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Luxembourg To Be Compensated For EU VAT Change

by Ulrika Lomas,, Brussels

18 December 2014

Luxembourg has reportedly secured compensation worth USD1.375bn from European Union states in return for its support for EU value-added tax (VAT) rule changes concerning broadcasting, telecommunications, and electronic services from next year.

From January 1, 2015, EU VAT place of supply rule changes will mean that supplies of BTE services by businesses to consumers will newly be taxable in the location of the consumer, rather than in the location of the supplier.

Luxembourg, which has the lowest EU VAT rates, is expected to be most affected by the changes. Luxembourg's share of VAT revenues was expected to fall from EUR1bn (USD1.35bn) in 2014 to EUR338m in 2015.

Richard Asquith, Vice President of Global Tax at Avalara, said that, as many large US electronic services providers have their EU headquarters located in Luxembourg, there will be a big shift in tax receipts from Luxembourg to the other 27 member states. The UK, for instance, has estimated that it will receive GBP300m (USD468m) in extra revenues as a result of the change.

Asquith said: "To stop Luxembourg blocking the new digital VAT changes, the other EU member states have had to promise parachute payments of up to USD1.375bn over four years. It will mean Luxembourg will receive 30 percent of the VAT in 2015 and 2016, and then 15 percent in both 2017 and 2018."

In response to the changes, Luxembourg is to hike all rates other than its super reduced rate of VAT by two percent from January 1, establishing a headline rate of 17 percent and reduced rates of 8 and 14 percent.

The rate of the super reduced rate is to be unchanged at three percent but its scope will change. The supply of alcohol and alcoholic beverages sold by pubs and restaurants will newly be subject to the 17 percent headline VAT rate, along with supplies of housing to third parties as a primary residence.

TAGS: compliance | VAT rates | tax | business | value added tax (VAT) | VAT cross-border transactions | Luxembourg | services | VAT compliance matters | Europe | Tax

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