The European Union finance ministers today (Nov. 28) extended rules for charging value-added-tax on digital downloads until the end of 2008.

The rules require sellers to collect the tax on goods delivered via the Internet to individual consumers. They are contained in the EU's 2002's e-commerce VAT directive, but this was only designed with a limited shelf life and were due to expire at the end of this year. Plans to make the e-commerce tax permanent failed earlier this year as EU finance ministers disagreed over a broader overhaul of VAT rules, which is still being debated.

In a joint statement, the ministers said that "the e-commerce directive will be prolonged from Jan, 1, 2007 until the end of 2008". But they also agreed "to take forward work on the VAT package as a matter of priority, with a view to preparing a comprehensive solution by June 2007."

A reform package currently being discussed by EU finance ministers, aims to simplify how the sales tax is applied to services - and includes long-distance services such as broadcasting, telecoms, and advertising.

The 2002 rules tax services in the country where the customer resides rather than where the supplier is located. They also charge VAT on online retailers from outside Europe. The directive applies to digital downloads, online subscriptions, purchases on auction Web sites such as eBay, and music services offered by the likes of Apple and RealNetworks.