Businesses face a "complex and disproportionate burden" if a package of value added tax reforms is approved by Europe's finance ministers tomorrow, a professional services firm has warned.

Telecommunications companies, satellite broadcasters and digital service providers would be required to levy VAT in the country where services were consumed rather than where the company was based, according to the plans under discussion at tomorrow's Ecofin meeting. The proposal is designed to prevent the distortions that have led online businesses to flock to low-VAT countries, notably Luxembourg.

KPMG says the VAT package will create administrative problems for businesses that supply their services to consumers across the EU because, instead of having one VAT rate, one set of rules and one tax authority to manage, the businesses will have up to 27.

The online industry also faces technical challenges in how it identifies the location of a consumer.

Tax advisers are concerned that businesses might suffer double taxation, in the event that tax authorities in other countries were dissatisfied with steps taken to establish a customer's whereabouts.

Companies would also face difficulties in setting a VAT-inclusive price for their services. Unless they identified the customer's country of residence before quoting the price, they would suffer a variable profit margin.

KPMG says: "There is no clarity as to how taxpayers should apply these rules to identify place of consumption and no provisions to counter the risk of multiple claims from member states. There is such a high degree of doubt and complexity it is questionable whether the changes are proportionate."

But UEAPME, the employers' organisation representing small and medium-sized businesses, believes the reform would create a more level playing field for businesses. It also welcomed the prospect of a "one-stop shop" that would simplify compliance by creating a single point of contact for VAT declarations for activities in all member states.

KPMG claims the measures could backfire on member states because it could lead to an erosion of corporate tax revenues. By creating a level playing field for VAT, companies would be more influenced by corporate tax rates, encouraging them to move to low-tax countries.

Without the VAT rate acting as a natural balance, corporate tax rate competition could intensify.

"Instead of a limited migration to achieve a lower VAT rate, companies could migrate for corporate tax reasons - and it could be more advantageous to be out of the EU than in it."