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This essay aimed at analyzing the background and wording of the Proposal put forward by the Commission of the European Community to tackle the problems in connection with the value added taxation of electronic trade. It suggested that the challenges posed to tax systems by the Internet and e-commerce are real. However, the paper showed that the Commission has not chosen the appropriate means to take up these challenges. Focused narrowly on the interests of the common marketplace, the Proposal disregards the real, broader context of the issues and the necessity of technological means to resolve them.
The finding of the paper was that efficient handling of the problem at hand presupposes the recognition of the complexity of interests it touches upon. The bedrock limitation of any approach to this question is the prerequisite to conform to the fundamental principles of value added tax to preserve the functionality of the system. Furthermore, the spirit of collective, international co-operation should characterize the search for appropriate solutions. Such spirit assumes acknowledging the interests of the international trading partners and ambition to enhance the flourishing of electronic commerce. The essay found that the fate of any proposal in this field depends on its ability of striking the right balance between the above interests.
With regard to the practical side of the problematic VAT issues the essay concluded that theoretical soundness of the prospective proposals would not in itself suffice for the implementation thereof. Given that electronic commercial activity has been evolving with the development of technology, its regulation should also be technology-based. What is more, for the sake of effective control, tax authorities must always be a step ahead technology-wise of the parties to the taxable transactions. This goal has already been recognized in the first Working Paper put forward by the Commission in this field:
"A stronger insight into the technicalities and organisational aspects of the Internet will be needed to equip tax authorities with the knowledge which will enable them to influence the shape of e-commerce structures so that a clear and simple tax framework can be constructed and operated."168
The Commission should find its way back to this objective in the course of rethinking its Proposal. Until identifying the essential technology for the implementation of VAT within the digital world, the negative consequences following from the preferential treatment of Symantec and other foreign companies vis-à-vis European businesses should be addressed by a deliberate temporary solution taking account of all interests delineated above.
168 See Working Paper - 1998, supra note 5, at 28.