Berlin, 23/04/2007 (Agence Europe) -Meeting informally in Berlin, the European finance ministers on Saturday discussed the fight against tax fraud on value-added tax (VAT). Although all spoke out against a phenomenon which is widespread within the EU, they did not manage to agree on instruments to fight it, which requires the unanimous agreement of all Twenty-Seven in order to be implemented in one member state. Germany, supported by Austria, would like to apply the so-called reverse charge mechanism, whereby a taxable person who buys a good is liable to pay VAT, rather than the taxable person selling it. The other member states are wavering between scepticism and opposition. “Germany and Austria are highly ambitious”, whilst the other member states are “extremely sceptical”, acknowledged Peer Steinbrück after the session. The German finance minister stuck to his guns: “the German idea is not amoral and as horrible” as it has been made out to be and “this model already exists in certain member states”, referring to the United Kingdom in particular, which was recently authorised to apply this model to certain technological products (see EUROPE 9408). “All 16 Länder have come to the conclusion that this model would be the most efficient contribution possible to fighting VAT fraud”, which has been estimated at “€3.5 billion” in Germany, he added, storming: “this is not small beer!”. The current president of the Ecofin Council then spoke of the ambiguity in his country's attitude with regard to other legislative matters in the field of taxation. Germany - though more moderately since the start of the year - has made the adoption of the legislative package simplifying VAT returns through national one-stop shops conditional on EU authorisation of application of the reverse charge mechanism (see EUROPE 9316 and 9227). “I do not think the VAT package will be adopted under German presidency. Maybe under Portuguese presidency?” Mr Steinbrück said.
European finance ministers asked the Commission to carry out a detailed study of arrangements for the measure. Taxation Commissioner Lásló Kovács indicated that this would not ready before the end of the year. “For the first time,” he added, there had been a “ministerial debate” which allowed the arguments for the reverse charge mechanism and also the concerns of all to be heard. Luxembourg and the Netherlands gave their backing to the launch of a time limited pilot. Malta, the United Kingdom, Poland and Sweden felt the matter should be given greater consideration, with Malta and Poland indicating they did not favour an optional system which would inevitably mean two systems running in parallel. Spain, Greece, Italy and Portugal were unhappy with the Germano-Austrian request, while France, Finland, the Czech Republic and Romania were firmly opposed to it. These countries were concerned about the negative consequences on the internal market. According to an internal Council document, they feel the measure would not prevent tax-free goods from reaching the black market in another member state, and would create a distortion in competition to the advantage of companies which transfer their activities to member states where the reverse charge mechanism is applied. They are concerned, too, about the inconsistency in European tax legislation which would result from a mechanism connected with a sales tax. (mb)