CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. Luxembourg Delays New EU E-Commerce VAT Rules

Luxembourg Delays New EU E-Commerce VAT Rules

by Ulrika Lomas, Tax-News.com, Brussels

07 June 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.

A comprehensive report in our Intelligence Report series examining offshore e-commerce and online gaming is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report6.asp

To see today's news, click here.

 















Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »



Stay Updated

Please enter your email address to join the Tax-News.com mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.


To manage your mailing list preferences, please click here »