Luxembourg finally agreed at the Eurofi Conference of EU finance ministers in Brussels to a deal which will apply VAT to services in the country where they are consumed, rather than the location of the company which sells them, paving the way for sweeping changes to the way electronic services are taxed.

Luxembourg, which offers one of the lowest VAT permitted under EU regulations, at 15%, attracting many of the big names in e-commerce such as Amazon.com, Skype and PayPal, would only agree to the deal in return for postponing the EU VAT until 2015 – five years later than the date proposed by the EC, the International Herald Tribune reports.

The deal was welcomed by the bigger EU members which expect increases in revenues. ‘It's a good deal because it protects £4bn of UK revenues from telecoms and broadcasting,’ Ed Smith, spokesman for the British government in Brussels, said. ‘That is more than $8bn.’

Finance ministers also agreed to extend reduced rates of sales tax in five EU countries for three years. Without a deal, some value-added tax rates in the Czech Republic, Cyprus, Malta, Poland and Slovenia would have had to rise in January to the standard rate of 15%.

Further reading:

EU VAT reform risks burdening business

EU to reform financial services VAT regime

Read full story in the International Herald Tribune