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Chapter 4 E-environment 231

downloaded images, text or information, including making databases available
digitized books or other electronic publications
downloaded music, films or games
electronic auctions or
Internet service packages.
The UK VAT rules are as follows:
if the supplier (residence) and the customer (source) are both in the UK, VAT will be
chargeable;
exports to private customers in the EU will attract either UK VAT or local VAT;
exports outside the EU will be zero-rated (but tax may be levied on imports);
imports into the UK from the EU or beyond will attract local VAT, or UK import tax when
received through customs (for which overseas suppliers need to register);
services attract VAT according to where the supplier is located. This is different from prod-
ucts and causes anomalies if online services are created. For example, a betting service
located in Gibraltar enabled UK customers to gamble at a lower tax rate than with the
same company in the UK. This law has since been reviewed.
The situation is more complex where a company has transnational offices, these examples
from HMRC (2003) also illustrate the logic behind the new legislation:

Example 1: A UK business purchases digitised software from an Irish supplier for use only
in its branch in the Channel Islands. Although the supply is received in the UK where the
business belongs, it is used outside the EU and is outside the scope of UK (and EU) VAT.
Example 2: A USA business purchases web-hosting services for its international busi-
ness, including its UK branch. Although the supply is received in the USA, to the extent
that it is used in the UK, it is subject to UK VAT.
Example 3: A UK business purchases downloaded information from another UK business
for use both in its UK headquarters and its Canadian branch. Although the supply is
received in the UK, to the extent it is used in Canada, it is outside the scope of UK VAT.
UK VAT is due only to the extent of use by the UK headquarters.

Freedom-restrictive legislation

Although governments enact legislation in order to protect consumer privacy on the Inter-

net, as described in the previous section, it is also worth noting that some individuals and
organizations believe that legislation may also be too restrictive. In the UK, a new Telecom-
munications Act and Regulation of Investigatory Powers Act (RIP) took several years to
enact since companies were concerned to ensure security and to give security forces the abil-
ity to monitor all communications passing through ISPs. This was fiercely contested due to
cost burdens placed on infrastructure providers and in particular the Internet service
providers (ISPs), and of course many citizens and employees may not be happy about being
monitored either! The Freedom House (www.freedomhouse.org) is a human rights organ-
ization created to reduce censorship since it believes government censorship laws may be too
restrictive. It notes in a report (Freedom House, 2000) that governments in many countries,
both developed and developing, are increasingly censoring online content. Only 69 of the
countries studied have completely free media, while 51 have partly free media and 66
countries suffer heavy government censorship. Censorship methods include implementing
licensing and regulation laws, applying existing print and broadcast restrictions to the Inter-
net, filtering content and direct censoring after dissemination. In Asia and the Middle East,
governments frequently cite protection of morality and local values as reasons for censor-
ship. Countries where Internet access is mostly or totally controlled by the authorities
include Azerbaijan, Belarus, Burma, China, Cuba, Iran, Iraq, Kazakhstan, Kyrgyzstan, Libya,