Hands-On With the World-Changing $40 Tablet

Aakash2

The Aakash2 is available for $ 40.41 (2,263 rupees), but the government of India will subsidize half the cost for schoolchildren. The tablet is conceived as a tool to help end India‘s rampant illiteracy. Aakash2 will bring school-age children connectivity and unprecidented access to books.

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The Aakash2, the second generation of the monumental, ultra-cheap tablet from Indian manufacturer DataWind, arrived in the U.S. Wednesday, with a welcome at the U.N. Headquarters in New York.

DataWind is hoping to prove to the tech and development communities that the $ 40 Aakash2 is faster than its predecessor, the original Aakash, which was much-criticized for its glacial processor.

[More from Mashable: The Top 5 Gadget Innovations of 2012]

You may be wondering what exactly you can put in a tablet that sells for just $ 40.41. The 7-inch Android-powered device has 512 MB of RAM, a 1 Ghz processor, 4 GB of flash memory, a multi-touch capacitative screen, front-facing camera, an internal microphone and speakers. The Aakash2 includes a USB hub, an adapter cable, a wall charger and a 12-month warranty.

Sunseet Singh Tuli, DataWind’s CEO and the visionary behind the tablet, points out that Aakash2 wasn’t conceived for the same demographic as the iPad. It’s developed out of the requisite “frugal innovation” that guides India and the developing world.

“Frugal innovation isn’t about creating an iPad killer, it’s about creating an iPad for him,” said Tuli, pointing to a presentation slide of a lower-class man who’s primary motivation is to receive an education. “This is not a straight commerce effort — it’s an educational effort.”

Even the tablet’s name — Aakash, which means sky in Hindi — references that it was created to awaken students’ potential. The government of India has committed to subsidize 50% of the cost of the device for students, making it available for roughly $ 20.

According to DataWind, the technological breakthrough of the Aakash2, which is why the device can be made so inexpensively, is twofold. First, much of its memory and processing power is transfered to backend servers. Second, the parallel processing environment speeds the user experience in remote areas and congested networks.

The Aakash2 also eliminates hardware features deemed unnecessary for the target audience, such as bluetooth and the HDMI interface. It uses open source software to cut costs, as well.

“This tablet seeks to empower the world’s neediest and bridges the digital divide within our society,” said Hardeep Singh Puri, India’s permanent representative to the U.N. at the launch event. “To us, Aakash2 is the epitome of such high end innovation and excellence.”

The Aakash to was designed and developed in Canada, though it was conceived, assembled and programmed in India. DataWind and the Indian government have received criticism because the process is not entirely domestic, though both said they are committed to moving more of the production process to India when cost allows.

The Indian government has committed to equipping all 220 million students in the country with low-cost computing devices and Internet access over the next five years. To put that number in perspective, just 250,000 tablets were sold in India in 2011. It will cost $ 1.6 billion per year at the rate of equipping 40 million students for each of the next five years. The national government has committed to covering half the cost — $ 800 million per year — and will count on state governments and institutions to cover the remaining 50% of costs. Though it sounds like a daunting figure, $ 800 million is only 5% of India’s annual education budget.

“More and more schools in some of the most impoverished areas are using technology, text messaging and mobile applications to enhance the quality of education and open new doors,” said U.N. Secretary General Ban Ki-moon on Wednesday. “Our challenge is to leverage the power of technology and bridge the digital divide.”

During Wednesday’s event at the U.N., Tuli presented Ki-moon with an Aakash2 tablet for each of the U.N. ambassadors.

Not surprisingly, other countries throughout the developing world have noticed the Aakash tablet’s potential. Thailand, Turkey, Sri Lanka, Bolivia, Honduras, Nicaragua, Brazil and Panama have all expressed interest in bringing the low-cost tablet to their students.

“The next arms race is to equip our children with knowledge and information,” Tuli said.

If you’re wondering when you can get your hands on an Aakash2 in the U.S., DataWind plans to begin selling the device in the U.S. in early 2013.

Do you think this low-cost tablet has the power to bridge the digital divide and combat illiteracy? Let us know in the comments.

This story originally published on Mashable here.

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“Searching for Sugar Man” wins Producers Guild documentary nomination

LOS ANGELES (TheWrap.com) – “Searching for Sugar Man” is the best-known of the five films whose producers have been nominated for documentary motion pictures by Producers Guild of America, which announced its nominations on Friday.

