Europe's finance ministers yesterday agreed the proposed
measures, which means that they become EU legislation, shortly to
be published in the Official Journal of the European Union. The
proposal was hammered out in a political agreement on the issue
last December.
VAT on "telecommunications, broadcasting and electronic services
supplied to consumers "will now be charged at the rate in the
country of the customer, not of the supplier, as is now the
case.
The fact that the VAT rate of the supplier applied to online
transactions led to many firms such as Amazon, Skype and Paypal,
relocating to Luxembourg, which has Europe's lowest VAT rate.
Luxembourg had long objected to the changes because it said it
would lose tax revenue.
All the other changes announced will take effect from 2010, but
the changes to consumer online services will only come into force
in a staged process from 2015 in what is being widely seen as a
concession to Luxembourg.
For business to consumer services outside of the definition of
"telecommunications, broadcasting and electronic services", the VAT
rate charged will be that of the supplier's country.
EU Commissioner for taxation and customs László Kovács said that
the new rules would eradicate inequalities in a system where the
competition for business locations was skewed.
"This is particularly true of services which can be supplied at
a distance where, as a result of current rules, businesses have
been locating in countries with lower VAT rates. As a result,
Member States have seen their revenues eroded," he said.
Luxembourg has claimed that it will lose €200 million a year in
revenues generated by its 15% VAT rate, the lowest in Europe.
Sweden's 25% is the highest rate.
Under the compromise deal the entire VAT generated by a
transaction will not be sent to the customer's country until
2019.
The new laws will also create a system that will automatically
transfer VAT between countries to settle the debts created by the
new agreement. This will replace a paper based system and will
allow companies to claim back VAT from countries where they are not
even registered for the tax.
"I am particularly proud of the new procedure to allow
businesses to electronically claim VAT refunds from other Member
States in which they are not registered but have paid VAT," said
Kovács." This change from a paper-based to an electronic system
means that refunds for businesses will be faster and easier.”
