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EU First To Tax Internet
In a unilateral move that reverses the prevailing philosophy of keeping the Internet tax-free,
the European Union agreed this week to impose a value-added tax (VAT) on products downloaded from the Internet
to private customers within the 15-nation bloc. The new rules will go into effect in July of 2003 and require non-EU
companies to register with the tax authorities in at least one of the EU member states.
Once registered, the non-EU company will be required to levy the appropriate national VAT rate (15-25%) an all
personal Internet transactions. The collecting country will then redistribute the proceeds to other EU countries
where the sales were actually made. Internal companies, however, who already collect a VAT within the EU, will
be exempt from tax on services they provide to non-EU residents.
The extension of the VAT to all Internet sales is still in the future, administrators say. The current assessments
apply only to "digitally delivered products." These are defined as games, software, music and or other
services that are downloaded directly to a consumer's home computer. Subscription-based and pay-per-view radio
or TV is also included. EU authorities considered and rejected a single, EU-wide VAT rate because of fears that
all companies would register in the lowest tax state (Luxemburg). The actual VAT of the purchaser's country will
apply.
The United States has threatened to take the case to the World Trade Organization (WTO) charging that the rules
are discriminatory and the administrative and compliance procedures burdensome and expensive. A digitally-delivered
book, for example, would be taxed at full VAT while the hard-shipped, printed, non-electronic book would not.
U.S .commerce is certainly not interested in seeing the EU action as a model for future Internet taxation. The
fact is that international tax competition is as much a part of globalization as the mobility of capital and labor.
Major U.S. companies are re-incorporating elsewhere to save millions in taxes. This week, Stanley Works (the tool-maker)
announced that by re-incorporating in Bermuda they would save $30 million in annual taxes. Defensive rules that
prevent residents and businesses from enjoying lower tax rates in other places are hugely complex and have a negative
effect on competition. Playing defense does nothing to promote economic growth or reform inefficiencies, says Cato
Institute's Chris Edwards.
Echoing the point in a speech in London, John Sainsbury, said that the Euro single currency, with its one-size-fits-all
monetary and fiscal policy plus the always upward tax harmonization that eventually follows is not in the long-term
interests of any nation. "Small business," he continued," is the lifeblood and real strength on
which any economy depends. Large business can live with excessive rules because they create a barrier to the entry
of new competition and stifle new ideas. However, the nation's prospects for growth suffer when moves towards political
integration bring with them the dead hand of standardization instead of the light hand of a diverse and lightly
regulated regime."
Hamstrung by regulations, massive unemployment, the immigration of unskilled and welfare dependent people and low
growth, the whole relationship between the European governing elite and ordinary people is being brought into question.
The un-elected international bureaucrats who actually direct day-to-day governance seem to believe that international
competition is irrelevant. They seem not to grasp that business is mobile in today's global economy. Tariffs are
generally in decline, technology and capital can move by touching the enter key.
The cozy corruption of elites who are pushing a European super state without the consent of the people has a price.
The price is the stirring of the people across Europe. The pot being boiled is a mixed and varied stew of the rejection
of diversity in favor of one's own people, the assertion of a superior culture over the demeaning and belittling
cause of relativism, the belief that one's history is preferable to progress, that faith is superior to secularism,
that security means more than faith in free markets and that fear trumps hope and rationality. Those ideas may
be the True Post-Cold War Europe says economist Paul Prososki. The consensus of a century may be at an end in Europe
and that means that suspicion of inbred political elite will replace trust in elections. How do the elite then
retain power? Through the use of force.
The legacy of 60 years of European socialism is not just failed economies that could not deliver prosperity; they
couldn't even deliver a minimum quality of life. It's not just that the only vision in the EU is to add a 25 percent
sales tax to good ideas from elsewhere. It's that the resources have a better use. Money that doesn't have to go
to taxes supporting a bloated, out-of-touch welfare state can go to higher wages, better dividends or be re-invested
in healthy growth that produces more jobs.
The notion, says Pete Du Pont, that a centrally-planned economy could out-produce and out-perform a market-based
economy is a century-old fiction. Socialism does not motivate people to excel. It only takes one look at the Arab
world to prove that. What product do you cherish that says "Made in Syria?"
The Left's most undeniable sin, however, is that imbedded in its programs and practices is always a loss of liberty.
A May Day parade is, after all, a military event celebrating the power of a totalitarian regime. The historic legacy
of Euro-socialism is the Stalinist state and its progeny. The EU needs to keep its hands off the Internet. Europe
needs the increased productivity far more than the tax revenue.
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