Malik Bendjelloul’s film about the rediscovery of ’70s recording artist Rodriguez joined a slate of nominees that also includes Jon Shenk’s doc about the ousted president of the Maldives, “The Island President”; Marius A. Merkevicius‘ story of the 1992 Lithuanian Olympic basketball team, “The Other Dream Team”; Dror Moreh’s chronicle of some members of the Israeli intelligence services, “The Gatekeepers”; and Aaron Yeger’s film about the Roma (gypsies) in Europe, “A People Uncounted.”

The PGA bypassed number of the year’s high-profile docs, including “Bully,” “The Queen of Versailles,” “The Imposter,” “Samsara,” “West of Memphis” and “The Invisible War.”

Of the guild’s choices, only “Sugar Man” was also nominated in the top category at the IDA Awards and the Cinema Eye Honors, the two major awards in the documentary field.

The PGA release:

LOS ANGELES, CA (November 30, 2012) – The Producers Guild of America (PGA) announced today the Documentary Motion Picture nominees that will advance in the voting process for the 24th Annual Producers Guild Awards.

The nominated films, listed below in alphabetical order, are:

A PEOPLE UNCOUNTED

THE GATEKEEPERS

THE ISLAND PRESIDENT

THE OTHER DREAM TEAM

SEARCHING FOR SUGAR MAN

All other nominations for the 2013 Producers Guild Award categories will be announced on January 3, 2013, along with the individual producers.

All 2013 Producers Guild Award winners will be announced on January 26, 2013 at the Beverly Hilton Hotel. This year, the Producers Guild will also award special honors to Bob and Harvey Weinstein, J.J. Abrams, Tim Bevan and Eric Fellner and Russell Simmons, among others. The 2013 Producers Guild Awards Chair is Michael De Luca.

In 1990, the Producers Guild held the first-ever Golden Laurel Awards, which were renamed the Producers Guild Awards in 2002. Richard Zanuck and Lili Fini Zanuck took home the award for Best Produced Motion Picture for DRIVING MISS DAISY, establishing the Guild’s awards as a bellwether for the Oscars. Last year, the PGA awarded THE ARTIST with its Darryl F. Zanuck Producer of the Year Award in Theatrical Motion Pictures, marking the fifth consecutive year the Producers Guild has presaged the Academy of Motion Picture’s choice.

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Teens may buy less tobacco when displays are hidden

NEW YORK (Reuters Health) – A new study conducted using a virtual reality game suggests teens may be less likely to try to buy cigarettes at convenience stories if they aren’t sold in plain sight behind the counter.

Requiring stores to hide tobacco product displays is one option some states are considering to curb teen smoking after the Family Smoking Prevention and Tobacco Control Act of 2009 was passed, according to the study’s lead author.

“We know the retail environment is a very important place for tobacco companies to advertise and market their products,” said Annice Kim, from the independent research institute RTI International in Research Triangle Park, North Carolina.

“They’re prominently displayed at the point of sale, and it exposes all customers, including kids.”

Kim’s team wanted to test the effects of covering up such cigarette displays on teen shopping and opinion. But the researchers couldn’t conduct a real-world experiment because as of yet, no states have banned the displays.

So they designed a virtual reality game and sent more than 1,200 youth, between age 13 and 17, into a simulated online convenience store. Researchers asked the participants to select four items in the store: a snack from the aisles, a drink from the coolers and two products of their choice from the checkout counter.

In some scenarios, the cabinet behind the counter prominently displayed cigarettes, while other teens saw the cabinet closed and the display covered up.

Any teens that tried to ask the cashier for cigarettes were denied because of age – but what the researchers were interested in was how many asked.

Depending on other changes they made to the virtual convenience stores, the researchers found that 16 to 24 percent of teens tried to buy tobacco when the display was open, compared to 9 to 11 percent when it was closed.

In a post-virtual shopping survey, whether cigarettes were openly displayed wasn’t clearly tied to teens’ perceptions of how easy it would be to buy tobacco products if a similar store existed in their neighborhood.

However, 32 percent of youth said they were aware cigarettes were available for sale when the display case was closed in their virtual store, compared to 85 percent of those who had the open version, according to findings published Monday in Pediatrics.

“Policies that require retailers to store tobacco products out of view… could have a positive public health impact,” Kim told Reuters Health.

