Each member state of the European Union imposes a general, broad based consumption tax called Value Added Tax (VAT) based on the value of goods and services supplied to the consumer.
This tax is added to the value of the goods by the supplier, who then accounts for the revenue and passes it back to the government of the country concerned.
The rates of tax and the range of goods to which they are applied varies between the EU member states.
How this applies to suppliers outside the EU
Every non-EU based merchant selling digital goods and services to EU-based customers, including suppliers in the USA and Canada, has a legal obligation to charge and collect Value Added Tax on behalf of the customer’s home government. Since 2003 it has been mandatory to register with European tax authorities to levy, collect and remit the VAT on sales to EU-based customers at the rate applicable in the customer's home country.
This has added a nightmare administrative overhead for many companies, who now have to deal with the tax authorities in 27 separate member countries and add differing rates of tax in a variety of currencies and languages to base product prices.
: a not for profit e-commerce business association 
