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EU Law Taxes Overseas Net Firms
On July 1, a new EU directive goes into effect requiring all Internet firms to account for value-added tax, or VAT, on "digital sales."
The law adds a 15 to 25 percent levy on select Internet transactions such as software and music downloads, monthly subscriptions to an Internet service provider and on any product purchased through an online auction anywhere in the 15-member bloc of nations.
The VAT tax is nothing new for some Net firms. European dot-coms have been charging customers VAT since their inception. Their overseas rivals though have been exempt, making foreign firms an obvious choice for the bargain-hunting consumer.
"It's a massive competitive disadvantage.
The affected companies are handling the new tax load in a variety of ways.
Seattle-based retailer Amazon.com said the new tax regime will affect its auctions, plus marketplace and Z-shops operations where third-party new and used items are sold.
Plus, VAT will now be charged on software downloads and the sale of e-books, Amazon said.
Online auctioneer eBay will swallow the VAT charge on behalf of consumers in a host of its smaller European operations such as France and Italy. But in Britain and Germany, its largest and most profitable European units, the company has hiked fees to reflect the higher VAT charges.
Analysts say the new tax could dent sales in the short term, a blow for American dot-coms such as eBay and Amazon that are banking on higher growth in their overseas business.
For European firms there's little sympathy.