The Revenue Commissioners are likely to rely on companies conducting business via e-commerce paying the relevant tax on the transactions on a voluntary basis.
In a report published yesterday, the Revenue outlines various proposals for the problem of VAT collection for business on the Internet.
The proposals, according to Revenue assistant secretary, Mr Norman Gillanders, are likely to be close to European Commission proposals later this month. Voluntary compliance, according to Mr Gillanders, is the practical route.
In practice, this is likely to mean that only larger companies will comply with the tax code with smaller companies, particularly those outside the EU, able to deliver goods VAT-free.
Negotiations are expected to begin in Brussels later this month and Mr Gillanders said that now is the time for Irish business to let the Revenue know their views.
"What we want is to get the views of Irish tax practitioners and e-commerce firms in particular to find out if they see our proposals as a viable model," he said.
According to Mr Gillanders, the issue of a single rate of VAT for all e-commerce business across the EU is also likely to be raised over the coming months. The OECD is also involved in the negotiations. However, a common rate of VAT across the 29 member-countries is not thought likely, as some do not currently have any such tax. The organisation is now attempting to reach an agreement on "international co-operation and mutual assistance". The central problem for Ireland is not limited to people downloading software or games but rather includes the whole issue of knowledge supply. Currently, there is little to prevent a consultant operating on an almost VAT-free basis if all business is done through the Internet.
For the moment, Mr Gillanders added that authorities have a breathing space as the technology means most people still use the Internet to order physical goods rather than downloading large applications in a digitised format. But that will change over the next few years.
The Revenue is also concerned that customs and excise could be inundated with small parcel post which is likely to see a very big volume increase.
The chairman of the Revenue Commissioners, Mr Dermot Quigley, also announced yesterday that tax returns are going electronic. The organisation is aiming to have at least half of all business tax returns filed over the Internet by 2005.
Speaking at an EAN Ireland conference on paperless trading, Mr Quigley also announced that, by mid-2000, businesses which register with the new Revenue online service will be able to send in their VAT and PAYE/PRSI returns securely over the Internet.
