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Among
those changes, the most controversial one is to switch VAT
payments for those services such as electronic commerce
and telecommunications to the country where the service is
supplied, rather than the country in which the service
originates.
Although
most EU member states backed the change, Luxembourg had
blocked the move for years, saying it would cost the
country around one percent of its total tax revenue, or
around 200 million euros a year.
The
tiny Grand Duchy, which has one of the lowest VAT tax
rates in the EU at 15 percent, has attracted a number of
big electronic service companies, including internet
telephony company Skype and Apple's iTunes, to base their
European headquarters in the country.
Under
the compromised deal reached Tuesday, the switch will be
phased in from 2015 to 2019, which means the country in
which the service originates will initially be allowed to
retain 30 percent of the VAT revenues in 2015, with the
amount gradually being lowered to zero by 2019.
"It
is a five-year issue, which has been always on the agenda
without having a agreement. Now, finally the agreement was
reached, and that certainly shows that even under very
difficult circumstances, when we need consensus it can be
achieved when serious community interest is at
stake," said EU Taxation Commissioner Laszlo Kovacs.
EU
finance ministers also agreed to renew temporary
derogations which currently allow the Czech Republic,
Cyprus, Malta, Poland and Slovenia to apply reduced VAT
rates on certain services.
For
example, under the EU's current VAT regime, member states
can only choose their own VAT rates between 15 percent and
25 percent, but the Czech Republic is allowed to apply a
reduced VAT rate of five percent to construction work for
residential housing under the derogation arrangement.
The
derogations, which were introduced when the five countries
joined the EU in 2004, would otherwise expire at the end
of this year but were extended for another three years.
"If
we let the derogations expire, then the differences
between old and new member states will be even wider than
today," Kovacs said.
As
part of the reform package, EU finance ministers endorsed
a plan from the commission to improve the administrative
cooperation in the fight against VAT fraud, in particular
missing trader fraud, which occurs when somebody imports
high-tech goods such as chips and mobile phones free of
VAT from other EU member states and then sells it with the
VAT added.
Kovacs
said he would present legislative proposals on the
relevant issues early next year.
Source
: Xinhua - China, dated 04/12/2007
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