to comply with the different tax jurisdictions involved.

Remote sellers have long argued that they should collect sales taxes in only those jurisdictions where they have nexus or physical presence. The U.S. Supreme Court has supported that position in two separate opinions.

Cerasale also said the European Commission's proposal should provide Congress with further incentive not to enact laws forcing remote sellers to collect out-of-state sales taxes.

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