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VAT and electronic commerce


To lay the basis for discussions between the European Union, the Member States, industry and consumers on indirect taxation applied to electronic commerce.


Communication from the Commission of 17 June 1998 to the Council, the European Parliament and the Economic and Social Committee on electronic commerce and indirect taxation.


In an earlier communication, entitled "A European initiative in electronic commerce "[COM(97)157], the Commission stressed the need for a tax environment allowing electronic commerce to develop. This calls for legal certainty (so that tax obligations are clear, transparent and predictable) and tax neutrality (same tax burden on electronic commerce as on "traditional" commerce).

These principles were enshrined in:

  • the Bonn Declaration signed by 29 countries on 6 July 1997;
  • the joint European Union-USA declaration on electronic commerce (5 December 1997).

Global international cooperation in this matter has become a necessity. The WTO has therefore initiated a full working programme on electronic commerce in order to propose recommendations to the 1999 ministerial conferences. In October 1998, in Ottawa, the OECD Ministers will also study the question of tax on electronic commerce.

The communication stresses the Internet's commercial potential and considers the problems encountered by the administrations in imposing indirect taxes on goods and services purchased on the Internet. Guidelines are proposed in preparation for the European Union's contribution to the Ottawa Conference.

The Commission has outlined six points as a basis for discussion:

  • no new tax will be levied;
  • all electronic transmissions and intangible property supplied via the Internet are regarded as provision of services, subject to VAT;
  • services used in the European Union are taxed by the Member States of the Union, whatever their origin. Similarly, services supplied by Community operators to parties in countries not belonging to the Union are not subject to VAT (tax neutrality principle);
  • the levy of tax on electronic commerce must be adapted to trade practices and must not complicate the task of operators. It is essential to ensure proper coordination between operators and tax administrations so as to ensure efficient levy of taxes;
  • mechanisms for verification must be introduced to guarantee taxation of services provided within the European Union via the Internet by companies and private individuals;
  • services provided on the Internet will mostly be invoiced electronically. Operators would be able to meet their obligations through electronic VAT accounting and tax declarations based on Community rules to be drawn up. By establishing an international framework for cooperation it will be possible to apply this principle to all international electronic invoicing.

These principles constitute a basis for discussion within the European Union and at international level and lay the foundation for taxing electronic commerce, enabling European companies to benefit form the same taxation system for all forms of sale.

4) deadline for the implementation of the legislation in the member states

Not applicable.

5) date of entry into force (if different from the above)

Not applicable.

6) references

Communication from the Commission COM(98) 374 finalNot published in the Official Journal

7) follow-up work

On 6 July 1998, the Council adopted conclusions in which it took over the guidelines formulated by the Commission and accepted that they should serve as the basis for the contribution of the European Union and the Member States at the OECD Ministerial Conference to be held in Ottawa in October 1998.

8) commission implementing measures