Brussels, 25/11/2009 (Agence Europe) - Belgium, France and Italy want the value added tax (VAT) reverse charge system to be extended to transactions in connection with the carbon trading system. A diplomat explained that nobody has expressed opposition to this for greenhouse gas quota trading. The three Member States fear that extending the reverse charge system to other categories of goods and services would jeopardise the proper functioning of the EU VAT system. The issue will be discussed at the meeting of EU finance ministers on Wednesday 2 December.
At the end of October, the European Commission suggested that Member States should be allowed to apply for at least two years (until 31 December 2004) the VAT reverse charge system for the following - mobile phones, integrated circuits, perfume, precious metal and carbon trading (see EUROPE 9987). The Member States would be allowed to apply VAT reverse charge to up to three of these categories of their choice.
In a compromise deal set forth on Tuesday 17 November which this newsletter has seen, the Swedish Presidency of the Council of the EU reduced the scope of the draft legislation, suggesting that VAT reverse charge should only apply to mobile phones and greenhouse gas emissions quotas. Member States deciding to apply the mechanism to one or other (or both) of these two categories would have to do so for at least two years before July 2015. Germany, the Netherlands and the UK back this suggested compromise.
The aim of the reverse charge regulation is to tackle fraud and VAT carousels whereby artificial supply chains within the EU are set up to generate undue refunds of VAT. The method suggested for tackling VAT fraud is, however, highly controversial. In 2006, most of the other Member States refused to allow Germany and Austria to introduce VAT reverse charges. The only country implementing the system (until the end of April 2011) is the UK for supplies of mobile phones and integrated circuits to a value of up to £5,000.
Although agreeing to reverse charging VAT for carbon trading, Belgium, France and Italy do not want it to be extended and become widespread. The reverse charge system postpones the declaration of VAT until the final operator in a chain, and is described as an expert as being an extremely bad measure that can only be tolerated on markets where three are very few operators and few end consumers, as is the case for carbon trading, but not for mobile phones. (M.B. trans fl)