Telcos face EU VAT threat

Millions of users who enjoy low-cost tax-free international telephone calls and Internet access may soon lose out if EU member states get permission to impose indirect taxes on non-EU telecoms suppliers. Service providers based outside the EU are likely to be hit, including online groups such as America Online and Compuserve, plus those offering callback or charge card services. Compuserve customers do not pay VAT because paperwork is handled in the US. All the member states have put in requests to the EU to permit a derogation of the 1977 EU VAT directive, which requires EU-based telcos, but not outsiders, to tax customers. Derogation will allow each member state to effectively break the law and impose their own VAT laws. France has already decided to charge customers who use the services of non-French telcos a levy of 20.6 per cent. The European Commission is expected to agree the draft legislation on 22 January. After that it will be forwarded to EU finance ministers for consideration in the next few months.