Luxembourg's
economic policy encourages information
technology operations. There are already
a number of Internet Service Providers
in Luxembourg, but the development of
interest in e-commerce is patchy.
In
November 2007 Luxembourg continued to
hold up an agreement between European
Union finance ministers on reforms to
the charging of VAT on certain services
traded within the EU.
At issue was a proposed change in the
VAT charging rules that would mean consumers
who buy items from e-commerce firms would
pay VAT at the rate of the country in
which they are resident, instead of the
rate charged in the jurisdiction where
the vendor is registered.
VAT in Luxembourg is charged at 15% -
the lowest rate permitted in the EU -
and the current rules have led dozens
of major e-commerce firms such as eBay,
Skype and iTunes to set up in the jurisdiction.
But if the new VAT system were to be put
in place, the Luxembourg government would
stand to lose an estimated EUR220 million
(US$320 million) annually in tax revenues.
The
European Council of Finance Ministers
(Ecofin) reached a landmark political
agreement in December 2007 on two draft
directives and a draft regulation aimed
at changing the rules on value-added taxation
intended to ensure that VAT on services
accrues to the country where consumption
occurs, and to prevent distortions of
competition between member states operating
different VAT rates.
The
agreement ended a five-year deadlock on
the sweeping changes to the community's
VAT laws, but the reverse charging of
VAT on the purchases of goods and services
electronically will not begin until 2015,
with a revenue sharing agreement phased
in over the subsequent three years. This
has appeased Luxembourg, which used its
veto to block the proposed reforms.
See below for specific information on
e-commerce in Luxembourg, or go to
Offshore-e-com.com for an extensive
analysis of the commercial possibilities
and the legal background.
Luxembourg Facilities
Telecommunications
Providers(s)
Luxembourg's
telecommunications market was liberalised
in 1998, but liberalisation has been slow
and the incumbent, P&T Luxembourg
(EPT), remains dominant. 3G was launched
in 2003.
The
main telecommunications companies have
traditionally been P&T Luxembourg
and Societe Europeenne de Communication
SA (SEC).
Internet
telecommunications company Skype is based
in Luxembourg. Founded in 2002 by Niklas
Zennström and Janus Friis, Skype
offers high-quality voice communications
to anyone with an Internet connection
anywhere in the world.
In
September, 2005, eBay agreed to acquire
Skype for approximately $2.6 billion in
up-front cash and eBay stock, plus potential
performance-based consideration.
In
November 2006 in a letter sent to the
telecom regulator of Luxembourg, Institut
Luxembourgeois de Régulation, the
European Commission welcomed a regulatory
measure proposed by ILR at the end of
September designed to give new market
entrants high-speed access to end-customers
(or bit-stream access) via the broadband
networks of Luxembourg’s telecom
incumbent EPT (Entreprise des Postes et
Télécommunications).
EPT is the only supplier in the relevant
market, thus having 100% market share
in the relevant wholesale market.
The remedies proposed by ILR required
Luxembourg’s telecom incumbent to
open its broadband networks to competitors
by allowing them to purchase a high speed
access link to the customer premises from
EPT with transmission capacity for broadband
data in both direction, thus enabling
new entrants to offer their own, value-added
services to end users. .
The European Commission announced in July
2007 that it had closed an infringement
procedure against Luxembourg, initiated
as a result of the government's failure
to comply with a Court of Justice judgement
concerning the Luxembourg telecommunications
markets.
In January 2007, the Commission asked
Luxembourg to comply with a Court of Justice
ruling of 12 June 2003, confirming that
Luxembourg had failed to fully transpose
Directive 90/388/CEE on competition in
the markets for telecommunication services
into national law.
Following the adoption of two regulations
establishing transparent access conditions
for new operators, the Commission considers
that Luxembourg now complies with EU law.
ISP
and Hosting Services; Connectivity
ISPs
in Luxembourg have included Global Media
Systems, Luxline Internet Services, Visual
Online and Focus Internet Services.
Payment
Processing and certification
There
are three options for payment processing
in Luxembourg. Some ISPs can accept an
e-commerce company's payments through
their own accounts, or those partnered
with WorldPay, for example, can set up
accounts with WorldPay for an e-commerce
company. Finally, there is a DIY option
for e-commerce businesses. Luxembourg-registered
companies can use the online processing
system launched in June 2000 by the Centre
de Transferts Electroniques (Cetrel).
The
natural bonding of the Internet and Offshore
stems from the fact that both, of their
nature, manage to avoid tax. Businesses
which can operate on the Internet without,
so to speak, touching ground in a high-tax
jurisdiction will naturally migrate to
offshore jurisdictions; while businesses
that already have offshore existence will
find it highly convenient to be able to
use the Internet to trade with their high-tax
customers without having to make a landing
in their countries.
As
a major offshore jurisdiction with many
tens of thousands of offshore enterprises
already installed, including many trading
companies, it is only a matter of time
before Luxembourg becomes a centre of
e-commerce activity. The country's location
in the heart of Europe, its good telecommunications
links, sophisticated business infrastructure
and the English-speaking, highly-educated
work-force are all factors which will
attract the sales, marketing and administrative
departments of retail operations, particularly
those trading into other EU countries.
In
many countries, the distribution of goods
from a warehousing facility does not constitute
the carrying on of a trade or business
in that jurisdiction, so that even for
physical goods, in many case it will be
possible to avoid a permanent establishment
(taxable presence) altogether in many
high-tax jurisdictions where trading activities
currently take place.
To
see an analysis of the current state of
legal and tax issues surrounding offshore
e-commerce, click
here.
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Luxembourg
Case Studies
This section will contain case studies
of e-commerce solutions applied to offshore
business activities carried out from Luxembourg.
The case studies will be developed in
association with 
partners. Contact
us to learn more.
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