Brussels, 13/11/2007 (Agence Europe) - EU finance ministers were unsuccessful in their bid on Tuesday 13 November to get Luxembourg, the only member state rejecting part of the new package of legislation to simplify EU VAT rules (value added tax, see EUROPE 9537), to rally to their cause. They did not manage to convince the Luxembourg delegation of the need to change the place where services are deemed to be supplied (and therefore taxed) for b2c cross-border services (for ordinary people not registered for VAT). Sticking to the views outlined in June 2007, Luxembourg's finance minister (who is also the country's prime minister), Jean-Claude Juncker, said he could not agree to what the ministers were asking of him and would not agree to it next month either, when the issue will be on the agenda of the ECOFIN Council. Luxembourg's finance minister said he hoped the Portuguese presidency would be able to move in Luxembourg's direction.
Speaking after the meeting, Portugal's finance minister Fernando Teixeira Dos Santos said he had noted broad support for the Portuguese presidency's proposal. Some 18 or 19 national delegations came out in support of the suggested changes to the place of supply of services in question and a transition period before the new measures come into force. The president-in-exercise of the ECOFIN Council said that work would continue on the technical level and the matter would be brought before the ECOFIN Council again in December. An expert suggested that there were two lessons to be learnt from this ministerial meeting - that Luxembourg remained highly isolated, and that work continued on the basis of the option favoured by the vast majority of member states.
At the meeting, the Luxembourg delegation briefed the other delegations on its suggested solution for the VAT package. Based on the 'country of origin principle', it suggested making no changes to the current rules governing the place of supply of certain b2c electronic and telecoms services. In return, Luxembourg would agree to establish a VAT revenue sharing system for member states where the consumers not registered for VAT, who consume the services in question, are established. Luxembourg's idea was not supported by any other country. Luxembourg is the only EU member state to apply the lowest level of VAT allowed in the EU (15%) for electronic services like pay-as-you-go television and multimedia services supplied to ordinary people who do not have to fill in VAT returns (as opposed to companies). Telecoms and new media companies like AOL and Skype are set up in Luxembourg because of its low VAT rate. If the rules currently in force are changed, the attraction of Luxembourg would be jeopardised because it would have to apply the higher levels of VAT charged in the member states where the services are consumed. Luxembourg reckons this would lead to a loss of tax income equivalent to a full 1% of its national budget, around €200 million.
In June, ministers noted partial agreement on the overall VAT package, apart from the taxation of certain services supplied remotely to people not registered for VAT, namely the introduction of a one-stop shop for tax declarations, the taxation of services supplied to businesses (b2b), and details of how VAT is to be refunded for people liable for VAT in one EU member state but established in another (see EUROPE 9439). France called for further strengthening of measures introducing administrative cooperation. (M.B.)