U.S. Seeks EU Internet Tax Accord

After meeting in Brussels with European Commission officials on Wednesday, U.S. Undersecretary of Commerce Robert LaRussa said that e-commerce issues related to Internet taxation and data protection should be the subject of ongoing international dialogue.

LaRussa also suggested that the “digital divide” issues in Europe and the U.S. are common enough to require joint efforts toward resolution.

“We need to set up some kind of process where the U.S. and the EU with our business communities can address these issues. There are peculiar U.S.-EU issues, and you really do need an early warning system or you are going to address them too late,” LaRussa said.

Taxing Downloads

While LaRussa believes that the U.S. and Europe should come together to consider Internet taxation, the European Union and the U.S. are already moving forward on the issue, albeit separately.

Last month, the European Union’s Executive Commission floated a plan to impose a value-added tax (VAT) on software, videos, computer games and music downloaded from the Internet. The European proposal would impose the tax when the downloads are used within the 15-nation bloc.

The plan would require U.S. companies with sales over $96,000 (US$) within the EU to register in at least one EU country and collect a VAT of 15 to 25 percent for payment to the local government. The proposal has drawn a rousing chorus of objection from U.S. companies.

According to Ken Wasch, president of the U.S.-based Software & Information Industry Association, “U.S. vendors should not be tax collectors for European governments. It is also doubtful, under public international law, whether the EU has any authority to impose such a legal obligation on U.S. entities.”

The Clinton administration has expressed doubts about the EU plan, but has not formally stated its position to the EU. When the plan was first proposed in June, U.S. Treasury Department Deputy Secretary Stuart Eizenstat said it appears online taxes for the downloaded items would be higher than taxes applied to sales of the same items offline.

LaRussa said Wednesday the U.S. would examine that proposal carefully and communicate its position to the EU.

Protecting Electronic Data

According to some observers, the most pressing issue facing the EU and the U.S. is the enactment and revision of data protection laws. In March the EU and the U.S. reached an agreement to apply stringent EU data protection laws to U.S. businesses via a voluntary agreement known as the “safe harbor principle.”

However, the European Parliament this month gave only lukewarm approval to the agreement, saying that U.S. firms should be obliged to compensate people who believe their rights have been violated by failure to apply the safe harbor principles. Last week, the EU said it would endorse the agreement despite the protest of the European Parliament.

LaRussa said Wednesday that the U.S. is “taking a look” at the Parliament’s concerns about the agreement. At issue is the Parliament’s statement earlier this month that “the adequacy of the U.S. [data protection] system cannot be confirmed and, consequently, the free movement of data cannot be authorized until all the components of the safe harbor system are operational and the United States authorities have informed the Commission that these conditions have been fulfilled.”

The European Commission is endorsing the agreement, but says it will have to renegotiate if the European Parliament’s concerns about the agreement are confirmed.

Resolution Process

Commenting on the two years of negotiations that took place to reach the safe harbor agreement, LaRussa said, “Before we get into that type of process again, where we are trying to work out the differences in two different systems, what I would like to do is say, ‘Here are four or five things coming up where we see a difference in approach, and let’s talk about what the implications are.'”

LaRussa stressed that he was not suggesting creating any new bilateral organizations to resolve the issues he believes need to be addressed, but rather a more efficient way of working within existing channels.