On Wednesday 4 October, the European Commission is to propose two essential pillars of its future definitive cross-border VAT regime: taxation under the principle of destination and the concept of 'certified taxable person'. A second raft of provisions will follow in 2018 (aiming to introduce the technical provisions required for the definitive regime). Together, these two proposals will constitute the first stage towards the definitive VAT regime. The first stage will cover only trading in goods between businesses (B2B). The second will cover the provision of goods and services. However, this second stage will not take place until the first has been assessed by the European Commission, five years after its implementation.
Destination principle
When the single market was created in 1992, the intention was to create a VAT system for intra-community trade that would take account of the specific terms for the taxation of goods at national level and guarantee the principal of a true union without borders. At the time, it was both politically and technically impossible to create a European VAT system reflecting national taxation practices (i.e. taxation on the place of origin). An interim regime was set in place, under which cross-border supplies of goods within the EU were VAT-exempt, whilst purchases made within the EU were taxed in the state of acquisition.
On Wednesday, therefore, the Commission will propose to extend the tax rules under which the supplier collects VAT to cross-border transactions as well. “In this context, a new concept in relation to goods - 'intra-Union supply' - is introduced”, the Commission states in its draft legislative proposal, of which EUROPE has had sight. The concept of intra-Union acquisition as a taxable transaction for VAT purposes will, for its part, be abolished. “Under this new concept, the 'place of supply' will be situated in the member State of arrival of the goods”, the Commission further explains. The supplier will be liable for the payment of VAT on this 'intra-Union supply', unless the acquirer is a certified taxable person.
What this basically means is that member states will be entrusted with collecting each other's VAT. For instance, if a Belgian company buys an item from a German company, the German company will invoice the VAT to the Belgian company. The tax will be collected by the German tax authorities, which will repay it to Belgium. This means that a certain amount of trust between the member states is needed.
Certified taxable persons (CTP) and reversing the charge
“The CTP concept allows for an attestation that a particular business can globally be considered to be a reliable taxpayer. The concept is important because certain simplification rules, which could be fraud-sensitive, will apply only where CTP is involved in the relevant transaction”, the Commission explains. The mechanism is expected to catch the attention of the Czech delegation in particular, as it has been calling for years to be able to carry out a pilot project for a generalised reverse-charge mechanism. The concept of CTP will allow the definitive regime to be phased in, the Commission states, because initially, the reverse-charge will apply when the purchaser is a certified taxable person. The provisions on CTPs are referred to in the draft amendment to the VAT directive, and also in the amendment to the administrative cooperation regulation.
Rates will come at a later date. The Commission did not take the opportunity of this initiative to tackle the matter of reduced rates. A legislative proposal will follow in November. Chas Roy-Chowdhury of the ACCA, the association representing the accountancy industry, considers that this will probably be the toughest discussion the member states will hold, from a political point of view.
According to our information, it is more than likely that the Commission is planning to give the member states back total flexibility, as long as the setting of reduced rates is in line with the rules on State aid and in full respect of the budgetary constraints under the Stability and Growth Pact. (Original version in French by Élodie Lamer)