The European Commission yesterday announced that it is to impose VAT (value added tax) on non-EU companies offering certain goods and services via the internet.

The new directive requires that any company not registered in the EU but which has yearly online sales to EU member-states of more than €100,000 (£62,000) must register in a EU country and pay VAT at the prevailing national rate, which varies between 15% and 25%.

Although EU-based net vendors already pay VAT, non-EU companies selling downloadable products such as video games and music were until now exempt from the tax. However, goods delivered physically, for example books and CDs, are unaffected by the new directive.

According to the Single Market Commissioner Frits Bolkestein, the new legislation will redress the advantage previously enjoyed by non EU-vendors and "create a level playing field" between European companies and those outside the EU.

The move, which also covers subscription-based and pay-per-view radio and television channels, will do little to enhance Europe’s rapidly souring trade relationship with the US. The likes of Microsoft, Time Warner and AOL are likely to be particularly hard hit, as will Japan's Nintendo.

News source: The Times (London)