Dissident Congress website

The EU - 25 member states or a global dictatorship

By Riaz Sobrany

On the 1st of July 2003, a new piece of EU legislation came into force. Few people know exactly what the new legislation was or why it is so worrying, because it received scant coverage by the mainstream media. Regular E-Bay users may have noticed something was different and not generally of benefit to them, but outside of the e-commerce community, the directive came into force largely unnoticed even by prominent anti EU organisations.

So what really did happen on the 1st of July 2003? The answer is that e-commerce providers located in countries outside of the EU now have to charge VAT on e commerce services to customers who are residents of EU member states - Britain included. Under EU law, e-commerce services are subject to VAT, so companies based in an EU member state which provide e-commerce services to EU residents charge VAT on their sales. Prior to the 1st of July 2003, companies based in a country outside of the EU which provide e-commerce services to EU residents did not charge EU VAT on their sales. The EU Commissioners were very unhappy about this situation which gave e-commerce providers based outside the EU an unfair advantage over e-commerce providers based in EU member states, and therefore decided to level the playing field by imposing Council Directive (2002/38/EC) which took effect from 1st of July 2003.

The EU is not known for its generosity when it comes to taxation including VAT, but this particular directive wasn't just another instance of taxing something that wasn't previously taxed. What is striking is that for the first time in history the EU attempted to thrust its legislation upon countries that are not members of the EU. In other words, the EU moved from 15 (now 25) members states into being a global dictatorship as the Commissioners think they now have the authority to impose their legislation in every single sovereign nation in the world by overriding national laws and written constitutions of non EU countries.

Many of the larger non EU e-commerce providers including AOL and E-Bay, have decided to play ball with the EU and now charge VAT to British customers, but countless thousands of smaller companies have just ignored the directive and do not charge VAT. Several reasons exist for companies refusing to comply ranging from the hassle and bureaucracy of collecting VAT, to the fact that the EU legislation is not legally binding in the country in which the company is based according to its national laws.

The medium and long term consequences of the directive remain to be seen. Will the EU accept it is unenforceable in practice as compliance can only be achieved by voluntary co-operation, or will the EU in its anger and frustration with the steadfast refusal of many non EU e-commerce providers to register for EU VAT take its revenge on its citizens instead? EU tax collection agencies such HM Revenue & Customs could impose Mediaeval style witch hunts by monitoring the internet for EU citizens who purchase e-commerce services from companies based outside the EU that are not registered for VAT, then call round their house demanding payment of VAT for the services they purchased. In practice the cost of monitoring internet activity is likely to outweigh the VAT revenue collected. However, the EU is not known for its efficiency and has a liking of taking a heavy handed authoritarian approach towards things. Reaction! is not aware of any British citizen who has had a knock on the door an HM Revenue & Customs officer demanding the payment of VAT from some e-commerce service they purchased from company not registered for EU VAT, but if anyone reading this article knows otherwise then please forward the info to Reaction!

Some quotes from US e-commerce providers regarding the directive

1. "I have enough problems with US taxes, but at least I have a vote on how they are implemented via my elected representatives. Under no circumstances will I act as Tax Collector for the European Welfare State, where no such representation exists, let alone any US law mandating that I do so. I have my own merchant account so my way of handling VAT is simply to ignore it."

Kent Briggs - Briggs Software

2. "The EU's new VAT regulations are grossly unfair to US businesses, while favoring EU businesses. Businesses outside the EU must collect taxes for the EU, while businesses within the EU don't have to collect taxes for the US. In addition, small businesses within the EU are with sales below a threshold are exempt from VAT collection, while small business outside the EU are not! Finally, these VAT regulations place an undo burden on small US businesses. Our accountant has estimated it will cost us nearly $1,000 to collect this VAT, account for it, and convert and wire the money (which would actually amount to less than $100) to the EU! The US Supreme Court has already ruled on just this type of commerce interference in the Quill vs North Dakota case. Their ruling explains why US businesses do not have to collect sales taxes on sales made to other states unless their company has a physical business presence in that state."

Gary Elfring - Elfring Fonts

3. "IMO, the EU has jumped the gun with the new Directive. It is an unenforceable piece of legislation that in many ways goes against the principles regarding taxation set out in the OECD's Ottawa Taxation Framework, particularly those parts of the framework that refer to "tax neutrality". There are also serious questions that need to be asked in the US about the nature of the authority that the EU effectively claims to have over US citizens and companies. In my view the Directive challenges a number of US Supreme Court judgements and indeed the authority of the US Constitution itself (particularly the 14th Amendment). This is a serious issue that goes beyond matters of taxation, it should not be ignored."

Allen Woods - JIT Software

Dissident Congress believes that no VAT should be charged on e-commerce.