EU e-commerce taxation law delayed by last-minute revision

<br>BRUSSELS, Belgium (AP) _ Ignoring U.S. objections, European Union finance ministers Tuesday approved a new law imposing a value-added tax on Internet purchases of software, music and other so-called

Tuesday, February 12th 2002, 12:00 am

By: News On 6

BRUSSELS, Belgium (AP) _ Ignoring U.S. objections, European Union finance ministers Tuesday approved a new law imposing a value-added tax on Internet purchases of software, music and other so-called ``virtual goods'' from non-EU companies.

But a change in the regulation's legal basis meant it had to be referred back to the European Parliament for consultation, a process that could delay its implementation by months.

EU finance ministers approved the law, agreed to in December, without discussion at their regular monthly meeting, EU spokesman Jonathan Todd said.

More than 90 percent of the e-commerce in virtual goods today is between businesses, which are already covered by VAT rules in the EU.

The new law closes a loophole _ Internet sales directly to consumers _ which experts expect to grow as more products become available and better Internet connections allow for faster downloads.

Washington has lobbied for two years against what it considers overly burdensome rules it fears could stifle that growth.

Last Friday the Bush administration said it still had ``serious concerns'' because the law would allow European companies to charge less tax than their U.S. competitors.

European companies will pay only their home country's VAT. Non-EU companies will have to charge customers the rate where the customer lives, ranging from 15 percent in Luxembourg to 25 percent in Sweden.

The other 14 EU states were afraid U.S. companies would all set up for business in low-tax Luxembourg, emptying their tax base.

Deputy U.S. Treasury Secretary Kenneth Dam said the Bush administration will try to convince the EU that the rules are unworkable during talks at the Organization for Economic Cooperation and Development, which is trying for a global consensus on taxing e-commerce.

If that fails, Washington may lodge a complaint at the World Trade Organization, he said.