SAN FRANCISCO — A Congressional commission veered away from discussions of US Internet taxes and instead spent two hours wondering how governments can tax consumers who can shop online anywhere on the globe.
Governments, of course, figured out long ago how to profit from purchases of physical goods. For example, French customs officials inspect packages and levy what is usually a 20.6 percent value-added tax on orders shipped from non-European countries.
But what happens when a Parisian buys and downloads say, an MP3 of Disney’s Lion King soundtrack on the Web?
“There is no taxation taking place, which is why we’re thinking of changing this rule,” said Michel Aujean, director of tax policy at the European Commission, who testified Tuesday afternoon before the US Internet tax advisory commission.
He said “we are considering requiring the US supplier to register in the EU” or perhaps hire a European representative from whom France can extract sales taxes.
Whoops. That idea didn’t go over very well at all.
Sure, France may be able to pressure Disney into complying with EU demands. But what about startup companies or individuals that are comparatively Lilliputian?
“The idea that they’re going to create tax agents in Europe boggles the mind,” replied Fred Smith, the head of the Competitive Enterprise Institute, who also testified before the panel.
Even a Clinton administration representative wondered aloud how that scheme would work.
“How does Walt Disney know the customer is in France?” asked commissioner Andrew Pincus, general counsel at the Department of Commerce.
Replied an increasingly nettled Aujean: “He will have registered an order with an email address [in France] which can be effectively addressed.”
Pincus shot back: “There’s no way to tell where the email address is from.”
Any individual — including ones in France — can buy a .com domain or use a service like
The commission’s chairman, Governor James Gilmore (R-Virginia), appeared to be feeling combatative as well. He accused Aujean of “imposing a tariff” — the VAT, which varies by country in Europe but is usually around 15 to 20 percent — on US goods.
“We’re simply putting [all] goods on a level playing field,” the European Commission official replied.
When creating the committee last year, Congress required the members to submit a recommendation by April 2000. The report will be nonbinding, but observers expect it to be influential.
Congress does not have to act on any report, but a three-year moratorium on state Internet taxes will expire in late 2001.
The commission’s meeting continues Wednesday.
