Music, movie and other commercial electronic downloads will be taxed in the customer’s country rather than the retailer’s, thanks to changes to European VAT regulation. The council of ministers approved reforms to eliminate tax incentives that can be gained in more tax-friendly nations, Out-Law reported, pointing out that Skype, PayPal, AOL (NYSE: TWX) and Amazon (NSDQ: AMZN) have European bases in Luxembourg, which, at 15 percent, has Europe’s lowest VAT threshold. eBay (NSDQ: EBAY) and iTunes also use the country – eBay only moved its tax base from the UK in February.
VAT on B2B transactions will become dependent on customers’ location, B2C sales will be seller-dependent, except for e-commerce, telecommunications and satellite television. The new regulations come in to force in 2015 and the possible results are twofold. First, consumers may be charged varying amounts across different countries if content sellers don’t absorb the tax differentials themselves (will Luxembourg-based big boys offset the 25 percent VAT Swedish customers are forced to endure?). Second, with regional tax incentives gone, companies already strategically resident in low-VAT territories may have little incentive to remain. Here is the EU policy breakdown.