Brussels, 23/02/2016 (Agence Europe) - On Wednesday 24 February, the college of commissioners will hold its first guideline debate on the revision of the VAT system, a definitive regime based on the principle of destination. An action plan is theoretically anticipated for 16 March.
At the end of October 2014, the European Commission explained that it was reflecting on five options for the future definitive VAT regime. In 1992, when the single market came into being, the plan was to create a VAT system for intra-community trade that would take account of the details for the taxation of goods at national level and guarantee the principle of a genuine union without borders. At that time, it was not possible, either politically or technically, to create a European VAT system that reflected national tax practices (specifically taxation at origin). A transitional regime was therefore set in place, whereby cross-border supplies of goods carried out within the EU were VAT-exempt, whilst purchases made within the EU were taxed in the member state of acquisition. The Commission explained that it had been agreed that any definitive regime would have to be based on the principle of destination (VAT payable in the place of destination of the goods).
The European institution has now reduced the number of options from five to two: a system based on the taxation of intra-community supplies on the basis of the place of destination of the goods (which would require a one-stop shop) and a generalised reverse-charge mechanism (whereby the recipient of the goods pays the VAT). The member states would able to choose between these two options tabled by the Commission. The application of the reverse-charge mechanism has the support of the Czech Republic, which has requested authorisation to carry out a pilot project for a system of this kind (see EUROPE 11469). In January, the member states expressed a certain amount of reticence.
BusinessEurope, the association representing the European employers, also has concerns regarding the unilateral use of this mechanism by EU states and takes the view that this would only lead to transferring fraud into other sectors or member states. Chas-Roy-Chowdhury of ACCA, which represents accountancy experts, has also called for caution so as to avoid creating new opportunities for fraud. BusinessEurope is furthermore calling for an extension of the one-stop shop.
“If you put VAT on every cross-border transaction without a one-stop shop, you put an enormous stress on the refunds system”, said Kristian Koktvedgaard of BusinessEurope. “We need to be able to offset that in a VAT return in a one-stop shop in the country of establishment, which requires the member states to trust each other.” As regards an extension of the one-stop shop, the consultancy firm Deloitte is reported to be in the process of carrying out an impact assessment to be published in mid-2016, to feed into a Commission proposal for November or December. The commissioner for taxation, Pierre Moscovici, also suggested that this was the case, in an exchange of views on 23 February with the committee on the single market of the European Parliament. The commissioner described the aspects of the future proposal: extending the current one-stop shop to cross-border supplies of goods from business to consumer (B2C), introducing simplification mechanisms (such as the introduction of a cross-border threshold targeted at small businesses) and removing exemptions for small consignments from third countries.
The European Commission also hopes to give the member states greater flexibility to set reduced rates. This issue is of particular importance to the United Kingdom, which is facing a protest movement calling for a zero VAT rate on sanitary products, such as tampons and sanitary towels. Chas Roy-Chowdhury backs this initiative, stressing that under the principle of destination, there would be no incentive for businesses to relocate their activities to member states with low rates. “The key thing is transparency about the rate, easy access for businesses to find information about the VAT rate applicable is essential”, Koktvedgaard stressed. However, the Commission is believed to be planning to limit the number of different VAT rates which may be applied for specific reasons. It is also not convinced that the application of these reduced rates would be of any benefit to the poorest households.
Proposals on the taxation of the digital economy, furthermore, are anticipated for November, in the framework of the single digital market strategy. “Whether you buy stuff online or do it the old-fashioned way, the VAT rules need to find identical solutions for identical transactions. A consumer buying goods on a website is essentially a B2C transaction, it's no different from any other distance-selling schemes”, Koktvedgaard pointed out, calling for a solution to these B2C transactions over and above the problems related to the digital economy. He also argued that common European solutions are needed to respond to the challenges posed by electronic suppliers in third countries.
Ahead of the proposal in 2017, the Commission is also reflecting on the VAT treatment of public authority activities.
More generally, Koktvedgaard call for greater harmonisation and coordination between the member states, as it is the differences that fraudsters exploit. The Commission is also expected to call for more coordination and exchanges of best practice between member states. (Original version in French by Elodie Lamer)