Luxembourg, 05/06/2007 (Agence Europe) - Germany would have really liked to have finished its presidency of the Ecofin Council on Tuesday 5 June with a weighty taxation success on the legislative package for simplifying obligations on Value Added Tax (VAT). At the beginning of the year it withdrew conditions on an agreement on this dossier that would have applied a reverse charge mechanism on its territory to fight VAT fraud (see other article). Reservations from Luxembourg, however, on one of the fundamental points in the legislative package, modification of taxation residence for services provided to people not liable to VAT (B to C) won out over German attempts. Nevertheless, the German presidency got a partial success after getting the agreement from its partners on other important elements in the dossier: taxation on services provided by companies (B to B), the setting up of a single service for tax returns, modalities for VAT refunds for VAT liable persons established in another member state and the strengthening of administrative cooperation. In its conclusion, the Ecofin Council confirmed its intention to close the dossier under the Portuguese presidency before 31 December 2007 with the entry into force of all legislative package measures by 1 January 2010. Peer Steinbrück, the German finance minister said that an important step had just been made. He also said that he was very happy to have resolved other points in the legislative package. The European Commissioner for taxation Laszlo Kovacs said that they were a hare's breath away from an agreement and ministers had shown that they were able to identify what points needed to be discussed.
The VAT package is proposing that the provision of services to VAT paying companies (B to B) is taxed in member states where the consumer company is established and not in the member states where the company providing the service is established. In the context of persons that are not subject to VAT, an opportunity is planned whereby services in question can be distance provided. Although Luxembourg is said to agree to the taxation changes for “B to B” services, Luxembourg, nevertheless, blocked any agreement on the “B to C” chapter. B Applying the lowest rates of VAT in the EU (15%), this country is afraid of losing its tax attractiveness to companies providing electronic services to individuals (pay TV, internet, multimedia).
Companies such as AOL and Skype, thus, offer European consumers their services from the Grand Duchy, applying a 15% rate. If the Community tax rules were to be changed, the services in question would be subject to the VAT of the member states of their clients. According to Jean-Claude Juncker, prime minister and finance minister of Luxembourg, the tax loss would be equivalent to “1% of (national) GDP”, or €250 million. He noted that, initially, tax rules on the place of supply of services were subject to two separate directives depending on the type of recipient. How could Luxembourg be persuaded to accept the section “B to C” of the legislative package? By refining the proposal “according to sectors” or by playing with the timetable, bringing the section “B to C” into force at a later date than the section “B to B”, suggested a diplomatic source.
France secured from its partners that the future Portuguese presidency would find solutions to improve control and cooperation measures of the guarantees engaging both the member state of the supplier and the member state of consumption. These measures related to the requirement on a company subject to the tax to declare in the member state where it is established the charges for services provided in other member states. “If we change the place of taxation, the host country has a lot less reason to monitor” service providers' VAT returns, said the same source. (mb)