Brussels, 29/11/2007 (Agence Europe) -Luxembourg has placed three conditions on the adoption of the last plank of the legislative package aiming to simplify the obligations in terms of value added tax (VAT), at the meeting of the ambassadors of the member states to the EU, on Wednesday 28 November. Two of these conditions featured in the most recent compromise proposal of the Portuguese presidency of the EU: - postponing until 1 January 2015 the entry into force of the rules modifying the place for the provision of certain electronic, telecommunications and broadcasting services provided by companies established in the EU, to people not subject to VAT (B to C); - the introduction of a mechanism for revenue to be shared, allowing the member state of establishment of the service provider to retain a proportion of the tax revenue collected (see EUROPE 9553). The presentation, by the Commission and before 2015, of an assessment report on the political position of the EU towards the new principles governing taxation at the place of consumption of services is the third condition imposed by Luxembourg. The definitive and unanimous agreement at the Ecofin Council of Tuesday 4 December remains the objective of the Portuguese presidency.
Although the vast majority of the national delegations, with the exception of the United Kingdom, seem to accept the entry into force of the new rules for 2015, the creation of the revenue sharing mechanism remains highly contentious at the Council. Luxembourg has made it one of its “red lines”, a diplomatic source from the Grand Duchy explained. Our proposal provides for a mechanism whereby the member state of establishment of the service provider would retain 25% of tax revenue collected, in order to compensate it for the costs generated by checks, potential disputes and the administrative management of the one-stop shops to be set in place to collect VAT. The Portuguese Presidency has proposed that the member state of establishment keep just 20% of the revenue gathered. Luxembourg has flagged up the existence of similar precedents in European legislation applicable to “tax on revenue from savings”, to the “own resources” of the EU. And also in the recent communication of the Commission on tax fraud, which suggests setting in place an incentives regime or a system of cost sharing, to improve administrative cooperation in the field of VAT (see EUROPE 9550).
Will this mechanism be a temporary or permanent one? The question will be put to the finance ministers next Tuesday. In the view of Luxembourg, the mechanism should be permanent. France has tabled the hypothesis of a limited lifespan for the system and for its application to be phased out over time, if the mechanism is used only to compensate for budgetary losses, and not the costs for the collection of VAT.
The third option, which was included in the Commission's assessment report, went down fairly well with the member states, as the content of the report would not have a suspensive effect. In the view of the Grand Duchy, this will be the best way for the member states to ensure that the EU would stick to its course in the implementation of the new rules. “Positions have changed several times”, the aforementioned diplomat opined, referring to the 2003 directive on electronic trade, which is based on the principle of the country of origin and which led to the establishment of several service providers in Luxembourg. “The Commission has now changed its mind” over the place of provision of services “and the member states are going along with it”, he observed, unconvinced that the new system will work more efficiently. This kind of change to the rules will cost Luxembourg dearly; the country estimates its tax losses at 1% of total tax revenue. (M.B.)