Virtual & digital goodsVirtual & digital goods

direct taxationdirect taxation doesn’t belongs to EU doesn’t belongs to EU competence. competence.

indirect taxationindirect taxation belongs to EU belongs to EU competence and most of its legal competence and most of its legal regulation is based on imperative legal regulation is based on imperative legal principles.principles.

Sixth Council Directive of VAT (77/388/EEC)Sixth Council Directive of VAT (77/388/EEC)the scheme of levying VAT on electronically-provided the scheme of levying VAT on electronically-provided

services.services.

Virtual & digital goodsVirtual & digital goods

Virtual goods are goods that, under Virtual goods are goods that, under traditional trade, were delivered by way of a traditional trade, were delivered by way of a physical medium (e.g. software on discs, physical medium (e.g. software on discs, music on CD, movies on tapes) but today music on CD, movies on tapes) but today may be transferred by electronic means may be transferred by electronic means without the use of any medium. without the use of any medium.

Goods & servicesGoods & services

Supply of goods shall mean the transfer Supply of goods shall mean the transfer of the right to dispose of tangible property as of the right to dispose of tangible property as owner. owner. (VAT directive 5 art.)(VAT directive 5 art.)

Supply of services shall mean any Supply of services shall mean any transaction which does not constitute a transaction which does not constitute a supply of goods supply of goods (VAT directive 6 art.)(VAT directive 6 art.)

Goods and services in Goods and services in electronic commerce taxationelectronic commerce taxation

Subject of traditional commerce

Subject of electronic commerce

Goods Services Goods Services

Material form All virtual

goods

Goods & servicesGoods & services

??? = goods (USA, Japan, ??? = goods (USA, Japan, WorldWorld InformationInformation TechnologyTechnology andand ServicesServices AllianceAlliance – WITSA – WITSA).).

??? = services (EU).??? = services (EU).

Electronic services supplied by Electronic services supplied by electronic meanselectronic means

1.1. Services should be supplied by Internet or Services should be supplied by Internet or other electronic networks;other electronic networks;

2.2. Services nature should depend on Services nature should depend on information technology.information technology.

EU members Standard VAT rate (%)

EU members Standard VAT rate

(%)Ireland 21 Lithuania 18

Austria 20 Luxembourg 15

Belgium 21 Malta 15

Czechia 22 Netherlands 19

Denmark 25 Portugal 19

United Kingdom 17,5 France 19,6

Estonia 18 Slovakia 23

Greece 18 Slovenia 19

Spain 16 Finland 22

Italy 20 Sweden 25

Cyprus 15 Hungary 25

Latvia 18 Germany 16

Poland 22

SSales and use taxales and use tax (USA)(USA)

"throw-back""throw-back" rule rule ( (this rule would this rule would source the sales back to the state of source the sales back to the state of origin (i.e., the vendor's location) in origin (i.e., the vendor's location) in the absence of sales destination the absence of sales destination informationinformation. . Considerations of Considerations of administrative ease support this administrative ease support this approach, but it raises policy approach, but it raises policy problems because states without a problems because states without a sales tax could become tax havens sales tax could become tax havens for online and other remote sellersfor online and other remote sellers))

SSales and use taxales and use tax (USA)(USA)

"throw-around""throw-around" rule rule ( (Under this rule, Under this rule, sales without readily available sales without readily available destination information would be destination information would be pooled and allocated to states (for pooled and allocated to states (for purposes of imposing a sales or use purposes of imposing a sales or use tax on the sales) that impose a sales tax on the sales) that impose a sales tax on an agreed-upon allocation tax on an agreed-upon allocation formulaformula. . Administratively speaking, this Administratively speaking, this approach creates more difficulties, but it approach creates more difficulties, but it does not create disincentives with respect does not create disincentives with respect to vendor behavior (i.e., no jurisdiction to vendor behavior (i.e., no jurisdiction becomes a "haven" for sales tax becomes a "haven" for sales tax purposes)purposes)))

Bit taxBit tax

Anonymity of transactionsAnonymity of transactions

National Tax Association (US)National Tax Association (US)

The Real Time Tax Administration System:The Real Time Tax Administration System:

Functions:Functions:• Administration of sales and use tax collection;Administration of sales and use tax collection;• Remittance functions (taxability determination; Remittance functions (taxability determination;

selection of tax rates; remittance to appropriate selection of tax rates; remittance to appropriate tax jurisdictions, appropriate reporting).tax jurisdictions, appropriate reporting).

