Luxembourg stable after VAT MOSS losses
Luxembourg has been given a positive review by a major credit rating agency on its handling of revenue losses following the 2015 B2C digital EU VAT changes.
Prior to 2015, many digital services providers (e.g. Apple, Amazon, Skype, Microsoft, Netflix) had located their European businesses in Luxembourg so that they could benefit from the rule to charge the local national VAT rate when selling to consumers across Europe. Luxembourg’s VAT rate was the lowest in Europe, 15% at the time.
The 2015 changes included obliging digital services companies to charge the VAT rate of their consumers’ countries of residency, and remit the VAT collected to the relevant country.
This change resulted in Luxembourg losing approximately €750m per annum in VAT revenues, over 2% of its GDP. To consolidate its finances, it raised its VAT rate to 17% on 1 January 2015. This raised approximately half of the VAT lost. Luxembourg therefore postponed a range of public expenditure programs.
Fitch, one of the world’s three large credit agencies, has declared Luxembourg’s measures as satisfactory for it to retain a ‘AAA’ rating.