FROM THE OFFICE OF PUBLIC AFFAIRS

The Administration has serious concerns about a European Union proposal to apply value-added taxes (VAT) to imports of certain e-commerce goods and services.

According to European Union statements, U.S. sellers of goods or services digitally-delivered to EU consumers may soon be required to register in the EU and charge EU VAT, at the VAT rate that applies in the consumer's country of residence. Conversely, EU companies that sell digitally-delivered products to EU consumers would continue to charge VAT at the rate applicable in the companies' country of establishment, regardless of where in the EU the consumer is resident. Moreover, such EU companies would not be subject to any additional administrative requirements.

Thus, under the proposal, U.S. sellers may be required to charge VAT on sales to an EU consumer at a rate higher than their EU competitors would charge on sales of the same product to the same consumer. In addition, U.S. sellers may be subject to more onerous administrative and compliance requirements than are placed on their EU competitors.

Furthermore, EU VAT on digitally-delivered products may be imposed at a rate higher than on physically-delivered equivalents. For example, in many EU countries, the VAT rate applied to sales of digitally-delivered books, newspapers and magazines may be higher than that applied to sales of the same books, newspapers and magazines sold in physical form.

The United States and each country of the EU have been working within the Organization for Economic Cooperation and Development with other governments and with the business community on tax issues associated with electronic commerce taxation, and have pledged that any taxation of e-commerce be neutral and equitable between conventional and electronic forms of commerce. In addition, each has obligated itself in international treaties not to impose measures that discriminate against nationals of the other signatories. The EU proposal may be contrary to those agreements. The proposal may potentially be inconsistent with international trade obligations in the World Trade Organization, in particular the commitment to accord national treatment to foreign goods and services.

Unilateral proposals such as the EU's may encourage others to take unilateral measures, rather than waiting for the global consensus that can be developed through a deliberative and inclusive process, such as the OECD's. Further efforts to achieve a more global consensus that reflects a consideration of all the issues raised must be made before unilateral action can be justified. We hope we can continue to work with the EU and with other stakeholders regarding the difficult substantive and administrative issues raised by the taxation of e-commerce, in order to achieve the required consensus.