Knowledge Base: E-commerce Accounting and VAT Compliance


Best fiscal results in 5 years from Luxembourg, despite VAT revenue plunge from electronic services

Date27 Dec 2017

The recent Budget from Luxembourg’s government has shown they came close to balance in the first three-quarters of 2017, as revenue growth outperformed spending, even with a continuing sharp fall in VAT revenues following the introduction of new ‘place of supply’ rules from the European Union. Mr Pierre Gramegna, Minister of Finance advised the parliamentary finance committees at the end of October, that revenues in this period totalled just over €12.57 billion ($14.63 billion), while government expenditure was €12.58 billion, also over the same period.

Due to this strong revenue performance, the overall budget is close to balanced, and the arrears stood at €8.5 million at the end of the third quarter.

Mr Gramegna said this was the best fiscal result in five years and this has been achieved despite the fact that VAT revenues from electronic services falling to just €72 million in 2017, compared with €1 billion in 2014.

Luxembourg is the most impacted EU Member State by the recent change to VAT ‘place of supply’ rules for broadcasting, telecommunications, and electronics (BTE) services. From 1st January, 2015 Luxembourg sought to ensure taxation in the ‘place of consumption’ rather than the ‘place of supply’.

This move removed the motivation for companies supplying goods and services in Europe to locate themselves in Member States with low rates of VAT.

Previously, e-Commerce firms supplying services in the EU flocked to Luxembourg to gain of its 15% VAT headline rate, which was the EU’s lowest. However, since the change, Luxembourg has increased its rate of VAT to 17%.

It was reported that in December 2014 Luxembourg secured compensation worth $1.375 billion from the EU in return for supporting the change in the BTE ‘place of supply’ rules.

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