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Luxembourg wins €1.1bn EU VAT MOSS compensation

  • VAT
  • 17 December 2014 | Richard Asquith

Luxembourg wins €1.1bn EU VAT MOSS compensation

Luxembourg has secured up to €1.1 billion compensation from the UK and other EU states as part of imminent changes to 2015 EU VAT rules on the sales of online games, films, TV, music, apps and e-books to consumers.

2015 B2C digital services changes

From 1st January 2015, the rules change on which country’s VAT rate to charge on B2C sales of digital services. Instead of charging the local VAT rate of the digital services provider, the EU VAT rate of the consumer must be levied. Since many large US electronic services providers have their EU headquarters located in Luxembourg, which has low taxes on such services, this means a big shift in tax receipts from Luxembourg to the other 27 member states.

Winners and Losers

The UK estimates it will receive over €360m per annum in new VAT receipts as it will be receiving 20% UK VAT on each sale of an e-book or app to a UK consumer, whereas previously Luxembourg would have received the VAT.  Luxembourg is raising its VAT rate 2% to 17% in 2015 to help fill the gap left by the digital services changes.  But this will only raise an estimated €650m per annum compared to the estimated loss of €1.1 billion per annum.  All EU VAT rates for 2015 are maintained on this page, including recent cuts on e-book VAT rates in Italy and Malta ahead of 2015 changes.

To stop Luxembourg blocking the new digital VAT changes, the other EU member states have had to promise parachute payments of up to €1.1 billion over 4 years. It will mean Luxembourg will receive 30% of the VAT in 2015 and 2016, and then 15% in both 2017 and 2018.

Threat to small merchants

To fully comply with the new rules, any UK micro digital business currently under the £81,000 VAT registration threshold will have to register for VAT for the first time and make quarterly filings declaring their EU sales.

Many EU countries have met the VAT rule changes with cuts to VAT rates on e-books including Italy and Malta.

2015 B2C digital services changes

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.