Brussels, 05/05/2006 (Agence Europe) - On Friday 5 May, the Ecofin Council tried to agree on a timescale for the adoption and coming into effect of a legislative package simplifying the rules on value added tax (VAT) for companies which operate across borders. Among the proposals there are the creation of a system of one-stop shops for VAT procedures and the change of the place of provision of services supplied remotely (see EUROPE 8821 and 8996). The stated aim of the Presidency is to reach a unanimous political agreement at the Ecofin Council in June.
The legislative package on the table goes a long way towards simplification of the rules, a clear reduction in costs for firms and fair competition between Member States, said Karl-Heinz Grasser, Austrian Finance Minister. He thought the reaction of national delegations was encouraging because most Member States supported the proposals to adapt the VAT regime to our time when services are more and more provided remotely. Laszlo Kovacs, European Tax Commissioner, said he thought competition distortion had to be avoided. If the current rules were retained, companies would go and set up where VAT levels were lowest, he said.
The Austrian Presidency's approach is a two-stage one to arrive at the setting up of a one-stop shop system by 2010. Totally electronic and voluntary, the system would allow firms operating across borders to meet their obligations only in the Member State in which they were established. The first stage consists of sorting out the immediate problems. Notably, the directive on e-commerce applicable to remote services, such as radio broadcasting and telecommunications, could be extended by three years from 1st July 2006. Mr Kovaks also said that in May the Commission would adopt a proposal that should be formally adopted by the Council in June. Subsequently, the Austrian Presidency proposes that the change of the place of provision of services supplied to businesses (B2B) come into effect on 1st January 2008.
On the location of provision of B2C services, the Austrian Presidency suggests a gradual change, namely 1) for rules covering B2C broadcasting and telecommunications services to come into force on 1 January 2008 and for the e-services directive to cover broadcasting and telecoms services from 1 January 2008 onwards also; and 2) for rules on the provision of B2C real estate and catering services to be changed on 1 January 2008, and for rules on e-services (Annex L of Directive 77/388/EEC on VAT systems) to be changed in 2010.
Three Member States - Germany, Luxembourg and Portugal - expressed reservations about the ideas behind the VAT package. For both Luxembourg and the Portuguese island of Madeira, the standard VAT rate is 15% and they fear losing some of their power of attraction. The Commission explained that the mindset in Germany still thought of 16% VAT as the ideal rate, despite Chancellor Angela Merkel's threat to increase VAT to 19% at the beginning of next year.