Still, she said this single study, funded by the New York State Department of Health, would have to be considered along with other evaluations of the display restrictions before making policy recommendations.

One tobacco control researcher not involved in the new study said he thinks there is “strong justification” for hiding cigarette displays from youth, but that this study doesn’t necessarily add much to that debate.

“It certainly shows that tobacco displays get people to think about cigarettes, which is what they’re for,” said Dr. Michael Siegel, from the Boston University School of Public Health.

But, “It can’t be extrapolated into real life, because in real life kids would go to a store when they want to buy cigarettes,” he told Reuters Health.

“I don’t know how many situations there are when a kid is hanging out in a convenience store with nothing to do and says, ‘Oh, I’ll just try a cigarette as long as they’re here.’”

Rather, he said, banning the displays could help prevent youth from being exposed to marketing by cigarette companies and influenced in their attitudes toward smoking.

SOURCE: http://bit.ly/cxXOG Pediatrics, online December 3, 2012.

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Italy votes for center-left candidate for premier

ROME (AP) — Italians are choosing a center-left candidate for premier for elections early next year, an important primary runoff given the main party is ahead in the polls against a center-right camp in utter chaos over whether Silvio Berlusconi will run again.

Sunday’s runoff pits a veteran center-left leader, Pier Luigi Bersani, 61, against the 37-year-old mayor of Florence, Matteo Renzi, who has campaigned on an Obama-style “Let’s change Italy now” mantra.

Nearly all polls show Bersani winning the primary, after he won the first round of balloting Nov. 25 with 44.9 percent of the vote. Since he didn’t get an absolute majority, he was forced into a runoff with Renzi, who garnered 35.5 percent.

After battling all week to get more voters to the polling stations for round two, Renzi seemed almost resigned to a Bersani win by Sunday, saying he hoped that by Monday “we can all work together.”

Bersani, a former transport and industry minister, seemed confident of victory as well, joking about Berlusconi’s flip-flopping political ambitions by asking “What time did he say it?” when told that the media mogul had purportedly decided against running.

Next year’s general election will largely decide how and whether Italy continues on the path to financial health charted by Premier Mario Monti, appointed last year to save Italy from a Greek-style debt crisis.

The former European commissioner was named to head a technical government after international markets lost confidence in then-Premier Berlusconi’s ability to reign in Italy’s public debt and push through sorely needed structural reforms.

Berlusconi has largely stayed out of the public spotlight for the past year, but he returned with force in recent weeks, announcing he was thinking about running again, then changing his mind, then threatening to bring down Monti’s government, and most recently staying silent about his political plans.

His waffling has thrown his People of Freedom party into disarray and disrupted its own plans for a primary — all of which has only seemed to bolster the impression of order, stability and organization within the center-left camp.

A poll published Friday gave the Democratic Party 30 percent of the vote if the election were held now, compared with some 19.5 percent for the upstart populist movement of comic Beppe Grillo, and Berlusconi’s People of Freedom party in third with 14.3 percent. The poll, by the SWG firm for state-run RAI 3, surveyed 5,000 voting-age adults by telephone between Nov. 26 and 28. It had a margin of error of plus or minus 1.36 percentage points.

It’s quite a turnabout for Berlusconi’s once-dominant movement, and a similarly remarkable shift in fortunes for the Democratic Party, which had been in shambles for years, unable to capitalize on Berlusconi’s professional and personal failings while he was premier.

But Berlusconi’s 2011 downfall and a series of recent political party funding scandals that have targeted mostly center-right politicians have contributed to the party’s rise as Italy struggles through a grinding recession and near-record high unemployment.

Angelino Alfano, Berlusconi’s hand-picked political heir, seemed again exasperated Sunday after a long meeting with his patron over Berlusconi’s plans. News reports have suggested Berlusconi might split the party in two and re-launch the Forza Italia party that brought him to political power for the first time in 1994.

“We have to work to reconstruct the center-right, and reconstructing it means having a big center-right party,” not a divided one, Alfano said.

He added that Berlusconi didn’t say one way or another if he would run himself. “It’s his choice,” he said. “If there are any decisions in this regard, he’ll be the one to say so.”

