EU Economics and Finance Ministers agreed at their December 13 Council meeting in Brussels on the broad principles of the proposed Directive on VAT on electronic commerce. "European firms will not have to add VAT when they are exporting to third countries", explained Frits Bolkestein, European Commissioner responsible for Taxation, adding that "this will remove any distortion of competition" that puts European companies at a disadvantage against their American counterparts. According to the Belgian Finance Minister, Didier Reynders, who chaired the meeting, "there are now clear guidelines". Electronic services available within the EU will be subject to VAT even if they originate outside the EU. The VAT rate applied will be that of the country where the service is used.A temporary system will be put in place in February and the Member States will then set to work on a permanent system. The system will be built around a European portal that will gather VAT on electronic commerce. In its Conclusions, the Council asks the Commission and the Member States to develop and establish an appropriate electronic mechanism that will...

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