In Luxembourg on Tuesday 2 October, the European finance ministers will try once again to agree unanimously on two politically-related legislative proposals in the field of taxation, the first aiming to apply reduced rates of value added tax (VAT) to electronic publications and the second concerning a VAT reverse-charge mechanism (see EUROPE 11750).
The first text, on electronic publications, which is ardently supported by France but held at deadlock by the Czech Republic, may be adopted without discussion after a political green light was given on Wednesday 26 September, at a meeting of the ambassadors of the member states to the EU.
There have been a few new twists in the tale of the second text, necessitating an exchange of views at ministerial level on Tuesday. For its fourth appearance at the Ecofin Council, the 'reverse charge' dossier may have a positive outcome, several sources agree. France and the Czech Republic are finally reported to have seen eye to eye and all major political points to have been resolved.
However, it is now Romania's turn to stir the pot, highlighting its difficulties in terms of the VAT gap and asking to benefit from the exemption as well, even though it does not meet the required conditions.
According to the text, member states may apply a reverse-charge mechanism if carousel-type fraud on its territory represents more than 25% of its VAT gap. However, Romania does not meet this threshold and does not appear to have all the necessary reporting procedures either.
After two years of negotiations, this Romanian last-minute application has irritated certain diplomatic sources, but a compromise is still within the bounds of possibility.
According to one diplomatic source, the European Commission may also propose further technical aid to tackle the problems faced by Romania in terms of its VAT gap, which are expected to satisfy the country.
Discussions are ongoing, with a view to a solution by Tuesday, a diplomatic source said on Friday 28 September.
However, should Romania decide to block the adoption of the proposal, the Czech Republic would then lose its veto, as the 'electronic publications' dossier, which it has used as leverage throughout the negotiations, will already have been adopted.
'Quick fix'. The legislative proposal to create four 'quick fixes' pending the replacement of the current 'temporary' VAT regime with a permanent system (see EUROPE 11874) has reasonable chances of being adopted, according to several sources.
There is reportedly “more or less” a compromise to refrain, at this stage, from adding the fifth solution called for by France, Italy, Austria, Ireland, Luxembourg and Latvia, namely a VAT exemption for independent groups of persons pooling services and sharing costs.
Readers may recall that at the June Ecofin Council (see EUROPE 12047), France initially opposed an agreement on the four short-term solutions, making their approval of these conditional upon adding the fifth solution, causing the Commission a serious headache.
The Commission's threats to withdraw its proposal seem to have done the trick (see EUROPE 12063). The European institution is expected to make a declaration appended to the minutes of the meeting, proposing specific measures at a later date for independent groups of persons.
Taxation of digital. As for the notorious dossier on the taxation of the digital sector (see EUROPE 11986), this does not officially feature on the agenda of the next ministerial meeting, as the ministers are officially supposed to discuss the dossier in November.
However, this dossier, promoted by France, will be discussed on the sidelines of the Ecofin Council in bilateral meetings, said one diplomatic source, who said that Ireland's grave misgivings have not yet been appeased. Although most countries seem open to discussions on the working group to reach a compromise, Ireland is still refusing to “play the negotiating game”, the source explained.
European list of non-cooperative jurisdictions. The Council is expected to remove Palaos from the European blacklist of non-cooperative jurisdictions in taxation matters. Similarly, Liechtenstein and Peru will come off the 'grey' list of countries that have made commitments.
Furthermore, the regulation to improve administrative cooperation in the fight against VAT fraud will also be formally adopted (see EUROPE 12047).
Money laundering. The fight against money laundering will also be discussed in Luxembourg, on the basis of the Commission's presentation of its latest proposal, which aims to centralise and confer extra powers upon the European Banking Authority (see EUROPE 12094).
Some report that these proposals of the Commission, without consulting the member states, have been felt to be somewhat premature, with the ministers to agree on a European action plan in this area by the end of the year (see EUROPE 12049).
Moreover, according to a different source, discussions on the reform of the three European financial supervisory authorities (ESAs) (see EUROPE 11864), in which this new proposal has just been included, were already struggling at the Council. The source explained that one of the challenges will be to verify whether what the Commission is proposing is indeed limited to the banking sector.
The Austrian Presidency has reportedly stated that it was not anticipating a major exchange of views, although several ministers are expected to take the floor. In particular, the question of creating an independent agency specifically dedicated to this task may be raised (see EUROPE 12015). A diplomatic source reported that France is in favour of this in the medium term.
Finally, following a breakfast given over to the economic situation, which may discuss Italian budgetary policy (see other article), the finance ministers will share their observations on the budgetary exercise of the European Semester 2018, with the specific matter of how the next exercise will fit in, timetable-wise, with the European elections likely to be discussed.
Finally, the ministers will prepare for the meeting of the G20 Finance and the annual general meeting of the IMF, to be held in Bali on 11 and 12 October and from 12 to 14 October respectively. (Original version in French by Lucas Tripoteau, Mathieu Bion and Marion Fontana)