___

Follow Nicole Winfield at www.twitter.com/nwinfield

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Microsoft’s next-gen Xbox again said to launch ahead of 2013 holidays

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Lindsay Lohan risks return to jail after double trouble

NEW YORK/LOS ANGELES (Reuters) – Lindsay Lohan on Thursday faced the possibility of being sent back to jail after a tumultuous 24 hours in which she was arrested in New York for assault, and charged in California with reckless driving and lying to police over a June car crash.

Lohan, 26, who has been to rehab, jail and court multiple times since a 2007 arrest for drunk driving and cocaine possession, is still on unsupervised probation in Los Angeles for a 2011 jewelry theft.

But prosecutors in Santa Monica, California, said in a statement on Thursday that the “Mean Girls” actress lied to police when she told them she was not at the wheel of her Porsche when it smashed into a truck on a busy highway in the summer.

They charged Lohan with three misdemeanor counts stemming from that collision, hours after the troubled starlet was arrested on suspicion of punching a woman in the face at a Manhattan nightclub.

Lohan’s New York attorney Mark Heller said the actress was “a victim of someone trying to capture their 15 minutes of fame.”

“From my initial investigation, I am completely confident that this case will be concluded favorably and that Lindsay will be completely exonerated,” Heller said in a statement on the nightclub incident.

Frank Mateljan of the Los Angeles City Attorney‘s office, which handled the 2011 jewelry case, said prosecutors were still awaiting paperwork from New York and Santa Monica to determine if they will pursue a probation violation case against Lohan.

A Los Angeles judge told Lohan in March that she must obey all rules until 2014, and advised her to stop night-clubbing and focus on her work.

The two incidents came during a rough week for the former “Parent Trap” child star, who was once considered one of the most promising young actresses in Hollywood.

Her comeback performance on Sunday as screen legend Elizabeth Taylor in the TV movie “Liz & Dick,” was panned by critics and watched by a disappointingly small U.S. TV audience of 3.5 million.

In New York, Lohan was briefly arrested shortly after 4 a.m. (0900 GMT) on Thursday on a third-degree misdemeanor assault charge against a 28-year-old woman, police said. The victim suffered minor injuries, New York Police Sergeant John Buthorn said.

Celebrity website TMZ.com said Lohan had been drinking heavily and lashed out in a stand-off over one of the members of British boy band The Wanted, who were also at the club after playing a concert in New York.

Lohan’s recent visits to New York have featured run-ins with police and public spats over the last three months.

In October, police were called to the Long Island home of Lohan’s mother, Dina, after a loud argument, though no arrests were made. In September, Lohan was arrested in Manhattan after a pedestrian told police her car had struck him in an alley, but charges were not filed.

(Reporting by Colleen Jenkins in New York and Jill Serjeant in Los Angeles; Editing by Xavier Briand and Eric Walsh)

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Geithner predicts Republicans will accept higher tax rates

WASHINGTON (Reuters) – Treasury Secretary Timothy Geithner pressed Republicans to offer a plan to increase revenues and cut government spending, and predicted they would agree to raise tax rates on the wealthiest to secure a deal by year-end to avoid the “fiscal cliff.”

In a blitz of appearances on five Sunday morning talk shows, Geithner insisted that tax rates on the richest needed to go up in order to reach a deal, a step Republicans have so far resisted, and he dismissed much of the contentious rhetoric from last week as “political theater.”

“The only thing standing in the way of would be a refusal by Republicans to accept that rates are going to have to go up on the wealthiest Americans. And I don’t really see them doing that,” Geithner, who is leading the Obama administration‘s fiscal cliff negotiations, said on NBC’s “Meet the Press.”

The comments mark the latest round of high-stakes gamesmanship focusing on whether to extend the temporary tax cuts that originated under former President George W. Bush beyond their December 31 expiration date for all taxpayers, as Republicans want, or just for those with incomes under $ 250,000, as President Barack Obama and his fellow Democrats want.

Republicans, who control the House of Representatives but are the minority in the Senate, have expressed a willingness to raise revenues by taking steps such a limiting tax deductions, but they have largely held the line on increasing rates.

A handful of House Republicans expressed flexibility beyond that of their party leaders about considering an increase in tax rates for the wealthiest, as long as they are accompanied by significant spending cuts.

But most House Republicans refuse to back higher rates, preferring to raise revenue through tax reform.

“There’s not going to be an agreement without rates heading up,” Geithner said bluntly on CNN’s “State of the Union.”

