Digital River Positions for EU Net Tax Policy

eCommerce hosting company Digital River is positioning to help customers account for online sales tax in order to comply with new European Union regulations that will go into effect on July 1st.

Under the new EU rules, both EU and non-EU merchants will be required to collect VAT, or value added tax, for online sales of “digital goods” involving European business-to-consumer transactions.

The new EU online tax rules are expected to impact a range of e-commerce players, including companies that sell downloadable software, offer Web-hosting and ASP services, electronic book sales, streaming music, digital movies, computer games and distance-learning services.

Further complicating matters, VAT rates vary by country; some rates are as low as 15 percent in Luxembourg, and can go up to 25 percent in Denmark and Sweden.

“If a client had to do this themselves, it would be very difficult and complex. They would have to register in all the EU countries, and would have to calculate the correct VATS and also purchase software to manage the whole process,” said Jay Kerutis, president of Digital River Software and Digital Commerce Services.

Digital River said it has made changes in its e-commerce system in order to help its clients figure out how to comply with an often-confusing thicket of VAT rules.

“Everyone that sells an electronic download or physical product to an end user will have to pay VAT on that purchase. We provide the e-commerce engine for our clients. We get the credit card and will have the VAT taxes from the end user,” said Kerutis.

Since more than a quarter of Digital River’s business comes from outside the US, the move to offer calculation services for its e-commerce customers makes sense for the Minnesota-based company.

After all, included in its range of e-commerce hosting services and site development are support services for the online purchase process, including transaction processing, order fulfillment and fraud prevention.

As has reported, suppliers outside the EU will have to charge the VAT rate (a levy that is something akin to a sales tax) in the EU country where the consumer resides, according to John Fay, who focuses on VAT as a partner in accounting firm PricewaterhouseCoopers.

“These new rules will cause major challenges for businesses that have to adapt their systems to meet the requirements,” Fay said. The new law also means that companies based in the United States will essentially be raising prices for their European buyers.

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