Estonia maintained its veto on value added tax (VAT) for digital platforms (see EUROPE 13408/4) at the ECOFIN Council meeting on Tuesday 14 May. However, the Belgian Presidency of the EU Council does not support the solution proposed by the country.
This text is part of the legislative package on value added tax (VAT) in the digital age (ViDA), which aims to reduce the administrative burden on businesses and combat fraud and comprises three legislative proposals concerning: - single registration; - exchange of information on the basis of electronic invoicing; - digital platforms. Member States have reached agreement on the first two points, but not on the last.
With the shift to the platform economy for booking short breaks or taxi journeys, certain distortions of competition have arisen among traditional suppliers due to different VAT obligations. The aim is to make platforms more responsible for collecting VAT in these sectors.
Mart Võrklaev, the Estonian Finance Minister, explained his reservations at length during the public debate. He wanted to emphasise that this is not a tax on platforms, but a tax on small and medium-sized enterprises (SMEs) that provide their services via a platform. “The costs will be borne by customers, who will pay a higher price when they book their services through a platform, and by SMEs, that will not be able to deduct input VAT”, he said.
Estonia proposes an opt-in system
On the one hand, the Estonian minister considers that the deemed supplier regime “contradicts with the principle of VAT neutrality”, according to which a person whose services are subject to VAT must be able to deduct it. On the other hand, in his view, the proposal establishes a difference in treatment for the same services, depending on whether or not they are provided via a platform. “Services provided through a platform will be more expensive for the customer and the service provider is not able to deduct input VAT, at the same time the price for services provided any other way will not be increased”, argued Mr Võrklaev, lamenting an unfair and disadvantageous position that clearly distorts competition.
He said that he could only support the deemed supplier regime if it was optional and if there were no additional burden and costs for countries that did not apply it, owing to an opt-in system.
Vincent Van Peteghem, Belgium’s Finance Minister, dismissed this option out of hand at the press conference that followed. “We are convinced that what is on the table is actually a quite balanced compromise [...] that all Member States should be able to accept”, he said. “The fact that one Member State currently maintains its reservation will not affect our determination of actually coming and finding an agreement on this text soon. We will keep on working to actually unlock a compromise”, he added.
Paolo Gentiloni, the European Commissioner for Economy, supported Belgium’s proposal during the public debate. “We do not believe that this is an increase in taxation on SMEs. Member States have the option of adapting the application to SMEs according to their national situation”, he argued. He also stressed the need to not separate the issue of platforms from the ViDA package. (Original version in French by Anne Damiani)