Brussels, 04/12/2007 (Agence Europe) - On Tuesday 4 December, European Finance Ministers reached last-minute, but nonetheless unanimous, agreement on the legislative package simplifying requirements on VAT (value added tax) submissions. In late afternoon, a solution was finally found with Luxemburg, which had, until the last moment, blocked the last part of the VAT package - the change in the place of supply, and therefore of taxation, of some electronic, telecommunications and broadcasting services supplied to persons not liable to taxation (B to C). Ministers, therefore, met their commitment to close this matter before the end of the year so that the new rules (with the exception of those on electronic services) could come into effect on 1 January 2010 (see EUROPE 9439).
Inspired by the conditions set last week by Luxemburg (see EUROPE 9554), the arrangements of the agreement are: - new rules governing the place of supply of certain electronic services (B to C) will come into effect in 2015; - a temporary mechanism for sharing revenue will be introduced for four years to enable the member state where the service provider is established to retain some of the tax revenue collected, the level of retention will be set at 30% for 2015 and 2016, then 15% for 2017 and 2018.
How will the system operate in practice? Let us take the example of a Luxemburg-based company providing internet telephony services, in the Grand Duchy and three other member states. Under current rules, all its services are taxed at the Luxemburg rate of 15%. This system will be overturned with the coming into effect of the principle of taxation according to the place of service consumption. From 2015, this company's services will be taxed at Luxembourg VAT rates for services provided in this country. Services rendered in the rest of the EU will be taxed at the rates of the member states in which they are consumed. When it makes its VAT declaration at the one-stop-shop in Luxembourg, the telecommunication company can apply rates based on the localisation of the services provided. It will be up to the Luxembourg tax authorities to redistribute the amount of VAT owed to member states where services are provided. According to the definitive agreement on the mechanism for sharing this revenue, Luxembourg will retain 30% of the total VAT collected in 2015 and 2016. This income will be 15% in 2018 and 2019. The income sharing mechanism will be finished after these four provisional years.
Earlier in the day, a draft compromise from the Portuguese presidency suggested postponing (till 2015) the entry into force of these new rules governing the place where certain electronic goods are provided (B to C). An income sharing mechanism allowing a member state where the service provider is based to retain 20% of tax revenue collected, will also be introduced in order to compensate costs of the system for managing the collection and redistribution of VAT to member states where services are consumed. Phased reduction, the income from VAT collected will gradually fall to 5% in 2019 to be maintained at this level indefinitely. Luxembourg, originally called for a 25% VAT level to be set up on an indefinite basis and indicated that it could agree to this proposal. Luxembourg's Prime Minister Jean-Claude Juncker had even threatened that, if there is no agreement on the draft compromise, this would mean that all commitments taken on the remainder of the legislative package would have to be looked at again. Such a position had not impressed several member states with the United Kingdom and Sweden in the lead, opposed to putting off enforcement of the rules applying to a number of electronic services (B to C) as well as to the lasting nature of the mechanism for sharing proceeds.
In addition to the rules on the place where services are provided for persons not liable (B to C), the VAT package comprises measures relating to the taxation of services provided to companies (B to B), to the establishment of a one-stop-shop for tax declarations, and to the reimbursement of VAT in favour of persons liable and established in another member state. Finance ministers had already expressed their political agreement unanimously on these points in June this year. (M.B.)