The scheduled expiration of the Bush-era tax cuts and automatic reductions government spending set to take hold early next year would suck about $ 600 billion out of the economy and could spark a recession. The Obama administration and Congress are engaged in talks to avoid the fiscal cliff with a less-drastic plan to reduce U.S. budget deficits.

WHO SHOULD PAY?

Geithner’s Sunday interviews are part of a broader push to build public support for the Democrats’ position in the negotiations. Obama has made campaign-style appearances, including visiting a Pennsylvania toy factory on Friday where he portrayed Republicans as scrooges at Christmas time.

While breaking no new ground on the Obama administration’s position on Sunday, Geithner repeatedly urged Republicans to provide their own plan.

“They said they’re prepared to raise revenues but haven’t said how, or how much, or who should pay,” Geithner said on NBC.

In an interview with the Wall Street Journal on Friday, the Republican leader in the Senate, Mitch McConnell of Kentucky, asked Democrats to accept an increase in the Medicare eligibility age, impose higher Medicare premiums for the wealthy, and slow cost-of-living increases for Social Security.

At least one of those suggestions appears to have White House support. On CNN, Geithner said the administration‘s proposal included a modest rise in premiums for higher-income Medicare beneficiaries.

“What we can’t do is sit here trying to figure out what works for them,” Geithner said. “The ball really is with them now.”

The administration has said it is willing to find savings in the Medicare and Medicaid healthcare programs for the elderly and poor, but Geithner reiterated in an interview with ABC’s “This Week” that it would only be open to looking at changes in the Social Security retirement program outside of the context of a fiscal cliff deal.

(Reporting By Aruna Viswanatha; Editing by Eric Beech)

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7 missing in collapse of highway tunnel in Japan

TOKYO (AP) — At least seven people were feared missing and several dead after about 150 concrete panels fell from the roof of a tunnel on the main highway linking Tokyo with central Japan.

Efforts to rescue any survivors trapped inside the tunnel were hindered by heavy smoke after one vehicle caught fire inside the Sasago Tunnel, about 80 kilometers (50 miles) outside Tokyo.

Rescuers also temporarily suspended work because of fears of a further collapse. They were attempting to reach at least several vehicles believed buried in the rubble, including a truck whose driver was trapped inside and had called his company for help.

"I could hear voices of people calling for help, but the fire was just too strong," said a woman interviewed by public broadcaster NHK after she escaped from the tunnel.

The Fire and Disaster Management Agency issued a statement late Sunday saying five people were confirmed to have been in a car that burned inside the tunnel, and at least one other was in a truck. However, officials said they could not confirm the exact number of people believed dead.

Executives for Central Japan Expressway Co. said the company was investigating why the concrete panels had given way. A check of the 4.7-kilometer (3-mile) tunnel's roof in September and October found nothing amiss, they said.

It said two people were confirmed hurt, but the injuries were not severe.

The tunnel, which opened in 1977, is one of many in mountainous Japan. The location of the collapse, about 1.7 kilometers (a mile) inside the tunnel, was complicating rescue efforts, reports said.

Police vehicles, fire trucks and ambulances were massed outside the tunnel's entrance.

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Cargo plane crashes in Brazzaville, 3 dead

BRAZZAVILLE, Republic of Congo (AP) — A cargo plane owned by a private company crashed Friday near the airport in Brazzaville, the capital of the Republic of Congo, killing at least three people, officials said.

The Soviet-made Ilyushin-76 belonged to Trans Air Congo and appeared to be transporting merchandise, not people, said an aviation official who requested anonymity because he was not authorized to speak to the media.

The plane was coming from Congo‘s second-largest city, Pointe Noire, and tried to land during heavy rain, he said.

Ambulances rushed to the scene in the Makazou neighborhood, located near the airport, but emergency workers were hampered by the lack of light in this capital, which like so many in Africa has a chronic shortage of electricity.

“At the moment, my team is having a hard time searching for survivors in order to find the victims of the crash because there is no light and also because of the rain,” Congolese Red Cross head Albert Mberi said.

He said that realistically, they will only be able to launch a proper search Saturday, when the sun comes up.

Reporters at the scene fought through a wall of smoke. Despite the darkness, they could make out the smoldering remains of the plane, including what looked like the left wing of the aircraft. A little bit further on, emergency workers identified the body of the plane’s Ukrainian pilot, and covered the corpse in a blanket.

