The Council of Ministers of the EU reached political agreement
on two draft Directives and a draft Regulation that reform Europe's
regime for charging Value Added Tax on services, including
electronic services. The changes are intended to prevent
distortions of competition between member states that operate
different VAT rates.
General rules have been agreed: services supplied to businesses
will be charged at the VAT rate where the customer is located
(currently VAT is charged according to where the supplier is
based); and the place of taxation for services supplied to
consumers will be the place where the supplier is established. The
change will take effect from 2010.
However, these general rules do not apply to
business-to-consumer supplies of telecoms, broadcasting and
electronic services. In these cases, taxation will be determined by
the place of consumption. VAT will therefore be payable in the EU
member state where the consumer is based at the rate prevailing in
that state. Business-to-business supplies of telecoms and
electronic services will not be affected by the changes as these
are already taxed by reference to where the customer is
located.
To reduce the administrative burden for business-to-consumer
providers of telecoms, broadcasting and electronic services, a
'one-stop' system will be introduced to enable them to fulfil in
their home member state a single set of obligations for
registrations, declarations and payments, including for services
provided in other member states where they are not established. VAT
revenue will then be transferred from the country where the
supplier is located to that where the customer is situated.
The business-to-consumer changes will not come into force until
2015. In addition the transfer of VAT revenues will be phased. From
2015, the state where the supplier is based will be able to keep
30% of VAT revenue. That share will decrease to zero by 2019.
At present, Luxembourg attracts some internet and telecoms
businesses, including AOL, Skype, Amazon and Paypal, because it has
the EU's lowest VAT rate, at 15%. The highest rate is Sweden's, at
25%. Luxembourg had resisted the EU reforms for several years,
because it enjoys a significant VAT income from the supplies of
internet companies, but it reached agreement on Tuesday after
negotiating the compromise of phasing in the reforms over the next
12 years.
