The European commission's proposal to allow member states to carry out pilot projects for a reverse-charge VAT system (providing for the VAT to be paid by the final consumer) has been a disappointment to the countries that were eagerly awaiting it.
The proposal, which was presented on 21 December of last year following a promise made to the Czech Republic, is fairly restrictive in the eligibility criteria it lays down for the mechanism.
The way the Commission has drafted the text is not ideal, said the Czech finance minister, Andrej Babis, during the Ecofin Council.
The derogation to the traditional VAT rules that this mechanism implies would be authorised for states with a VAT gap representing five percentage points more than the median European VAT gap (the latest figures available indicate that this stands at 10.4%).
"I understand that the Commission needs to maintain the principle of proportionality, but the proposal would mean that only 15% of the VAT gap would have to be collected and we cannot agree to this", he said, adding that the provision made no sense economically.
Austria, which also hopes to use a reverse-charge mechanism, would not be eligible and would be ruled out on the basis of this criterion.
The Czech minister also criticised the provision allowing the Commission to assess the implementation of this reverse-charge system in the countries concerned after the first six months. The Commission reserves the right to suspend this implementation, if it feels that it is having a considerable negative impact on the single market ('safeguard clause'). Businesses need certainty and this clause does nothing at all to help certainty, the Czech minister said. Austria spoke along the same lines.
Nor will the countries have the right to apply this reverse-charge system beyond 30 September 2022 ('sunset clause'). These two clauses make the implementation of the mechanism impossible, according to Austria.
Unsurprisingly, the German representative backed up the two countries. Germany is not opposed to a reverse-charge system, unlike certain other states. The German representative said that he felt that the conditions to access the mechanism proposed by the Commission are too restrictive and automatically exclude both the Czech Republic and Austria. "We need to find the right way to enable the Czech Republic and Austria to run pilot projects in the short term", the German representative said. "We need a practical mechanism, not just a theoretical one", added the Slovak finance minister, Peter Kazimir.
Slovenia expressed concerns that the mechanism would increase the risk of the transfer of fraud to other countries. It also highlighted the administrative burden and costs that it may bring about. Finally, the Spanish finance minister, Luis De Guindos, voiced fears that these pilot projects would have the effect of creating two parallel VAT systems within the single market. He did, however, stress that he was prepared to discuss this proposal in the name of consensus.
The Commissioner with responsibility for taxation, Pierre Moscovici, said that the future definitive VAT regime to be presented by the Commission later this year would be the best solution to fight fraud. He feels that the proposal on the table for a reverse-charge mechanism is well balanced. (Original version in French by Élodie Lamer)