It came as no major surprise that the European finance ministers, meeting for their Council in Luxembourg on Friday 22 June, failed to reach an agreement on the infamous four 'quick fixes' proposed pending the replacement of the current 'temporary' VAT regime with a definitive system (see EUROPE 11874).
Readers may recall that it was the addition of a fifth solution, following several judgements of the Court of Justice of the EU (see EUROPE 11867), that split the member states, specifically: a VAT exemption for autonomous groupings of persons pooling services and sharing costs.
“We have the possibility to conclude something today [Friday 22 June: Ed] or nothing at all”, summed up the Bulgarian finance minister, Vladislav Goranov. It ended up being 'nothing at all', as France and Italy opposed an agreement on the four short-term solutions, making their approval of these conditional on the addition of the fifth solution, which is causing the Commission major headaches.
The Commission opposes the fifth solution for several reasons. Firstly, because an optional exemption of this kind would damage the proper functioning of the single market, explained the European Commissioner for Taxation, Pierre Moscovici. He also considers that limiting its application to just one member state would also bring about discrimination regarding freedom of establishment.
But in particular, this fifth solution was not part of the Commission's initial proposal and the Commissioner considers that its inclusion impinges on its right of initiative. He also stressed that the addition was not possible without its agreement.
“We will see what happens if it stays”, he added. According to our information, the Commission may decide to withdraw its proposal if that is the case.
Even so, several member states wish to push forward. One of these is Spain, which called for the four solutions to be adopted without delay, whilst launching a debate on the VAT regime in the financial sector in parallel. “Let's be grown-up about this”, added the Swedish minister, Magdalena Andersson.
As for Denmark, it reported its Parliament's strong opposition to this solution, over both the potential loss of revenue and substantive issues between four solutions concerning goods and a fifth dealing with services.
Already anticipating its forthcoming Presidency of the Council of the EU, Austria showed a consensual spirit by stressing that it was open to an agreement now, as long as there is a clear commitment from the Commission to work quickly on cost-sharing – a commitment that Commissioner Moscovici immediately provided.
At the end of the meeting, the stand-off between France and the Commission was still ongoing, with each side sticking to its guns. Paris wants to “make a decision on the basis of the full picture”, explained French ambassador Philippe Léglise-Costa, in other words either continuing work on the compromise text of the Bulgarian Presidency on the fifth 'quick fix', or by resubmitting the text to the ministers once the Commission has put forward a concrete alternative.
Moscovici, however, was immovable: “an appropriate response to the fifth matter will not be a fifth quick fix. This is 'no way' and we all know it”, he warned. He considers that the best way forward now would be to split these matters into two at the next meeting of the Ecofin Council. (Original version in French by Marion Fontana)