Firefighters were trying to extinguish the blaze of a part of the plane that had fallen into a ravine. They were using their truck lights to try to illuminate the scene of the crash. Although the plane was carrying merchandise, emergency workers fear that there could be more people on board.

Because of the state of the road connecting Pointe Noire to Brazzaville, many traders prefer to fly the roughly 400 kilometers (250 miles).

Africa has some of the worst air safety records in the world. In June, a commercial jetliner crashed in Lagos, Nigeria, killing 153 people, just a few days after a cargo plane clipped a bus in neighboring Ghana, killing 10.

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EBay’s double tax base prompts calls for investigation

LONDON (Reuters) – Britain and Germany may have missed out on a combined $ 1 billion in sales tax since online marketplace eBay picked a tiny Luxembourg office as its base for EU sales, a shift that lawmakers say should now be investigated.

EBay’s nomination of Luxembourg unit eBay Europe Sarl – with a staff of nine – as its provider of services to EU clients allows it to charge customers in Europe a low rate of sales tax, often known as Value Added Tax, helping it to compete against rivals.

However, the unit doesn’t actually receive the money from sales. Instead, eBay said it continues to channel revenues through a Berne-based unit, allowing the company also to benefit from what Swiss tax lawyers say is the most competitive corporate income tax regime in Europe.

EU rules allow companies to establish subsidiaries in Luxembourg and levy VAT at Luxembourg’s low VAT rate on sales to customers across the bloc.

However, the rules also allow individual EU taxmen to challenge any claim to Luxembourg residence, and the right to charge Luxembourg VAT, in their domestic courts, if the taxman feels a Luxembourg-based subsidiary does not have sufficient staff or assets to support its claim to be the true supplier of goods or services.

Tax experts say eBay’s arrangement, which appears to give eBay the best of both income and sales tax worlds, could be open to challenge, and lawmakers in the UK and Germany want their taxmen to investigate.

“I hope that HMRC (UK tax authority Her Majesty’s Revenue and Customs) takes note … and takes prompt action,” said Margaret Hodge, member of parliament and chairman of the Public Accounts Committee (PAC), which monitors government finances.

“I will be seeking assurance that they are, next time we take evidence from HMRC,” she added. Officials from HMRC are due to testify to the PAC in early December as part of the committee’s investigation into tax matters.

Sven Giegold, member of the European Parliament for Germany’s Green Party, said he wanted the German tax authorities to “have a very critical look at this”.

It is common for companies to seek to reduce their tax bills, and a number of multinationals have established bases in Luxembourg so they can charge customers lower levels of VAT.

EBay said HMRC was aware of all its tax arrangements and that it was confident it met all its tax liabilities in the UK and elsewhere.

“In all countries and at all times, eBay is fully compliant with national, EU and international tax rules (including the OECD) including the remittance of VAT to the appropriate authorities,” an eBay spokesman said in an emailed statement.

The UK, German, French and Luxembourg tax authorities declined to comment on eBay, citing rules on taxpayer confidentiality.

LOWER THRESHOLD

Big companies’ tax practices have risen to the top of the political agenda in Europe in the past year, with lawmakers growing increasingly frustrated with the way in which companies such as search engine company Google pay almost no income tax in countries where they have billions of dollars in sales.

The companies escape liability for income taxes in countries like the UK by arguing the value created by their business, and therefore the location where the profit should be realized, is not the place where the customer resides, but rather in the location where the intellectual property underpinning the product or service is based.

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, said this was a valid economic argument and that if, for example, HMRC wants to claim more income tax from Google, it has to prove the company is generating more value in the UK than it is declaring.

This would require a thorough deconstruction of its business model and supply chain.

However, it is easier to establish liability to VAT, since this tax hinges simply on the location of the buyer and seller.

“The threshold is lower,” said Simon Newark, head of VAT at accountants UHY Hacker.

“There are a lot more aspects for HMRC to challenge in VAT than in direct (income) tax.”

For tax purposes, the EU deems eBay’s online platform an “electronically supplied service”, a category that also covers e-Books and music downloads.

Under EU rules, suppliers of such services based within the bloc are supposed to charge EU customers VAT at the rate prevailing in the country where the supplier is based.

A number of suppliers of electronic services, including Amazon.Com Inc and Apple Inc’s iTunes have established European headquarters in Luxembourg to enable them to charge customers lower VAT rates than prevail in their customers’ countries.

