Will Euro taxes hinder Net growth?
Published: 15 Dec 1999 10:02 GMT
Testifying in San Francisco before the US Advisory Commission on Electronic Commerce, representatives of the Organisation for Economic Co-operation and Development (OECD) and the European Commission found themselves at loggerheads with members of the 19-person panel, which is charged by Congress to study the impact of domestic and foreign taxes on the Internet.
Michel Aujean, director of tax policy at the European Commission and Andrew Marsland, who heads an electronic commerce working group at the OECD, argued on behalf of levying consumption taxes on goods and services sold to Europeans by American-based Internet companies.
"Tariff-free does not equal tax-free," said Marsland, adding that an online consumption tax should be assessed in the country where the good or service is consumed.
In their testimony, the two men offered their views on how European governments might be able to level the playing field with American competitors by assessing Internet taxes.
It was not a proposal that won much sympathy. Similar suggestions that the United States embrace Internet taxes have so far been resisted by critics of consumption taxes who argue they would stultify the accelerating growth of e-commerce.
The United States has a different tax structure than Europe, where the minimum reduced rate for VAT (value-added tax) is 5 percent for foodstuffs and 15 percent on what's referred to as the standard rate. American Internet companies strongly oppose the imposition of a VAT, arguing they would pay a premium as the US economy shifts from one where goods predominate to one dominated by services.
Indeed, the close questioning from panel members following the prepared testimony highlighted the clear ideological divide separating the Europeans from the United States.
"You have chosen to have your tax system in the EU to be a very broad system," said Utah Governor Michael Leavitt. "The whole question boils down to whether this sales tax can be a viable system in the next century. It may not be."
Asked how European governments would be able to find and charge consumption taxes, Aujean suggested a system where the authorities would be able to track individuals' location by their email addresses -- a proposal that will likely be opposed by domestic opponents of Internet regulation.
Fred Smith, a policy advisor at the Washington based Competitive Enterprise Institute, who also testified here Tuesday, said the European proposal would hinder the growth of the Internet.
"We're going to have to move to a different tax system," said Smith. " I know why they want the old tax system. But they're going to have to move to a new one in the modern world."
The commission still has two more meetings planned but it is unlikely to recommend imposing anything like a value-added tax in the United States, according to members.
"They'll need a two-thirds majority on that, and they just won't be able to do it," said Paul Harris, who also serves a member of Virginia's House of Delegates. "In Europe, they have a different perspective. Here in the States, it's more individualistic."
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