Multifunction devices pose tax headache for EU policymakers

When is a mobile phone not a mobile phone? When is a printer not a printer? These may sound like the sort of riddles you'd find rolled up in a Christmas cracker, but to IT manufacturers, judges and politicians in Europe these questions are no joke.

The answers will determine whether billions of euros of import duties need to be slapped on multifunction devices such as printer/scanner/photocopiers, LCD screens for PCs and TVs, or mobile phones that pick up broadcast TV signals or function as GPS tracking devices.

Roughly 12 years ago the world's biggest trading partners agreed that in order to boost the global economy, they would apply zero import duties on all computer-related equipment. They dubbed this the Information Technology Agreement (ITA).

Since then, however, there has been an explosion of innovation in the technology industry. As manufacturers compete to cram as many functions into their devices as possible, tax officials in the E.U. have started to question whether the zero-duty ITA is being stretched beyond its original intended purpose.

They have reclassified many devices, including printer/scanner/photocopiers, LCD screens and TV set-top boxes that contain a hard disk drive as products that should be liable for import duties ranging from 3 percent to 14 percent. And they are considering doing the same thing now with mobile phones that double up as portable TVs or GPS devices.

Not surprisingly, manufacturers are up in arms about the reclassification of their wares, and are fighting with every weapon in their arsenal. Printer manufacturers Hewlett-Packard and Kip took their grievance to the European Court of Justice in Luxembourg.

The court gave a complicated judgment in the case Thursday, advising national courts in the E.U. to consider a multifunction machine according to its main feature. If the main feature is printing or scanning, then the machine should not incur any import duties, because these functions are directly connected to a computer. If photocopying is what defines the machine, or if all three functions appear equally important, courts should count the machine as a copier and slap on 6 percent duty.

Early next year the Court of Justice will rule in a similar case concerning customs duties on LCD screens.

While the judges in Luxembourg were finalizing their ruling Thursday, civil servants and politicians in Brussels were meeting to discuss what to do about multifunction mobile phones. No decision is expected until early next year, but the Commission, the E.U.'s executive body, is eager to find a solution that all countries in the E.U. can apply.

Some E.U. countries including Germany and the Netherlands have already reclassified these devices so that they qualify for import duty of 3.5 percent. However, the Dutch government is expected to reverse the move according to Mark McGann, director general of the IT industry trade group, the European Information and Communications Technology Association (EICTA).

"I think the Dutch government fears a consumer backlash," he said.

The IDG News Service is a Network World affiliate.