The European Union has amended its VAT legislation in the early 2000s with a view to tackle the newly developing e-commerce economy. Specific provisions for online supplies (“electronically supplied services” in EU languages) were inserted in the EU VAT Directive including as regards the place of supply (place of taxation) of these transactions. This paper highlights the important weaknesses of these provisions and in particular the fact that, although based on widely agreed 1998 OECD recommendations and subsequent guidelines, the rules result in legal uncertainty and in an unacceptable compliance burden for suppliers engaging in online supplies, with major consequences not only for e-suppliers but also for the e-market place as a whole. Because this situation is likely to worsen in the near future and since neither the European Union nor the OECD seem to consider revising their initial approach, this paper will also suggest an alternative approach that could significantly reduce the compliance burden while at the same time limiting the potential for fraud.