Brussels, 24/02/2016 (Agence Europe) - The orientation debate of the college of commissioners on Wednesday 24 February showed a preference for a future VAT regime based on the taxation of intra-Community supplies in the place of acquisition of the goods, announced the Vice-President of the Commission with responsibility for the Euro, Valdis Dombrovskis.
Under this system, he explained, the tax authorities of the country of origin would collect the VAT on behalf of the member state of acquisition, which would reduce the risk of 'carousel' type fraud (whereby the same item is sold on in a short space of time between fictive companies which reclaim the VAT at each stage) and missing trader fraud. This option would require a “high degree of trust and cooperation between the member states”, the Vice-President said. The other option looked at by the Commissioners on Wednesday (there were five options at the end of 2014) was a generalised reverse charge mechanism. This second system, which consists of transferring the VAT payment of the supplier to the final acquirer of the goods in question, moves away from fractionate payment typical of VAT, he explained, leading to the possibility of the item reaching its final consumer without having been taxed at all.
The Czech Republic has requested authorisation to carry out a pilot project for a reverse charge mechanism (as things stand at the moment, this is possible under derogation, on a temporary basis and applicable to a limited list of sectors). Given the repeated refusals of the Commission over the last ten years, the Czech Republic argues that article 395 of the VAT directive, which allows the member states to be granted derogations from the common VAT rules in order to simplify the collection of tax or avoid certain fraudulent practices, may no longer be considered a viable option. In a document put together ahead of the meeting of the Ecofin Council in January, the Czech Republic argued that the Commission should consider the possibility of launching a pilot project, in a context in which several options for the future VAT regime are under discussion. It also refutes the Commission's argument that this option could run counter to article 113 of the TFEU, “since it would lead to a substantial disharmonisation of VAT in the EU”. “The system of VAT in the EU is based on a common fundamental framework, but within this common setting, there still exist many differences and particular details”, the Czech Republic writes, arguing that if this same analysis were applied to other issues, such as rates, “we would have to conclude that the current system is in many ways in contradiction to the EU Treaties”.
The Czech Republic's request for a pilot project is “being examined as part of our action plan” expected for 16 March, Dombrovskis said. It will include a preliminary assessment of the technical and legal feasibility of introducing a regional pilot project, he explained. The European employers are campaigning against this reverse charge mechanism (see EUROPE 11497)
At the January Ecofin, Spain, Italy and Portugal are reported to have expressed fears that the system would lead to delocalisation to other countries. Austria, Germany and Malta said that they were in favour of a pilot project. On behalf of the Presidency of the Council of the EU, Jeroen Dijsselbloem pointed out that unanimity would be required to authorise a pilot project.
Discussions at the college on Wednesday are reported to have focused in particular on mechanisms to combat fraud and options for the definitive VAT system, whilst the Commission is also looking at giving the states greater freedom to define reduced rates. At the press conference, the Vice-President said that he did not wish to get into debates on rates at this stage. He stressed that any change in taxation matters requires unanimity.
The day before, the Commissioner for Taxation, Pierre Moscovici, said that the main aspects of the future proposals would be to extend the current one-stop shop to include the provision of cross-border goods on a business to consumer basis ('B2C'), to introduce simplification mechanisms (such as the introduction of a cross-border threshold targeted at small businesses) and to remove exemptions for small consignments from third countries. He also pledged a proposal by the summer on the taxation of the collaborative economy.
Additionally, the Commission is reflecting on the VAT treatment of public authority activities, with a view to a proposal in 2017. (Original version in French by Elodie Lamer)