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Ms Hewitt: I find that point wholly unconvincing. If the hon. Gentleman's principle were sound, someone selling by mail order or by telephone to a consumer in another country would be equally able to say, in large letters, "You need to be aware as a consumer that you may be liable for taxes in your own country."

Mr. St. Aubyn: Is the Minister suggesting that it is a bad idea to ask businesses to expose to customers their liability to tax?

Ms Hewitt: If the hon. Gentleman will allow me, I am coming to precisely that point.

The issue we are considering is whether we should require vendors to disclose to a purchaser in a foreign country their liability to tax in their own country. The balance that we have to strike is between giving adequate information to consumers and imposing the burden on a vendor of having to warn customers in detail of the tax liabilities that they may face in their own countries under local rules.

The European Union's distance selling directive will require that, prior to the conclusion of any distance contract, the consumer has to be provided with, among other things, the price of the goods or services, including all taxes and, where appropriate, delivery costs. Once that directive is in force, it will apply the underlying objective, which I think that the hon. Gentleman seeks to enforce, to all consumer contracts within the European Union. It will apply, in other words, to all contracts involving distance-selling means, not simply those that are concluded by means of electronic communication, as the hon. Gentleman is proposing. I think that that is absolutely right and that it goes far enough.

The problem with new clause 3 is that it goes well beyond the scope of the distance selling directive, which is confined to the member states of the European Union, and imposes on United Kingdom vendors the requirement to explain to foreign customers outside the European Union the tax liabilities of those customers in their own country. Customers, particularly business customers from non-European Union countries, will normally be aware of their tax liabilities.

In the European Union context, we are balancing the imposition of burdens on United Kingdom vendors selling to consumers in other European Union member states against the protection that we can rightly gain for British consumers when buying from vendors elsewhere in the European Union. New clause 3 would impose burdens on British businesses that are seeking to sell to consumers outside the European Union without in practice obtaining any new benefits for British consumers themselves.

We want businesses to trade online. We want to get a million small and medium businesses trading online by no later than 2002 because of the enormous competitive advantage that they could gain. However, we do not want to require any British business that is trading online to be an expert on the value added tax, sales tax and duty laws in any non-European Union country that they might sell to, and then to make them liable if they get it wrong. Such

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a requirement would be a quite extraordinary burden on our businesses and would hardly encourage the development of electronic commerce.

Mr. St. Aubyn: As the Minister well knows, I am not proposing that. However, will she explain why the requirement would be a burden only on United Kingdom vendors, and why the provisions of the new clause would not apply, for example, to a United States supplier to a United Kingdom consumer? A US supplier, because of the liability transferred from its UK agent, would have to disclose the UK purchaser's tax liability, which would be a benefit for the UK purchaser.

Ms Hewitt: The hon. Gentleman has misunderstood the effect of his own amendment. The provisions of new clause 3 would bite on British business. When this Parliament makes laws, those laws apply to those who are within our jurisdiction. We cannot pass a law that would require vendors in, for example, the United States--where the price in shops is exclusive of sales tax, and it is only when paying at the till that one discovers the amount of sales tax--who wish to sell to British consumers to start to price inclusively, as we tend to do in the UK. It would be impractical to try to impose that liability by means of the device of the vendor's agent. Many vendors in other countries simply would not bother to sell to British consumers.

I agree with the hon. Member for Rutland and Melton about the need for transparency and clarity in pricing on websites. We are trying to encourage that by supporting codes of practice that can be agreed both in the European context and beyond. That approach is better than trying to legislate in a complex manner that would not achieve the desired ends.

Mr. Allan: The Minister argues that one cannot expect every website in the world to be programmed with the duty rates for every country from Argentina to Uzbekistan, but are the codes of practice that she mentioned similar to those that exist already? They require websites to make it clear that consumers are liable to taxes in their own countries. How far has the Minister got towards establishing agreement at a global level that such warnings should be available?

Ms Hewitt: That is precisely what we are aiming to achieve, through the distance-selling directive in the European Union and, more generally, through the working party of the Organisation for Economic Co-operation and Development and other international forums.

The hon. Member for Guildford referred to British consumers' liability for VAT and import duty on physical goods imported from outside the European Union. Such goods are liable to taxation on importation, according to their nature and value.

Exceptions exist, however: for example, music downloaded on line may be bought from America but delivered digitally through the medium of the internet. In those circumstances, it would be regarded as having been taxed in the United States.

The difficulty for British and other European businesses is that the same process does not operate the other way around. When a United Kingdom business sells online music to an American customer, it has to account for VAT

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at 17.5 per cent. The European Commission is especially keen to change the law to provide a level playing field for European businesses. We expect the Commission to bring forward detailed legislative proposals by April, and my hon. Friend the Paymaster General will respond to those proposals when they are published.

However, if the new clause is pressed to a Division, I shall ask Labour Members to oppose it. It would discriminate against electronic commerce and therefore inhibit it, and it would impose unnecessary and undesirable red tape on British business.

Mr. St. Aubyn: I find the Minister's reply cheap and disappointing. She tried to score some political points that were irrelevant to such a technical debate. The new clause does not require vendors to calculate purchasers' tax liability. The new clause simply states that the liability of the vendor shall be displayed

It does not state that the amount has to be specified. If the warning were not displayed, the new clause would provide that the amount could not be claimed from the purchaser. That knocks the first of the Minister's arguments on the head.

The Minister referred to an EU draft directive. I was sorry to see her behave as more of a little European than an internationalist on the matter. We are talking about an international business, involving people in the United States and in other non-EU countries. The idea that EU countries can create a fortress in which e-commerce can be conducted and which will keep the Yanks out is totally naive--especially in the context of e-commerce.

I am very disappointed that the Minister chooses to wait for an EU directive. She should display more imagination and leadership in the matter. That is what we require from the Government, if this country is ever to become a centre for e-commerce.

Mr. Brian Cotter (Weston-super-Mare): Does not the hon. Gentleman consider the European dimension to be important? Does he agree that the single currency would make intra-Community internet trading more vibrant?

Mr. St. Aubyn: Time is short: we must not play with the hon. Gentleman's obsessions, or indulge him further.

I am most concerned that the Minister dismisses the idea that we can do anything about a US-UK internet relationship. Much internet business comes from the US and it is vital that purchasers in this country have confidence in the processes according to which such sales are conducted. I totally reject the Minister's argument that the clause has no bearing on that matter, as that is precisely the matter that the new clause addresses.

If US suppliers had to be told by their UK agents that they were liable for a tax that could not be collected from UK purchasers unless the purchasers' general liability for any such tax were clearly displayed, those UK agents would say, with one voice, that the suppliers should make that display clear on their screens. They would add that the suppliers should also furnish some form of indemnity--the system would not work without that.

In the current environment, UK business will suffer from the Government's inaction. It is in the long-term interests of UK agents to compete for the business of US

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suppliers. Because of the competitive pressures and those long-term interests, they will have to bear a continuing loss of revenue. They will have to pay out duties to the Exchequer, which they will not be able to recover from UK customers because it will not have been displayed as a liability in the first place.

US companies will pocket the money, but UK consumers will feel that they only just got away without being stung. The real sufferer will be UK business, as the Government have failed to pick up the challenge that the new clause represents. I am sorry that that argument has failed to penetrate the Minister's mind. That gives me little hope for the success of her e-commerce initiatives.

In the circumstances, it would be wrong to press the new clause to a vote, but I assure the Minister that this vitally important matter will be raised again in another place ere long. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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