The European Commission’s proposal to exempt from value added tax (VAT) the goods and services that the EU makes available to Member States and citizens in times of crisis (see EUROPE 12696/8) is giving Member States a hard time. To overcome the blockage, the Portuguese Presidency of the EU Council is proposing a temporary solution for exemptions linked to the response to the Covid-19 pandemic.
This is what is revealed in a Presidency note, prepared in view of the ECOFIN Council of 18 June, during which European Finance Ministers will hold a policy debate on the text. The Member States’ ambassadors to the EU (Coreper) will discuss the dossier on Friday 11 June.
Only consulted on tax matters, the European Parliament gave a favourable opinion on this proposal in mid-May (see EUROPE 12721/18).
In the EU Council, discussions are proving to be much more complicated and many concerns seem to have been raised by Member States regarding the scope of the proposal, the lack of an impact assessment, the implementation period, or the electronic certificate.
According to the note, a second compromise proposal was submitted by the Portuguese Presidency for approval under a silence procedure, but ten Member States vetoed the procedure for various reasons. During a further working group discussion on 1 June, some delegations still felt that the dossier was not yet ready for adoption.
We must remember that, even if its scope is broader, the adoption of this new proposal remains particularly relevant and urgent in view of the Covid-19 pandemic. The Commission had suggested that Member States retroactively apply the new VAT exemption to transactions carried out from 1 January 2021.
The Presidency therefore proposes, in the short term, to limit the scope of the proposal to temporary exemptions linked to the response to the Covid-19 pandemic, which, given the urgency, could be approved by written procedure; and - in a second phase - to continue the discussion on a technical level on a permanent exemption from VAT linked to the response to future crises.
Some Member States think that the scope of the proposal is too broad, and that a proper impact assessment is needed. In its previous compromise, the Presidency tried to reduce the scope, by specifying in particular that only imports or purchases made by the European Commission or an EU agency or body, and intended to prevent, prepare for or respond to emergencies and situations caused by natural disasters, humanitarian crises or extraordinary circumstances with comparable effects, may be exempt from VAT.
Another obstacle is the proposal to replace the traditional exemption certificate with an electronic certificate. Some Member States are not yet fully convinced and have expressed doubts about its scope, the necessary IT solutions, and the timetable for its implementation.
See the note: https://bit.ly/3x4QZcT (Original version in French by Marion Fontana)