New rules on the taxing of online transactions came into force across the European Union this week despite bitter opposition from the US.

Effective from Tuesday July 1, ecommerce firms around the world must charge value added tax on all digitally delivered products – computer software, videos, music, broadcasting services, etc – downloaded within any of the EU’s fifteen member states. Orders of physically delivered goods such as books are already subject to VAT.

The move is designed to level the playing field between EU firms and their counterparts beyond the Union, in particular in the US. Previously, EU-based firms had to levy VAT on these transactions, while non-EU operators did not.

However, the US is unhappy with the new rules, about which it has been protesting for well over a year [WAMN: 09-May-03]. Officials claim they discriminate against American firms, which – unless they have an EU subsidiary – must alter the VAT rate they charge depending on the member state from which the customer is ordering. However, EU firms and companies with a European unit may use only the rate of the country in which they are based.

Tara Bradshaw from the US Treasury Department complained about the “disproportionate impact the new rules are likely to have on non-EU businesses, especially US businesses.”

American internet firms that have overhauled their taxation system in light of the new regime include AOL Time Warner, eBay and

Data sourced from: The Wall Street Journal Online; additional content by WARC staff