In an unfortunate development, Luxembourg has finally surrendered to demands from other European governments and agreed that online retailers in the tiny duchy should be deputy tax collectors for other European nations. This means that shoppers in countries with high value-added taxes no longer will be able to buy goods and services and benefit from Luxembourg’s 15 percent VAT. This episode is illustrative of the anti-tax competition mentality in Europe, but America faces the same danger. Politicians from high-tax states want to impose a similar scheme (see here and here) in the United States. The International Herald Tribune has the sad details:
Plans to apply sales tax in the country in which services are consumed, rather than the location of the company that sells them, are the latest assault on Luxembourg’s ability to act as a tax haven. …With its low rates of sales tax, or value added tax, Luxembourg has attracted many of the biggest names in online sales, including companies like Amazon.com, Skype and PayPal. Luxembourg levies VAT at 15 percent, the minimum allowed under EU rules. But most EU countries have a higher rate, making the small but prosperous duchy an attractive location for companies offering electronic services. …Until Tuesday, Luxembourg had blocked proposals to levy sales tax at the place of consumption, saying the change would cost it €220 million, or $324 million, a year, equivalent to 1 percent of its economic activity. Taxation matters require unanimous agreement within the EU, but a country like Luxembourg — which has a population of only 429,000 — finds it difficult to withstand pressure from other countries if it isolated. …The deal was welcomed by larger countries, which stand to increase their revenue.
