EU VAT Law Aimed at Leveling Playing Field Goes into Effect (Jan. 5, 2015)
The start of a New Year also brings a new EU law into effect that’s intended to stop companies from undercutting their competition by setting up in low-tax countries. However, the law also could increase the tax on purchases of digital content like mobile applications, music downloads and e-books, according to reports. The new law requires companies to charge VAT (which is similar to sales tax in the U.S.) depending on which country the buyer lives in, not where companies’ European headquarters are located.
“There inevitably will be a price change,” Richard Mollet, CEO of Publishers Association, a British trade association, told The New York Times. “The question is whether retailers, publishers or customers will have to take on board any increase.”
Companies such as Apple, Amazon and Microsoft have been criticized for basing their European operations in low-tax countries like Ireland and Luxembourg, according to the report. The VAT rate in Luxembourg, for example, can be as low as 3 percent for e-book purchases, compared with Britain where companies charge 20 percent for e-books purchases.
Smaller entrepreneurs likely will struggle with the intricacies of the new law, possibly forcing them out of business, according to London’s Daily Mail. “Businesses must now record which European country each customer is from and charge their national VAT rate. They must also keep hold of customers’ home and bank addresses for 10 years,” the report said.
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