Why think Luxembourg for Audiovisual Services?

Avocats, Luxembourg / Lawyers, Luxembourg

Download the paper in PDF

Because of its:

- flexible regulatory framework resulting from a minimalist implementation of the Audiovisual Media Services directive (formerly Television Without Frontiers directive) ;

- 3% super-reduced VAT rate on television and radio services irrespective of the transmission mode selected (air waves, satellite, internet, mobile networks);

Luxembourg is becoming a privileged location for the establishment of television and new audiovisual services activities.

A flexible framework for media services

The Television Without Frontiers directive (the « TWFD »), adopted in 1989[1] and subsequently amended in 1997[2] , has set the base principles with respect to television broadcasting in the EU which have been implemented in all EU Member States laws. In 2007, the Audiovisual Media Services directive[3] (the “AVMSD”) has amended and renamed the TWFD to expand its application to new media services (such as TV on-demand) and, among others, to precise certain rules in respect of advertising (both TWFD and AVMSD will be referred to as the “Media Directives”).

The main purpose of the Media Directives is to allow the free circulation of television services within the internal market by harmonising the rules applicable to certain important objectives of public interest such as :

-          cultural diversity, by imposing quotas for the distribution and production of European works, 

-          consumer protection, by regulating advertising, including product placement, sponsorship and tele-shopping (duration, programme interruption conditions, ban on discrimination, protection of minors, ban on tobacco and medicinal products advertising, restrictions on alcohol advertising) which are covered by the same common set of rules,

-          protection of minors (warning obligation for programmes that are likely to impair the development of minors and transmitted unencoded and prohibition of programmes showing pornography or gratuitous violence (save if minors are protected by the transmission time selected or an encryption device),

-          free flow of information, with the right of retransmission of events of major importance for which access shall be guaranteed by other broadcasters (conditions allowing events which are considered to be of major importance for society to be broadcast freely to the public).

The Country of origin principle is at the heart of the mechanism put in place by the Media Directives.  Indeed, Each Member State must ensure that all television broadcasts transmitted by broadcasters under its jurisdiction comply with the law applicable to broadcasts intended for the public in that Member State. Consequently, Member States must ensure freedom of reception and may not restrict retransmission on their territory of television programmes from other Member States (save for the violation of the provisions on the protection of minors and for unsuitable on-demand audiovisual content that may not be banned in its country of origin – e.g. incitement to racial hatred). 

However, each Member State remains free to require television broadcasters under its jurisdiction to lay down more detailed or stricter rules in the areas covered by these Media Directives (and that are not considered as fully harmonised with the EU). Therefore, in order to take into account national specificities or concerns, most Member States have imposed additional regulatory constraints to broadcaster under their jurisdiction.

In the electronic media sector, Luxembourg has, traditionally, taken a very liberal approach. Thus, regarding satellite television, Luxembourg has merely implemented the content of the Media Directives without adding any further regulatory constraints. Luxembourg has maintained its “all the directive, but only the directive approach”, that has contributed to its success. [4]

For this reason, from a strictly regulatory perspective, the law of 27 July 1991 on electronic medias, which implements the Media Directives, offers, for television broadcasting activities and new media services, an environment as flexible the European framework allows.

Therefore, in addition to the fact that Luxembourg hosts RTL Group and SES-ASTRA, a certain number of operators have decided to establish themselves and to carry out their activities from there. [5]

A 3% VAT rate for pay services

Since 1 January 2006, radio and television broadcasting services benefit from the 3% super-reduced VAT rate provided that such services are remunerated and that the location of taxation is deemed to be located in Luxembourg.

The technique used for the transmission of sound or images is not relevant for the application of this measure.  Thus, radio or television broadcasting programmes, whether transmitted terrestrially, in analogue or digital mode, via cable networks, satellite, the Internet, ADSL or mobile telephony networks, may all benefit from this 3% VAT rate. 

In other words, all pay services, consisting in the transmission of television or radio programmes intended for the public, i.e. targeting an undetermined number of potential viewers or auditors (point-to-multipoint transmissions), may benefit from the super-reduced rate, irrespective of the transmission method selected.

However, teledistribution activities, the downloading of films on the Internet or pornographic productions are excluded from the benefit of the super-reduced rate. Further, it shall be noted that as from 1^st January 2015, telecommunication, radio and television broadcasting services as well as services supplied electronically will be located where the receiver/consumer is established and the taxation is deemed to be located in such country at the relevant VAT applicable rate[6].

Accordingly, subject to the aforementioned limitation, the 3% VAT rate may be used when invoicing pay TV or radio services. 

The currently VAT rate applied by Luxembourg for these services is the lowest in Europe.[7]  This also contributes to making Luxembourg an attractive jurisdiction to locate such services. 

 

---