Revenues from value-added tax on a number of services, including transport hire, electronic services and telecommunications, will fall to the country where the consumer is located rather than the one where the company providing the service is established, after Luxembourg finally agreed to lift its veto on the plans.
The change comes as part of a broad VAT reform package to which EU finance ministers gave their backing on 4 December 2007, after around five years of stalemate caused by the unanimity requirement on all matters relating to taxation.
The aim of the package is to minimise the regulatory burden for companies engaged in cross-border operations and prevent distortions of competition between member states operating different VAT rates. It does so by shifting the place of taxation from the supplier's location to that of the consumer, so that all customers are charged the same VAT rate regardless of the service provider's country of establishment.
The main bone of contention related to the application of this system to electronic services – a sector which barely existed when the EU first introduced its rules on value-added tax, but which is now a booming industry.
However, it finally agreed to a compromise, under which the changes will only be phased in as of 2015, rather than implemented directly as of 2010. The deal will allow countries that are home to telecom and electronic service businesses to keep their hands on 30% of VAT revenues collected after 2015, with the rest going to the country of consumption. This share would be cut to 15% after 2017 and zero as of 2019.
The system will be based on the creation of "one-stop shops" so that businesses only have to fulfill their tax obligations in the country where they are established. It will then be up to member state authorities to transfer VAT revenues to the country of consumption, whose rates and controls will apply.
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