Indirect Tax News 1 - March 2012 - BDO International

LUXEMBOURG
A 3% VAT RATE FOR E-BOOKS
INDIRECT TAX NEWS 1
7
On 12 December 2011, the Luxembourg
VAT authorities published a new
administrative circular which aligns
the VAT rate applicable to books in electronic
format (e-Books) to their paper version. Until
now those two types of product, similar in their
nature and use for customers, were subject to
two different VAT rates. In its traditional paper
version, a book is subject to the reduced rate
of 3% in the Grand Duchy of Luxembourg,
whereas until now, its electronic version was
taxed at 15%.
This circular is to be seen in the context
of the recent communication of the
European Commission of 6 December 2011
(COM 201/851 final) on the future of VAT,
which states that “Similar goods and services
should be subject to the same VAT rate, and
progress in technology should be taken into
account in this respect, so that the challenge
of convergence between the on-line and the
physical environment is addressed.” The French
government was the first to take a position on
this issue when it decided to apply a reduced rate
to e-Books from 1 January 2012, which, with the
recent decisions on the French Budget, will be
fixed at 7%.
The decision of the Ministry of Finance, as
reflected in this circular of the VAT authorities,
to apply a 3% VAT rate to e-books confirms
the strategic positioning of Luxembourg for
e-commerce activities. It completes the large
infrastructure investments (data-centres and
high speed internet access), and the favourable
legal and tax environment available within the
country.
ERWAN LOQUET
Luxembourg
erwan.loquet@bdo.lu
EUROPEAN COMMISSION CHALLENGES THE INDEPENDENT GROUPS OF PERSONS REGIME
Article 132.1.f of Directive 2006/112/
EC provides, under certain conditions,
a VAT exemption for the supply of
specific services by an “independent group
of persons” (IGP) to its members. This Article
has been implemented in Luxembourg under
Article 44.1.y of the Luxembourg VAT Law.
The aim of this VAT exemption was to introduce
a VAT-neutral system allowing (i) persons
performing non-taxable or exempt activities
to share (ii) services directly necessary to their
activities, (iii) given that each person assumes,
entirely but exclusively, its own part of these
joint expenses 1 .
On 26 January 2012, the European Commission
(EC) 2 formally asked Luxembourg to change its
rules on VAT applicable to independent groups
of persons. The Commission considers that the
following national aspects of the Luxembourg
IGP regime infringe the strict rules set out in the
VAT Directive:
I. Members are allowed to perform taxable
activities (up to a threshold of 30%), which
means that, according to the Commission,
the services of the IGP might benefit
taxable activities of its members;
II. Members are allowed to deduct the VAT
incurred by the IGP on its costs up to their
VAT deduction right and their part of the
services received from the IGP; and
III. Luxembourg’s arrangements do not take
account of the VAT rules in EU law applicable
to operations by intermediaries.
The impact of the adjustment of the
Luxembourg VAT legislation should be limited
for pure financing entities (pure holding, private
equity structures) which, in most cases, do not
perform any taxable activity, and consequently,
do not have any right to deduct input VAT.
However, a change of the Luxembourg VAT Law
would lead to the exclusion from the IGP regime
of companies performing both non taxable/
exempt and taxable activities, such as banks, and
mixed holding and insurance companies, which
would therefore be quite problematic.
The EC “reasoned opinion” gives Luxembourg
two months to bring its rules into compliance
with EU law. Otherwise, the EC may refer the
matter to the European Court of Justice, but even
in this eventuality, the outcome of the procedure
remains uncertain.
Luxembourg has solid arguments for defending
its IGP regime and is not likely to amend it on a
voluntary basis. In that event, the Commission
would have to refer the matter to the Court,
which could be a good opportunity to have
further clarification on this VAT neutral cost
sharing system.
AMELIE DASCOTTE
ALEXANDRE COLE
Luxembourg
amelie.dascotte@bdo.lu
alexandre.cole@bdo.lu
1
See amongst others CJUE, Taksatorringen, 20 November 2003, C-8-01, AG conclusions, pt 117-119.
2
IP/12/63.