Distance selling tax complications

Posted: 26th August 2011

Although it is strictly a breach of copyright, copying material from one medium to another (for example, copying a CD to an mp3 player) is commonplace. Copying of material clearly costs the performers a great deal in lost royalties and, in an attempt to provide some compensation, some countries have legalised such copying and imposed a ‘copyright levy’.

A copyright levy is charged on the manufacturers of equipment which allows copying and the charge is passed on to the buyers of the equipment.
The UK, which does not allow such copying, does not impose the levy. Recently, the European Court of Justice had to consider the situation in which there is distance selling in which the buyer is based in a country which imposes the levy and the vendor is not.
In the case in point sales were being made by a company in Germany (where there is no levy) to buyers in Holland (where there is a levy). The Dutch authorities argued that the German vendor should pay the levy. The German company argued that the Dutch purchasers should pay the levy.
The decision was that, in effect, where a supplier in a country imposing a levy supplies a customer in a ‘non-levy’ country, the national courts of the supplier’s country must find a way to collect the levy from the customer. Regrettably, the ECJ suggested no mechanism by which this could be achieved
The case illustrates the complexities that can result from distance selling and international trade generally. In practical terms, it is likely that prices for good sold in such circumstances will rise to take account of the obligations to pay the levy.