The Mouse that Roared

Luxembourg is a tiny nation with less than 500,000 residents, but its tax-haven policies have made it one of the world’s wealthiest countries. Other European states resent Luxembourg’s success, not surprisingly, because their own citizens often prefer to work, save, shop, and invest where taxes are lower. But rather than lower their own taxes to be more competitive, they try to bully Luxembourg into changing its laws. The latest skirmish deals with whether Luxembourg companies should be forced to act as deputy tax collectors for foreign governments when they make online sales to residents of other EU nations. The International Herald Tribune reports that tiny Luxembourg is resisting the 26 other EU nations and defending its fiscal sovereignty:

Luxembourg, which has become a center for e-commerce in Europe because of its low sales tax, held off an assault on that lucrative business Tuesday by the rest of the European Union. At a meeting of EU finance ministers in the small but prosperous duchy, Luxembourg refused to agree to a lifting of the tax advantages that have prompted iTunes, Skype, eBay and other big Internet companies to set up shop there. That effectively blocked the package, because adoption of tax measures requires unanimous agreement by all 27 EU members. Telecommunications companies, satellite broadcasters and other companies providing online services apply a value added, or sales, tax based on where the company is established, not where the customer is. That makes Luxembourg, where VAT on Internet-related sales is 15 percent, an attractive place to operate. … EU ministers had hoped for a deal that would force companies to charge sales tax on services delivered online at the rate set in the country where they are bought. Such a move could prove a boon to tax collectors in countries like Germany and France. … This is not the first time that the Grand Duchy has been at the center of controversy over tax rates. For years French and German savers have invested their cash in Luxembourg and avoided tax on interest income.