VALUE ADDED TAX
(21355)
9337/00
COM(00) 348
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Commission Communication on a strategy to improve the operation of
the VAT system within the context of the internal market.
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| Legal base:
| — |
| |
| Document originated:
| 7 June 2000 |
| Forwarded to the Council:
| 8 June 2000 |
| Deposited in Parliament:
| 27 June 2000 |
| Department: |
HM Customs and Excise |
| Basis of consideration:
| EM of 7 July 2000 |
| Previous Committee Report:
| None |
| To be discussed in Council:
| No date set |
| Committee's assessment:
| Politically important |
| Committee's decision:
| Cleared |
Background
11.1 When the First and Second VAT Directives
were adopted in 1967, the Community committed itself to establish
in due course a common VAT system under which, in intra-Community
trade, the VAT on "imports" and non-taxation of "exports"
would be abolished. Proposals to that end were put forward in
1987, in connection with establishing the internal market by January
1993, and were designed to achieve the application of VAT in the
country of origin. These did not progress and in 1989 the Council
adopted a so-called transitional system which enabled VAT to continue
to be collected in the Member State of destination whilst abolishing
internal tax borders. At the same time, the Council reaffirmed
its 1967 commitment to introduce a definitive VAT system in which
goods and services would be subject to VAT in the Member State
of origin and set a new target date of 1996. However, proposals
put forward by the Commission in 1996 have not progressed. In
its latest Communication, the Commission attributes lack of progress
to the unwillingness of Member States to agree to the necessary
degree of harmonisation of VAT systems and rates. On the other
hand, it is recognised that the transitional VAT arrangements
are over-complex and susceptible to fraud. The Commission estimates
intra-Community trade to be worth about 930 billion euro annually,
on which VAT accounts for about 162.75 billion euro. The Commission's
estimate of five percent fraud amounts to a loss of eight billion
euro in tax.
The document
11.2 The Commission's Communication sets
out a new strategy for improving the transitional VAT system over
the next five years, without prejudice to its commitment to introducing
a permanent régime based on the principle of taxation in
the country of origin.
11.3 The strategy is based on three main
objectives:
- simplification and modernisation of existing
rules;
- more standardised application of the present
provisions; and
- reinforcement of co-operation between Member
States' tax administrations.
11.4 Three phases are envisaged. In her
Explanatory Memorandum of 7 July 2000, the Paymaster General (Dawn
Primarolo) summarises these as follows:
"Phase One of the Commission's new programme,
which is scheduled for 2000 and 2001, involves pressing for adoption
by the Council of the following four proposals which have already
been tabled:
"— changes
to the status of the EC VAT Committee;
"— improving mutual assistance on
the recovery of debts;
"— reform of the current rules on
the right to deduct input tax and the recovery of VAT incurred
in other EU Member States (8th VAT Directive refund scheme) and
"— reform of the rules on tax representatives
in Member States where a business is not VAT registered.
"Phase Two, which is also scheduled for
the period 2000 and 2001, will involve the Commission putting
forward proposals on the following issues:
"— postal services (June/July 2000);
"— place of taxation of electronic
commerce (published 7 June 2000);
"— standardisation of the rules on
invoicing, including electronic invoicing (Autumn 2000);
"— revision of the rules on administrative
co-operation and mutual assistance (December 2000); and
"— renewal of the current provisions
on a minimum standard rate of VAT (July 2000).
"In December 2000 the Commission also plans
to present a report on the application of reduced VAT rates in
EU Member States.
"The Third Phase will involve the Commission
preparing a report on progress with Phases One and Two, and deciding
on priorities for the remainder of the work programme from a list
which includes:
"— the treatment of subsidies, public
authorities and services in the public interest;
"— treatment of financial and insurance
services;
"— reform of the rules on the supply
of goods;
"— a general review of the rules on
the place of taxation of services;
"— rationalisation of derogations
to the Sixth VAT Directive;
"— rationalisation of VAT rates; and
"— a review and possible overhaul
of the special VAT schemes for small businesses."
The Government's view
11.5 The Minister says that:
"The UK will need to
consider the Commission's document carefully, but welcomes recognition
that it is better to modernise the current existing VAT system,
than try to work towards the introduction of a Common VAT system
based on taxation in the country of origin.
"The UK considers that our objective must be
to simplify and modernise the current system, so as to reduce
costs and burdens on EU businesses and to prepare the system for
new developments, especially e-commerce. The UK also agrees on
the need to introduce enhanced administrative co-operation measures
to tackle fraud.
"Each issue in the Commission's programme either
is, or will be, the subject of a separate proposal. These will
all be subject to detailed examination and debate and the UK will
consider each of these proposals in turn. Any changes to the EC
VAT system will require the unanimous agreement of Member States."
Conclusion
11.6 This document represents the start
of an important new development in the long history of the application
of VAT in intra-Community trade. Some individual elements will
no doubt prove difficult and controversial, for example in relation
to VAT on e-commerce, where the Commission intends that electronically
delivered services supplied from elsewhere for consumption within
the EU should be subject to VAT. We shall report on individual
proposals as they come forward. Meanwhile, we clear this document.
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