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Taxing The Sale Of Digital Goods In Europe

By William C. Hwang and Jacqueline Klosek

On July 1, new legislation concerning the application of value-added tax (VAT) to sales of digital goods within the European Union became effective. While the legislation is European, it will have important implications for companies based outside of the EU to the extent that such companies sell digital goods to consumers based in one of the EU countries. The key measures at issue are:

  • Council Directive 2002/38/EC of May 7, 2002, amending and amending temporarily Directive 77/388/EEC regarding the value added tax arrangements applicable to radio and television broadcasting services and certain electronically supplied services (Directive 77/388/EEC); and
  • Council Regulation No. 792/2002 of May 7, 2002, amending temporarily Regulation (EEC) No. 218/92 on administrative cooperation in the field of indirect taxation (VAT) regarding additional e-commerce measures (Regulation 792/2002).

As a result of this legislation, companies that sell into the EU will be required to register with European tax authorities and levy, collect and remit VAT based on their supplying digital goods within the EU.

Clearly, such legislation may have important implications for all companies engaging in e-commerce across national borders.

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