THE European Commission has proposed legislation that would place a consumption tax on telecommunications services offered by foreign companies within the 15 nation European Union.

The initiative was prompted by the growing popularity of "call back" services operating in the United States, which allow consumers to bypass high European telecoms costs by routing their calls through US phone lines.

Those calls are not now subject to national value added taxes, which range from 15 per cent in Luxembourg and Germany to 21 per cent in Ireland and 25 per cent in Denmark and Sweden.

The Commission, responding to a unanimous request from EU governments, proposed that foreign firms be required to charge VAT on telecoms services offered to EU customers - putting them on a par with their European counterparts. "These proposals aim to eliminate the unfair advantage enjoyed now by third country service providers," EU Taxation Commissioner Mr Mario Monti said. Once the regime is fully in place, envisaged for the start of 1999, callback operators will be required to collect and pay the tax themselves.

However, the Commission proposed interim rules that would allow national governments to begin by collecting from companies in the EU that use the services.

The proposal, which must be agreed unanimously by EU Finance Ministers, would not apply to Internet or on line services when the consumer connects through a local phone call, a commission spokesman said.

He said an early draft of the Commission's proposal would have imposed VAT on some broadcast services, but was revised to conform with a narrower definition of telecommunications that the EU is advocating in World Trade Organisation talks on telecoms liberalisation.