Europe’s Value Added Tax on E-Commerce

By July 2003, if the European Union’s finance ministers have their way, Internet sales of digital goods and services to European shoppers will be subject to a value-added tax (VAT). That means if you’re selling online content to a consumer in Germany, you have to charge more to include the German VAT rate.

The rub here, according to U.S. officials, is that companies with offices in Europe pay the home-country rate. Vendors outside the E.U. pay the VAT rate based on where the consumer lives. U.S. officials argue these rules will put small U.S. companies seeking to grow global sales at a disadvantage. European online surfers already shopping U.S. websites probably won’t be too pleased, either. Most U.S. companies selling digital products don’t add VAT.