EU comes out fighting

e-business The plan by the European Union to levy tax on foreign companies for services delivered in Europe via the Internet...

e-business The plan by the European Union to levy tax on foreign companies for services delivered in Europe via the Internet needs applauding as it has US companies up in arms

I'm not the greatest fan of grand European schemes, least of all those relating to the IT industry, but one almost has to applaud the European Union's rearguard attempts to (belatedly) prevent the Internet being dominated by the US.

Recently, there was the row over data privacy, and before that, the fuss over domain names, when the EU weighed into the debate over the future of the naming and numbering process.

Now it has come up with a controversial plan to force foreign companies - in other words, mainly those in the US - to levy value added tax on services delivered via the Net. These would include digitally delivered services such as downloaded CDs, software, videos or computer games.

If it is approved by European finance ministers, and is technically feasible, the proposal would see US companies with sales in the EU of more than $100,000 having to register in at least one EU nation, and then levy VAT at that country's rate (ie between 15% and 25%).

Unsurprisingly, the idea has provoked an outcry in the US, with notably, Andy Grove, Intel's chairman, moaning of "e-protectionism" and other industry executives complaining that the plan would make US companies "tax collectors for European governments".

Amazingly, despite the US technological genius resident in Silicon Valley, US companies suggest that no technology yet exists that allows them or tax authorities to determine whether a customer is in the EU or elsewhere. This from the industry that places a cookie on your computer to indicate which Web sites you have visited!

In contrast, the EU believes somewhat simpler procedures, based on the credit card billing address of consumers, for instance, could apply.

US companies could get around the plans by registering in Luxembourg for instance, which generally has the lowest VAT rate.

And get around them, they will. Remember that long-running row over data privacy, and the proposed agreement dubbed "safe harbour". For a country with no semblance of data privacy rules, just a half-baked mismatch of pressure groups with no teeth, the idea that European citizens could have legislation safeguarding their data rights must be an anathema. No wonder negotiations have taken two years.

In that time, the US has sought to try and convince European negotiators that US companies could really be trusted to safeguard personal data. This, as one case after another proved, they couldn't.

Now, the Federal Trade Commission has belatedly admitted what everyone knows - the majority of US companies cannot be trusted with personal data, despite what their Web sites' privacy policies say.

Still, "safe harbour" should be operating by October, with those US companies that have voluntarily signed up for it, being enforced by the Federal Trade Commission. Let's hope "enforced" means the same in American, as it does in English.

There is a rumour that US companies have been so unimpressed by Europe's intention to safeguard its' citizens' rights, that they have pointedly suggested "that's enough privacy protection".

If so, no wonder the proposed Web delivery tax has been so badly received. Europe should continue to fight its corner, and expect no favours from the US government and its companies. Europe is behind in the Web war - and playing it by the book will only be a losing strategy. There's nothing wrong with playing a little dirty... sometimes.

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