Identifier
Created
Classification
Origin
07LUXEMBOURG235
2007-06-08 15:58:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Luxembourg
Cable title:
LUXEMBOURG FENDS OFF EU VAT CHANGES
how-toVZCZCXRO0063 RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV DE RUEHLE #0235 1591558 ZNR UUUUU ZZH R 081558Z JUN 07 FM AMEMBASSY LUXEMBOURG TO RUEHC/SECSTATE WASHDC 5928 INFO RUCNMEM/EU MEMBER STATES RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHDC RUEHBS/USEU BRUSSELS
UNCLAS LUXEMBOURG 000235
SIPDIS
SENSITIVE
SIPDIS
TREASURY FOR ATUKORALA
BRUSSELS PASS TO FCS PISCHLER
E.O. 12958: N/A
TAGS: EFIN EINV EU LU
SUBJECT: LUXEMBOURG FENDS OFF EU VAT CHANGES
UNCLAS LUXEMBOURG 000235
SIPDIS
SENSITIVE
SIPDIS
TREASURY FOR ATUKORALA
BRUSSELS PASS TO FCS PISCHLER
E.O. 12958: N/A
TAGS: EFIN EINV EU LU
SUBJECT: LUXEMBOURG FENDS OFF EU VAT CHANGES
1. (SBU) SUMMARY. At the EU Economic and Finance (Ecofin)
Council meeting on June 5, Luxembourg successfully fended off
proposed changes to EU value added tax (VAT) policy which
would have eroded its competitive advantage regarding VAT
rates on e-commerce. Prime Minister Juncker said that the
changes could have cost the Grand Duchy 300 million euro or
one percent of its GDP per year. Under pressure from its EU
partners, however, Luxembourg may ultimately compromise and
agree to an extended phase in period for such VAT changes.
END SUMMARY.
2. (U) At the June 5 meeting of the Ecofin Council,
Luxembourg Prime Minister (and Finance Minister) Jean-Claude
Juncker took the uncharacteristic step of essentially
"vetoing" proposed changes to EU VAT policy which included a
provision changing the point of collection for the VAT on
online services. These proposals would have changed the VAT
to be collected at point of consumption, vice the current
arrangement which collects them at the location of the
service provider. With the lowest allowable VAT rate in the
EU of 15%, this policy benefits Luxembourg over its neighbors
Germany (19% VAT),France (19.6%),and Belgium (21%).
Accordingly, e-commerce heavyweights such as AOL, iTunes,
Skype, and most recently PayPal, have established themselves
in Luxembourg as a base for their EU operations. Juncker
said that the value of these VAT revenues to Luxembourg is
between 220 and 300 million euro per year or one percent of
Luxembourg's GDP. Industry experts estimate the potential
loss in revenue for Luxembourg to be even higher.
3. (SBU) COMMENT. Breaking ranks with its EU partners is
highly unusual for Luxembourg. Prime Minister Juncker is
famous for his efforts to support a strengthening of EU
structures and policies and he is known as a tireless
consensus builder. Voting alone against other members of the
EU was obviously painful for him. The issue will likely be
revisited under the Portuguese EU Presidency, however, and
post's sources suggest that under pressure the GOL might
ultimately accept an extended phase-in period for any VAT
changes regarding e-commerce. END COMMENT
WAGNER
SIPDIS
SENSITIVE
SIPDIS
TREASURY FOR ATUKORALA
BRUSSELS PASS TO FCS PISCHLER
E.O. 12958: N/A
TAGS: EFIN EINV EU LU
SUBJECT: LUXEMBOURG FENDS OFF EU VAT CHANGES
1. (SBU) SUMMARY. At the EU Economic and Finance (Ecofin)
Council meeting on June 5, Luxembourg successfully fended off
proposed changes to EU value added tax (VAT) policy which
would have eroded its competitive advantage regarding VAT
rates on e-commerce. Prime Minister Juncker said that the
changes could have cost the Grand Duchy 300 million euro or
one percent of its GDP per year. Under pressure from its EU
partners, however, Luxembourg may ultimately compromise and
agree to an extended phase in period for such VAT changes.
END SUMMARY.
2. (U) At the June 5 meeting of the Ecofin Council,
Luxembourg Prime Minister (and Finance Minister) Jean-Claude
Juncker took the uncharacteristic step of essentially
"vetoing" proposed changes to EU VAT policy which included a
provision changing the point of collection for the VAT on
online services. These proposals would have changed the VAT
to be collected at point of consumption, vice the current
arrangement which collects them at the location of the
service provider. With the lowest allowable VAT rate in the
EU of 15%, this policy benefits Luxembourg over its neighbors
Germany (19% VAT),France (19.6%),and Belgium (21%).
Accordingly, e-commerce heavyweights such as AOL, iTunes,
Skype, and most recently PayPal, have established themselves
in Luxembourg as a base for their EU operations. Juncker
said that the value of these VAT revenues to Luxembourg is
between 220 and 300 million euro per year or one percent of
Luxembourg's GDP. Industry experts estimate the potential
loss in revenue for Luxembourg to be even higher.
3. (SBU) COMMENT. Breaking ranks with its EU partners is
highly unusual for Luxembourg. Prime Minister Juncker is
famous for his efforts to support a strengthening of EU
structures and policies and he is known as a tireless
consensus builder. Voting alone against other members of the
EU was obviously painful for him. The issue will likely be
revisited under the Portuguese EU Presidency, however, and
post's sources suggest that under pressure the GOL might
ultimately accept an extended phase-in period for any VAT
changes regarding e-commerce. END COMMENT
WAGNER