In Luxembourg on Friday 16 June, the European finance ministers will seek a political agreement on two fiscal legislative proposals on value-added tax (VAT): - the application of reduced rates of VAT on e-books; - a derogation requested by the Czech Republic to apply a VAT reverse-charge mechanism.
On the former text (see EUROPE 11750), there are still two reservations, entered by the Czech Republic and Slovakia. Prague and Bratislava are afraid of being forced to align the VAT rates o electronic publications with those already reduced for physical publications.
Slovakia will probably not see its reservation through to the bitter end, a Council source said on Wednesday 14 June. However, the Czech Republic will probably not want to lift its veto on this dossier unless it gets its way over the reverse-charge mechanism.
The problem is that the ‘e-books’ dossier will be discussed first. The former finance minister Andrej Babis, who was asked to step down several weeks ago over allegations of tax fraud, particularly insisted on the reverse charge and lost no time in taking the anti-tax avoidance directive hostage to get his way. It remains to be seen whether his successor will dare to use the same tactics at his first Ecofin Council.
On the ‘VAT reverse charge’ dossier, there is just one question outstanding: the length of the derogation. The Czech Republic wishes to retain the derogation beyond 2022. At a previous meeting of finance ministers, however, only Germany supported it (see EUROPE 11750).
Furthermore, there is opposition from the legal services of the Council, consulted by France in particular (see EUROPE 11742). They consider that the proposal is not sufficiently proportionate, for instance due to the shortcomings in the accompanying impact assessment. It also takes the view that extending the derogation to member states with a border with a European country enjoying the derogation (a condition that was brought in so that Austria could benefit from it as well) was not compatible with the principle of proportionality and the requirement to create as few disturbances on the single market as possible. This provision allowing neighbouring countries to apply the derogation as well has, however, disappeared from the text on the table.
Banking union. The ministers are expected to reach political agreements in principle on two legislative proposals related to the ‘reduction of financial risks’ package proposed in November 2016, namely: - the revision of the 'BRRD', introducing a new category of bank assets to be drawn upon in the bail-in; - the phased roll-out, over five years, of capital requirements stemming from the application of the international financial standard IFRS 9.
Several member states, around a dozen of which have foreign banking groups on their soil, made these agreements conditional on gains from the negotiation on reforming bank capital requirements (see EUROPE 11803). Discussions at ambassador level threw up no major problems, a diplomat noted on Wednesday 14 June.
European Semester. In the budgetary field, the ministers will take position on specific socio-economic recommendations for each country, presented by the Commission at the end of May in the framework of the ‘European Semester’ process (see EUROPE 11793).
The adoption of the Council’s position is not expected to be a problem, the same diplomat commented. However, particular attention was paid to Poland. In its recommendations, the Commission shared its concerns over the rule of law situation and its economic implications. According to our European source, the text has been reworded to make it more neutral, to avoid rubbing the Polish government up the wrong way. However, the message remains the same.
These recommendations will be put before the European Council of 22 and 23 June, before being formally approved at the forthcoming Ecofin Council of July.
The Council will also approve Poland and Croatia exiting the excessive deficit procedure. It will also adopt a recommendation to Romania to help it to avoid the procedure, as the Commission suggested in May.
Capital Markets Union. The Commission will present the ministers with its mid-term review of the Capital Market Union (see EUROPE 11804) and they will hold an exchange of views. In light of Brexit, future discussions are likely to hold back less over the idea of reinforced supervision, our European diplomatic source told us.
Finally, following the Council’s request for a progress report every six months, the Commission will take stock of the implementation of the 20 initiatives of its 2016 action plan on preventing the financing of terrorism (see EUROPE 11481). (Original version in French by Élodie Lamer, Mathieu Bion, Lucas Tripoteau and Marion Fontana)