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Luxembourg Delays New EU E-Commerce VAT Rules,
by Ulrika Lomas, Tax-News.com, Brussels
Thursday, June 07, 2007
Luxembourg has thwarted a proposal by European Union Finance Ministers (Ecofin)
to change EU-wide rules relating to the charging of value-added tax on internet
purchases.
Ecofin is seeking support for a change in the VAT charging rules so that consumers
who buy items from e-commerce firms pay VAT at the rate of the country in which
they are resident instead of the rate charged in the jurisdiction where the
vendor is registered.
VAT in Luxembourg is charged at 15% - the lowest rate permitted in the EU -
and the current rules have led dozens of major e-commerce firms such as eBay,
Skype and iTunes to set up in the Duchy. Portugal is another member state with
a low rate of VAT, which has helped to create a flourishing e-commerce industry
in the Portuguese island of Madeira.
The proposals are designed to simplify the tax system for businesses in the
EU, as well as make it easier for governments to crackdown on fraud. But any
change in EU tax legislation requires the unanimous support of all 27 member
states and Germany, which currently holds the six month rotating presidency
of the EU, has been forced to put the plan on the backburner while Luxembourg
is persuaded to come on board.
Speaking after the Ecofin meeting, EU Tax Commissioner said that Luxembourg
feared losing "a considerable proportion" of its national wealth should
the proposal become reality.
"Here, an essential interest of Luxembourg was at stake and therefore
today I had no other possibility than to say no," Luxembourg finance minister,
Jean-Claude Juncker later told reporters.
Moreover, the Luxembourg government stands to lose an estimated EUR220 million
(US$300 million) annually in tax revenues if the new VAT system goes into place.
Ecofin ministers have set a deadline for the end of the year to try and reach
a compromise agreement that would be acceptable to Luxembourg. Kovacs said that
he was "confident" a deal will be struck.
The long-awaited rules were held up by Germany last year after Berlin demanded
that it would only agree to the proposals if allowed to put in place additional
changes to VAT rules to crack down on missing trader fraud, which is said to
cost EU governments tens of billions of euros in lost revenues every year.
Germany, following the UK, is keen to introduce the reverse charging system,
whereby VAT is paid at the point of consumption which prevents fraudulent traders from being able to import goods and sell them
on without paying the appropriate amount of VAT to the relevant tax authority.
Increasing trade in high value but easily transportable items such as mobile
phones and hand-held computer devices has led to an escalation of this type
of fraud in recent years.
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