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Luxembourg concerns on future e-VAT shortfalls

  • May 11, 2012 | Richard Asquith

Luxembourg concerns on future e-VAT shortfalls

Luxembourg’s Administration has continued to retain its standard VAT rate at the lowest level of 15%, along with reduced rates of 3%, 6% and 12%. Last week in his state of the nation address, Jean-Claude Juncker, the Prime Minister, confirmed that there would be no change in this rate until the end of 2014.

The result of these low rates is that over the last decade, global e-service providers have set up shop in Luxembourg, in order to roll out their services to the rest of the EU. Under the current VAT rules, the VAT rate applicable to electronic services is the VAT rate of the country where the supplier is established. A Luxembourg base ensures that the VAT cost of supplies into the EU is minimised. This was further supported by the move to reduce the Luxembourg VAT rate on e-books in January to the super-reduced 3% rate, just hard on the heels of France’s decision to reduce to their 7% rate for these supplies. Up until then, and as is the case throughout most of the EU, e-books are standard rated for VAT.

The result of these moves is that Luxembourg VAT revenue is up by a significant 6% in 2012 to date, but Finance Minister, Luc Frieden has indicated that €600m of VAT income may be lost in 2015, when the VAT rules on e-commerce will change. At that time, the VAT applicable on the e-services provided will switch from the EU “country of supply” to the EU “country of receipt” of the service. The VAT applicable to services provided from Luxembourg will in fact accrue to the EU countries where the customers are based.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is the former VP Global Indirect Tax at Avalara