New problem for SA businesses over EU tax directive on web download

As of 1 July 2003, new EU VAT legislation will have an impact on all businesses (both European and non-European) that provide digitally downloaded services to private individuals based in the EU. Consumers downloading electronic books, music, film, games and distance teaching, for example, may see an increase in charges as companies strive to collect the additional tax required by law to meet the new EU demands.

Currently only EU businesses in the 15 member countries (with a further 10 to join the EU by 1 May 2004) have to charge VAT but from 1 July 2003, all businesses will have to comply with this new ruling. Suppliers outside the EU, including South African businesses, will have to register and charge the VAT rate in the EU country where the consumer resides. Consumers will no longer be able to order services from non-EU countries, eg the USA, to avoid paying VAT.

To help companies understand the new system and to help them calculate the likely impact of EU VAT on their revenues, PricewaterhouseCoopers has launched a specific tax website: www.pwcebiztoolkit.com. The site will also assist both EU and non-EU businesses to determine whether they can save VAT on revenues depending on where they decide to locate their businesses.

Individual Member States of the EU have, in most cases, not yet provided information about the registration procedures or related guidelines on how they will manage the new system, which gives businesses an extremely short timescale to put their systems in place before the deadline of 1 July 2003.

Anne Jenkinson, SA Indirect Taxes partner for PricewaterhouseCoopers commented:

"This new ruling will cause major challenges for businesses who have to adapt their systems to meet the requirements. We hope that the website will help in enabling them to

understand the issues they need to be addressing now in planning for compliance with the new arrangements."

We recommend that any SA businesses that sell goods and/or services via the Web to global customers urgently review their position to establish the extent of their tax liability in the EU.