Luxembourg set for bigger losses on 2015 EU electronic VAT rule change
The Luxembourg government has confirmed that it estimates that it will lose €800 million per year when the rules on determining the place of supply of consumer electronic services change on 1 January 2015. This compares to countries like Germany and the UK which will gain over €350m each per annum from the reform as they will be able to tax their consumers for e-books and internet telephony from the likes of Amazon and Skype who are based in Luxembourg.
Luxembourg fills deficit gap left by VAT place of supply change
As a member of the Euro currency, Luxembourg is obliged to stay below the 3% budget deficit target. The country has had a relatively stable ride during the financial crisis, we only a small drop in output.
However, the long-planned change in EU VAT rules on electronic (e-books, streaming films, music, games etc.), broadcasting and telecom services for consumers will mean many have the European headquarters of companies such as Amazon, Skype and Microsoft will no longer charge Luxembourg VAT to their EU customers. Instead, they will charge and remit the local VAT of the consumer’s country.
VAT losses extend
This led to an initially estimated hole in the Luxembourg finances of €700m. This was used as the basis for the Luxembourg set for bigger losses on 2015 EU electronic VAT rule change rise in Luxembourg VAT rate to 17% on 1 January 2015, first mooted in February. This is expected to raise about €350m. The most recent estimate of €800m losses will now mean the country faces a €450m shortfall, which will most probably have to be met through expenditure cuts. The national debt is currently standing around €11bn, but is forecast to hit €15bn by 2016 if there are no new policies.
The Luxembourg reduced VAT rates of 12% and 6% are scheduled to rise too, to 14% and 8% respectively. There will be no change to the 3% reduced VAT rate.