A proposal from the European Commission is set to modernise existing EU VAT rules to account for the emerging electronic business environment and to clarify the regulatory environment for all suppliers located within or outside the EU. The proposals would ensure that all products for sale in the EU are subject to EU VAT, thereby eliminating the competitive advantages enjoyed by some suppliers of electronically delivered goods situated outside the EU. The changes, which extend to subscription-based and pay-per-view television and broadcasting, would also mean that when services are supplied for consumption outside the EU, they are not subject to EU VAT. A Commission statement said the objective was to create a level playing field for the taxation of digital e-commerce in accordance with the principles agreed at the 1998 OECD Ministerial Conference, and to make compliance as easy and straightforward as possible. The proposal mainly concerns the supply over electronic networks, such as digital delivery, of software and computer services generally, plus information and cultural, artistic, sporting, scientific, educational, entertainment or similar services. 'These amendments would facilitate electronic commerce by giving business security and certainty as to its obligations under the EU VAT system', said Taxation Commissioner Frits Bolkestein. 'By modernising the VAT system to address the electronic delivery of services, we will ensure that all stakeholders are able to participate on a fair and equitable basis in the development of the information society in accordance with the principles agreed at the 1998 OECD Ministerial Conference in Ottowa,' he said. Although current VAT rules cover the delivery of physical goods purchased over electronic networks, they do not address the supply of services delivered online by digital means. Currently electronically-delivered services originating within the EU are always subject to VAT irrespective of the place of consumption, whilst those from outside the EU are not subject to VAT even when delivered within the EU. This situation has the potential to distort competition and to place EU service providers at a disadvantage relative to non-EU service providers. The proposed amendments to the VAT rules would correct this situation. The application of VAT in the proposed new system would depend on the tax status and location of the recipient. Non-EU operators would have to register for VAT purposes if they wish to engage in B2C - business to consumer - transactions. They would not have to register for B2B - business to business - transactions because business customers pay the VAT themselves on a self-assessment. The proposal also clarifies the rules of the application of VAT to radio and television broadcasting services supplied on subscription or pay-per-view basis. These services are increasingly significant commercial activities, and the current VAT legislation discriminates against European-based suppliers. The proposed changes would ensure that EU and non-EU suppliers operate under the same rules concerning VAT and place of supply. The proposal follows widespread consultations on taxation issues in the e-commerce environment undertaken by the Commission with the Member States' tax administrations and with business representatives. To be adopted, the proposal requires the approval of the Council of Ministers, who must also take into consideration the opinion of the European Parliament and the Economic and Social Committee.