Luxembourg has traditionally charged the lowest standard VAT rates in the European Union. Its 15 percent rate compares with rates of 19-25 percent in most other EU members.

By charging customers VAT at Luxembourg’s rate eBay is better able to compete with rivals based elsewhere in the EU, such as Britain’s eBid, which must charge customers VAT at the standard UK rate of 20 percent.

However, to be entitled to charge Luxembourg rates, a company has to be able to prove in British, German or EU courts that it is genuinely based in the Grand Duchy.

Companies selling to EU customers from outside the EU – as eBay was until the 2007 nomination of eBay Europe Sarl as supplier to EU clients – must charge European customers VAT at the rate prevailing in the country where the customer resides, and to pay that VAT to the taxman in the customer’s country.

There is no definitive checklist that determines the true base of a company and any decision by a national court can be challenged in the European Court of Justice. In the UK, HMRC said it approached the matter on a case-by-case basis, and disputes are often resolved in court.

“HMRC will challenge any arrangements where it is claimed that supplies are made from a particular country but the business does not have the necessary resources to make those supplies,” a spokesman said.

EUROPE EXPANSION

EBay, which is headquartered in San Jose, California, moved into Europe in 1999 when it established eBay International in Berne. Switzerland’s low income tax regime for foreign companies was highly beneficial for the auction site. “We do have a very favorable international tax structure,” then-Chief Financial Officer Rajiv Dutta told analysts in 2002 when asked how the company managed to pay such low taxes on its non-U.S. income.

The Swiss base also meant, initially, that the company didn’t have to charge EU customers VAT. But in 2003, Brussels changed the rules, which forced eBay to charge EU sellers on its platform VAT based on their residence. The VAT gathered was remitted to the tax authority in the customer’s country.

Not all customers are charged VAT. Most medium-sized and big businesses are legitimately exempted from paying VAT on some purchases, such as eBay seller fees.

EBay’s Swiss-based European public relations head declined to say what portion of its EU customers were liable to be charged VAT. James Cordwell, equities analyst at Atlantic Equities, estimated that such customers accounted for 40-50 percent of sales in Europe.

Since the 2007 creation of its Luxembourg operation, eBay has had German fee revenues of $ 6.1 billion and UK revenues of $ 5 billion, its annual accounts show.

If the services were supplied from Switzerland or another non-EU country, and assuming only half of customers should have been charged VAT, EU rules would have obliged eBay to collect $ 580 million in VAT for the German taxman and $ 500 million in VAT for HMRC since 2007.

EBay’s entitlement to charge Luxembourg VAT on sales and to pay this to the Luxembourg taxman rests on being able to prove in court that eBay Europe Sarl is the provider of services to EU clients.

But despite German and UK fee income of $ 3.1 billion last year, eBay Europe Sarl recorded turnover of only 5 million euros in 2011.

John Hemming, an MP with the Liberal Democrats, the junior partner in the British coalition government, said the fact eBay’s sales revenues did not go through the Luxembourg unit undermined the claim that it was the true provider of services to EU clients.

“If it’s a real transaction, you would expect the money to pass with it, and not pass someplace else,” he said.

Rather than going to Luxembourg, the money generated from customers continues to go to Berne-based eBay International AG, a spokeswoman said.

When Reuters visited in mid November, staff at the Luxembourg office, just opposite the central post office, declined to discuss what operations the unit conducted for eBay.

A spokesman later said the office conducted activities including billing, data privacy, contracting, regulatory, management and some customer services operations.

By contrast, Amazon and iTunes do report their sales of ebooks and music downloads to EU customers through their Luxembourg units.

Prem Sikka, professor of accounting at Essex University, along with Newark and Roy-Chowdhury said a cash trail through a unit was one of the key factors used as evidence that the unit was the true supplier of a service.

UK and German tax authorities could argue that the shift in eBay’s supply base to Luxembourg from Berne was therefore not genuine. If successful, they could claim back the VAT lost.

EBay declined to say why it channeled sales through Switzerland. Tax advisors say the country can still offer some companies lower tax rates than other European low-tax jurisdictions such as Ireland and Luxembourg.

Indeed, EBay’s closest rival Amazon, which channels about half its non-U.S. earnings through Luxembourg, reported average income tax on overseas earnings of 6 percent in the past four years. EBay paid just 3 percent over the same period.

(Additional reporting by Brenda Goh; Editing by Will Waterman)

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