4 Value added taxation
| (a) (30406) 5985/09 COM(09) 21
(b) (30407) 5991/09 COM(09) 20
| Draft Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing
Commission Communication on the technological developments in the field of e-invoicing and measures aimed at further simplifying, modernising and harmonising the VAT invoicing rules
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| Legal base | (a) Article 93 EC; consultation; unanimity
(b) —
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| Documents originated | 28 January 2009
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| Deposited in Parliament | 4 February 2009
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| Department | HM Treasury |
| Basis of consideration | EM of 16 February 2009
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| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Document (b) cleared. Document (a) not cleared; further information requested
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Background
4.1 Council Directive 2001/115/EC, the Invoicing Directive, introduced
common Community rules on VAT invoices, thought necessary for
the single market to function properly. The Invoicing Directive
has been incorporated into Council Directive 2006/112/EC, the
VAT Directive. Article 237 of this says that "the Commission
shall present, at the latest on 31 December 2008, a report and,
if appropriate, a proposal amending the conditions applicable
to electronic invoicing in order to take account of future technological
developments in that field".
The documents
4.2 With its Communication (document (b)) the Commission fulfils
the requirement to report on e-invoicing (electronic invoicing).
But it takes the opportunity to discuss wider issues perceived
as weaknesses in VAT legislation. Thus the Commission discusses
not only technological developments in e-invoicing and VAT obstacles
to promoting e-invoicing but also:
- measures to further simplify, modernise and harmonise VAT
invoicing rules, covering issue of an invoice, invoice details
and storage of invoices;
- measures to help tackle VAT fraud, covering chargeability
of tax on intra- Community supplies and right of deduction; and
- other simplification measures, covering cash
accounting.
4.3 On the basis of the Communication the Commission
suggests the need for further legislation, as proposed in the
draft Directive (document (a)). The draft Directive would:
- address the varied application
of the VAT rules on e-invoicing across the Community, a current
deterrent to its widespread acceptability to and use by businesses.
This is to be achieved by allowing businesses to send electronic
invoices under the same conditions as they would send paper invoices
and, in particular, by removing from Member States the option
to require use of an advanced electronic signature or electronic
data interchange;
- address variations in application of the current
invoicing rules across Member States, in order to simplify matters
for businesses and to enable them to take advantage of options
such as self-billing and summary invoices. The provisions concern
mainly the conditions for issuing an invoice, the content of VAT
invoices and the storage of invoices;
- enhance anti-fraud measures by complementing
provisions in a draft Directive and draft Regulation,[25]
primarily concerned with the shortening of the timeframe for recapitulative
statements.[26] The proposal
would create a single date on which tax becomes chargeable, being
the date of the chargeable event as determined by the time of
the supply. By requiring an invoice to be issued by the 15th
day of the month following the chargeable event, the invoice would
remain the principal document evidencing intra-Community supply;
- enhance anti-fraud measures by requiring the
customer to hold an invoice in order to exercise the right to
deduct input tax in all cases where the supplier is required to
issue an invoice — at present in certain cases, such as
reverse charge transactions, the customer is not obliged to hold
a valid invoice in order to exercise the right to deduct. But
the proposal would not prevent Member States from allowing a right
of deduction, subject to other evidence, when a valid invoice
is not available; and
- enable all Member States to offer the cash accounting
scheme[27] as an option
to SMEs with a turnover falling below a threshold, to be determined
by them but no higher than €2.00 million (£1.80 million)
— the UK and some other Member States currently operate
this scheme by way of derogation.[28]
The Government's view
4.4 The Financial Secretary to the Treasury (Mr Stephen
Timms) comments first on the proposal relating to the VAT rules
on e-invoicing saying that the Government views it as a positive
step. He continues that:
- the proposal will be welcomed
by businesses across the Community;
- UK and other Community businesses already benefit
to an extent from a more relaxed regime permissible under existing
rules, which the Government currently applies to UK domestic transactions
and incoming cross-border transactions; and
- the main potential benefit for UK businesses
will be to those involved in cross-border trade within the Community.
4.5 The Minister comments that the picture is less
clear with regard to the more general measures on the VAT invoicing
rules, saying:
- in its Explanatory Memorandum
the Commission has highlighted the benefits of e-invoicing but
has not provided evidence or data on the potential impacts on
the other VAT invoicing elements;
- the Commission says that a full impact assessment
has not been possible bearing in mind the deadline imposed on
it by Article 237 of the VAT Directive; and
- the Government considers it important therefore
that its officials engage with UK businesses on all the key elements
to ensure it fully understands any potential impacts.
4.6 The Minister says that the Government also remains
to be convinced of the arguments for including anti-fraud measures
within this draft Directive, which is primarily intended for the
benefit of business. He adds that the Government will need to
see how these fit with the overall balance of the draft Directive,
which will depend in part on the outcome of any deliberations
and engagement with UK business.
4.7 On the SME simplification measure, related to
the cash accounting scheme, the Minister says that the Government
supports this element of the draft Directive. Noting the UK's
existing derogation to apply this scheme and that the existing
threshold in the UK is below the proposed level, he comments that
the proposal would negate the need for the Government to have
the derogation renewed on a regular basis and would provide greater
flexibility and legal certainty for the future.
4.8 Turning to the financial implications of the
draft Directive the Minister says:
- the proposal on e-invoicing
has the potential to save businesses across the Community considerable
revenue, with the Commission suggesting this could be as much
as €18.00 billion (around £16.20 billion), whilst acknowledging,
given that there are other reasons why businesses may not take
up e-invoicing, the actual amounts will be less;
- the main beneficiaries in the UK will be businesses
involved in cross-border trade within the Community;
- the proposal on cash accounting will not impact
on the UK, unless the Government takes advantage of the higher
threshold;
- the implications of the other elements of the
draft Directive are mixed — there may be potential winners
and losers on an individual basis, though overall the Government
would expect there to be a benefit to UK business; and
- however, as the Commission has not produced an
impact assessment covering these elements, and until the Government
has more information from UK businesses about the possible consequences,
this can only be a tentative assessment.
The Minister tells us that the Government's impact
assessment will follow in due course.
Conclusion
4.9 We clear the Commission Communication, document
(b).
4.10 As for the draft Directive, document (a),
we note both the Government's positive view of the e-invoicing
and cash accounting aspects of the proposal and its caution about
the proposed anti-fraud and more general invoicing measures. Before
we consider this document further we should like to have information
about:
- the outcome of the Government's
discussions with UK business about the proposed measures;
- the Government's impact assessment; and
- in due course, developments in negotiation
of the proposed legislation.
Meanwhile this document remains under scrutiny.
25 (29570) 7688/08: see HC 16-xx (2007-08), chapter
5 (30 April 2008), HC 16-xxviii (2007-08), chapter 5 (22 July
2008) and HC 16-xxxi (2007-08), chapter 11 (15 October 2008). Back
26
Suppliers provide information in recapitulative statements about
what they have supplied to whom in other Member States. In the
UK they are known as EC Sales Lists. Back
27 The scheme enables SMEs to account for VAT on the
basis of cash payments made or received, rather than on an invoice
date basis. Back
28
(28040) 16810/06: see HC 41-ii (2006-07), chapter 17 (29 November
2006). Back
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