The directive on the simplification of value added tax (VAT) for small and medium-sized enterprises (SMEs) has been removed from the agenda of the Ecofin Council on 17 May, according to a European source. Several countries, including Germany, the Netherlands, Ireland and the United Kingdom, reportedly considered that the text was not yet ready for a ministerial discussion.
Introduced in January 2018, the Directive aims to amend the current rules in order to reduce VAT costs for SMEs (see EUROPE 11942/2).
In a working document, dated 6 May, of which EUROPE has obtained a copy, the Romanian Presidency of the Council of the EU identifies the issues that remain to be resolved.
The thresholds. The current rules allow Member States to exempt SMEs from VAT on the basis of a turnover threshold set at national level. Without questioning these national thresholds, the Commission has proposed the addition of a European threshold, which will cover all companies whose annual turnover throughout the EU does not exceed €2 million.
According to the document, Member States have not yet reached unanimous agreement on the annual turnover threshold up to which supplies of goods and services by small businesses in their home Member State may be exempt from VAT.
The Romanian Presidency's compromise text currently proposes maintaining the threshold proposed by the Commission, namely €85,000. But some countries find this threshold too high while others find it too low.
The compromise text also modifies the Commission's proposal where companies occasionally exceed the annual turnover threshold. The Commission wanted to allow small businesses to continue to use the SME franchise when their turnover in any given year exceeds the SME threshold by a maximum of 50%.
The compromise text currently tabled by the Council of the EU provides that when, in any calendar year, the threshold is exceeded by a maximum of 10%, an SME may continue to benefit from the exemption during that year. If the threshold is exceeded by more than 10%, however, the exemption ceases to apply as of that time.
The Commission also proposed that an SME could be exempt from VAT in a Member State other than the one in which it is established, under two conditions: on the one hand, if its annual turnover is lower than the threshold applicable in that Member State and, on the other hand, if its overall turnover in the single market does not exceed €100,000. However, on this issue the Council has not yet reached agreement either.
Some discrepancies also remain as regards the exemption for certain SMEs from identification by an individual number or the frequency of SME declarations to the tax authorities.
The date of application. The Commission had proposed that the new rules should apply from 1 July 2022, but many delegations requested more time to adapt their national law and computer systems to conform to the new rules.
In its compromise text, the Presidency then proposes to postpone the deadline for transposing the Directive into the national laws of the Member States to 31 December 2023 and the date of application of the new provisions to be 1 January 2024.
Again, there is no consensus on the proposed date. Some countries would like to extend the deadline further until 1 January 2025, and one Member State until 1 January 2026.
In its opinion, delivered in September 2018 (see EUROPE 12093/4), the European Parliament considered that the deadline of 2022 was already too long and proposed to bring forward the date of application to 31 December 2019.
The list of issues to be resolved between the Member States is very long, but the Presidency still hopes to reach agreement in the Council of the EU by June. (Original version in French by Marion Fontana)