19 Value Added Tax
| (25221)
5051/04
COM(03) 822
| Draft Council Directive amending Directive 77/388/EC as regards the place of supply of services
|
| Legal base | Article 93 EC; consultation; unanimity
|
| Document originated | 23 December 2003
|
| Deposited in Parliament | 8 January 2004
|
| Department | HM Customs and Excise
|
| Basis of consideration | EM of 14 January 2004
|
| Previous Committee Report | None; but see (23963) 13534/02: HC 63-i (2002-03), para 27 (20 November 2002)
|
| To be discussed in Council | Not known
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared, but relevant to the forthcoming debate in European Standing Committee B on Value Added Tax
|
Background
19.1 In October 2002 the Commission published a Communication
reviewing the definition of "the place of supply of services"
for Value Added Tax (VAT) purposes.[36]
The Commission's Communication of October 2003 on wider VAT issues,
which we have recommended for debate in European Standing Committee
B, also covered this issue.[37]
The document
19.2 The draft Directive would amend the Sixth VAT Directive,
77/388/EEC, in relation to the rules determining the place of
taxation for supplies of services made by one business to another.
Presently most supplies of services are treated as made where
the supplier is established. For the future they would as far
as possible be taxed where they are consumed. They would be treated
as made where the customer is established, with exceptions for
services related to
- land (building services, surveyors);
- passenger transport;
- services involving physical performance (artistic,
sporting, entertainment); and
- certain other tangible services for immediate
consumption (hairdressing, car rentals).
The Government's view
19.3 The Paymaster General (Dawn Primarolo) says:
"As set out in the report attached to a letter
dated 7 November 2003 on the Commission's Communication on the
review and update of VAT strategy priorities,[38]
the UK believes that the current rules are outdated and can lead
to distortion of competition. They mean that VAT is charged at
the rate set by, and accrues to, the government in the supplier's
country even if the services are consumed in another country.
VAT is a tax on consumption, and so the current rules are not
consistent with the underlying principle that supplies should
be taxed where they are consumed. As more and more services are
being supplied across borders, increasing amounts of tax are not
charged in the place of consumption.
"The Government fully supports the Commission's
overall aim to achieve taxation in the place of consumption, and
this proposal represents a significant step in the right direction."
19.4 The Minister also tells us that businesses consulted
are generally very supportive of change to the definition of the
place of supply.
Conclusion
19.5 We clear the document, but note that it is
relevant to the debate we have recommended on the Commission's
Communication on wider VAT issues.
36 See headnote. Back
37
See (24978) 13853/03; HC 42-i (2003-04), para 1 (3 December 2003). Back
38
ibid. Back
| 
