Brussels, 05/12/2007 (Agence Europe) - After “five years” of discussions, we have been able to bring in a “major change to the value-added tax (VAT) regime”, said Fernando Teixeira dos Santos, the Portuguese finance minister, on Tuesday 4 December after the meeting of the Ecofin Council. The Council had just achieved a unanimous agreement on the last element still blocking the definitive adoption of the legislative package aiming to simplify and modernise VAT obligations. This element, which had been rejected up to that point by Luxembourg, related to the change of the place of provision of certain electronic, communications and broadcasting services to people not subject to VAT payments (see EUROPE 9557). For these services, the agreement provides for new rules to enter into force in 2015, five years after the rest of the legislative package, and for the introduction of a VAT revenue-sharing mechanism, allowing the member state in which the service provider is established to keep a proportion of the revenue that it will collect and redistribute to the member states of consumption.
Mr Teixeira dos Santos acknowledged that this revenue-sharing mechanism may, in certain cases, “create problems of an operational nature”. László Kovács, the commissioner for taxation issues, saw it as “compensation for loss of revenue” by the country of establishment and for the “administrative costs” of setting the system in place. The system will not, he explained, bring about “any additional burden upon businesses”. Luxembourg, however, is far from delighted over the issue. The compromise reached constitutes “a lesser evil”, a diplomatic source explained, going on to state that agreeing to the change in the place of provision of electronic services was “a major concession on our part”. The Grand Duchy therefore attaches great importance to the interim report on the feasibility of the new rules, which the Commission is to present before 2015. Even if this report has no suspensive effect, it will provide the opportunity for the companies concerned to convince the Commission and the member states of the difficulty of applying the new system for electronic services. Why did they not decide instead to continue negotiating? Because the Luxembourg prime minister, Jean-Claude Juncker, is known for his position in favour of “extending qualified majority voting” and because a single member state “cannot go on blocking one dossier eternally”. (M.B.)