The extension would go to Dec. 31, 2008, to give Europe enough time to get more permanent measures passed.
The directive on e-commerce took effect on July 1, 2003. It states that electronic services supplied for consumption outside of the European Union are.
Without an extension, the Commission warned, the rules for services supplied electronically would revert to those in existence before the directive was introduced.
That would mean that EU suppliers would be subject to VAT, even for services supplied to clients outside the EU--and they would face competition from suppliers in non-EU countries that would not be subject to the sales tax at all.
"I urge the EU Council of Ministers to rapidly reach an agreement on this extension, as I cannot imagine we would revert to the rules prevailing before the e-commerce directive was introduced," taxation commissioner Laszlo Kovacs said in a statement.
He also called on the EU Council to adopt the two proposals, which would give permanent effect to the measures in the e-commerce VAT directive as soon as possible.
Steve Ranger of Silicon.com reported from London.