7 May 2002 The European Union is set to back a controversial new digital download tax that would require companies based outside the EU to pay taxes on downloads to consumers in the EU.

Currently, European ecommerce companies complain that whereas they have to pay taxes on the delivery of digital goods that prevail in the country where they are based, US companies do not have to pay anything because of a regularly extended temporary moratorium on Internet taxes in the US.

Under the plan, Internet companies based outside the EU will be required to register in one of its 15 countries and levy and pay the appropriate value added tax (VAT) to that country’s authority, but based on the prevailing tax rate in the country where the digital goods are delivered.

Goods sold on the Internet, but delivered by post, will be subject to local sales taxes as usual. Business-to-business transactions will be exempt.

Some US lobbyists have complained that the measure will discriminate against US-based ecommerce companies. They say that EU companies will pay tax depending on where they are based, whereas US companies will have to pay the tax that prevails where the download is made.

The plan is set to be unveiled today, but will take until 1 July 2003 before it makes the statute books of the EU’s 15 member states.