On Tuesday, the European Union was moved forward in their plan to charge foreign businesses an additional Value Added Tax (VAT) on all Òdigital goods" purchased on the Internet by Europeans. EU Finance Ministers approved the plan Tuesday that would exempt EU member states from collecting the VAT on digital goods sold to other EU members. Last week, US Deputy Treasury Secretary Kenneth Dam said of the plan that Òunilateral proposals such as the European UnionÕs may encourage others to take unilateral measures, rather than waiting for the global consensus,Ó but the EU Finance ministers said they didn't see anything unilateral about charging foreign (READ: American, Canadian, Mexican, Brazilian, Australian, Chinese, Korean, Indian, ad infinitum) businesses the VAT on Òdigital goods.Ó
Let me see if I have this straight: The Europeans are complaining about AmericaÕs unilateral action in naming Iran, Iraq and North Korea as the ÒAxis of EvilÓ without consulting them, but they see nothing unilateral about colluding with their own member states to force a high tax/tariff on Internet-related businesses selling goods to the EU in America?
One of the biggest fans of adding this Òdigital VATÓ is French Internet media company Wanadoo, who noted that such an imposition of economic barriers would Òcreate a more level playing fieldÓ between them and other non-EU Internet media companies. It should be noted that the British subsidiary of Wanadoo, an ISP called Freeserve, has been lobbying for tariff protection against AOL-Time Warner ever since ÒAOL UKÓ went live. Freeserve contends that foreign-owned AOL doesnÕt pay as many taxes as they do. Wait a minute. Are you telling me that a French company does not count as foreign-owned to Great Britain? A better question is why neither Wanadoo nor Freeserve ever lobbied to have their respective governments relieve them of their cumbersome tax burden instead of lobbying to force other companies to pay the same taxes. This is an example of Òmisery loves company,Ó now known in politically correct circles as Òpaying your fair share.Ó
The EUÕs digital VAT scheme extends to web services as well. Companies like AOL, Sun, HP, Red Hat and Microsoft all have intentions of creating Òsoftware as a serviceÓ plans available to Internet users in the next few years. Under the EUÕs proposed digital VAT, companies like Sun who have long proselytized that Òthe computer is the networkÓ will find that their nascent Liberty Project network services are heavily taxed and regulated. The network support subscription service that Red Hat Linux used to achieve a brief quarter of profitability in 2001 will also be heavily taxed and regulated by the EU. Of course, most network services delivered via the Internet require broadband technology and the European CommissionÕs Information Society Report (also released on Tuesday) pledged to make broadband rollout a top priority in Europe. Yeah, good luck trying to convince Sun, Red Hat, HP, AOL and Microsoft that partnering with EU governments to rollout European broadband is in their best interests.
What could the European Union have to gain by forcing all of their trading partners to collect outrageous taxes and to fill out mountains of paperwork just to sell something over the Internet? Is the EU, created with the intent of making Europe more competitive in the free market economy, still scared of competing in the free market? Why else would the EU wall themselves off with tariffs and taxes imposed on their main trading partners? Are they hoping to follow the Asian business model of dumping low-cost goods on American shores while taxing the heck out of American goods sold in Asia? Have these guys seen what kind of shape the Japanese/Chinese economy is in?
It doesnÕt take an economics degree to figure out that the reason why everything is cheaper in America is because America wants foreign entities to sell their goods here. Yes, the US has tariffs, taxes and regulations but it doesn't compare to the 25% or more higher prices on US goods sold in Japan, China or most of Europe. Because the US doesnÕt force all foreign businesses to collect stifling taxes on goods sold in America, businesses around the world can sell their goods in the United States for more profit.
The reason why prices on US goods in Europe and Asia are outrageous is simple: These nations impose tariffs, taxes and regulations on US goods in an effort to force their citizens to Òmake the choiceÓ of buying German or Japanese goods. Most countries outside the United States take ÒBuy LocallyÓ to a whole new level, because either they donÕt understand the idea of a free market or their own taxes and regulations donÕt allow them to compete in a free market economy. WhatÕs worse is that Europeans complain how America has no freedom of thought, but the EU refuses their citizens any freedom of choice in what they can buy or where they can buy it.
The European Union wants to be the worldÕs most competitive economy by 2010. The EU thinks theyÕll do this with taxes and regulations on Internet technologies that are so ridiculous they make ardent communists sweaty with anticipation. Hopefully, this digital VAT scheme will fare better for the European economy than moving everyone over to the Euro.
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