Anonymity of transactionsAnonymity of transactions

National Tax Association (US)National Tax Association (US)

• The Aims for the Real Time Tax Administration The Aims for the Real Time Tax Administration System:System:

- relievingrelieving vendors of the burden vendors of the burden and the and the corresponding liability for tax collection dutiescorresponding liability for tax collection duties;;

- the the state tax administrators would retain control of state tax administrators would retain control of the technologythe technology..

Anonymity of transactionsAnonymity of transactions

National Tax Association (US)National Tax Association (US)

• The obstacles for The obstacles for The Real Time Tax The Real Time Tax Administration System:Administration System:

- tthe technology is not available todayhe technology is not available today;;- the system's complexity renders this solution too the system's complexity renders this solution too

costly to developcostly to develop;;- the system would in any event contain numerous the system would in any event contain numerous

flawsflaws..- consideration of such a proposal was premature at consideration of such a proposal was premature at

this time.this time.

OECD black list of tax haven OECD black list of tax haven countriescountries

Andorra, Anguilla – Overseas Territory of the United Kingdom, Antigua and Barbuda, Aruba – Kingdom of the Netherlands, Commonwealth of the Bahamas, Bahrain, Barbados, Belize, British Virgin Islands – Overseas Territory of the United Kingdom, Cook Islands – New Zealand, The Commonwealth of Dominica, Gibraltar – Overseas Territory of the United Kingdom, Grenada, Guernsey/Sark/Alderney – Dependency of the British Crown, Isle of Man – Dependency of the British Crown, Jersey – Dependency of the British Crown, Liberia, The Principality of Liechtenstein, The Republic of the Maldives, The Republic of the Marshall Islands, The Principality of Monaco, Montserrat – Overseas Territory of the United Kingdom, The Republic of Nauru, Netherlands Antilles – Kingdom of the Netherlands, Niue – New Zealand, Panama, Samoa, The Republic of the Seychelles, St Lucia, The Federation of St. Christopher & Nevis, St. Vincent and the Grenadines, Tonga, Turks & Caicos – Overseas Territory of the United Kingdom, US Virgin Islands – External Territory of the United States, The Republic of Vanuatu.

Special Scheme for Tax Arrangements Special Scheme for Tax Arrangements Applicable for Electronically Supplied Applicable for Electronically Supplied

ServicesServices

It shall be applied only to those services which are electronically It shall be applied only to those services which are electronically supplied by the non-established taxable person within the Community supplied by the non-established taxable person within the Community to non-taxable persons of different Member States. Therefore this to non-taxable persons of different Member States. Therefore this scheme could be used by the suppliers of electronic services in USA, scheme could be used by the suppliers of electronic services in USA, Japan, Russia, Australia, etc. Japan, Russia, Australia, etc.

Electronic service provision - business to consumerElectronic service provision - business to consumer (B2C) (B2C)

Services Services supplier placesupplier place

Buyer placeBuyer place Taxation placeTaxation place

Non EU member Non EU member statestate

LithuaniaLithuania LithuaniaLithuania

business to consumerbusiness to consumer

A vendor trading in the EU (as well as in Lithuania) A vendor trading in the EU (as well as in Lithuania) shall proceed under the information provided by the shall proceed under the information provided by the

natural person. natural person.

Therefore there is a possibility for a natural person to Therefore there is a possibility for a natural person to provide inaccurate information by giving a wrong provide inaccurate information by giving a wrong

country of residence.country of residence.

Way to identify the buyerWay to identify the buyer