5 VALUE ADDED TAXATION
(30967)
13868/09
COM(09) 511
| Draft Council Directive amending Directive 2006/112/EC as regards an optional and temporary application of the reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud
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| Legal base | Article 93 EC; consultation; unanimity
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| Document originated | 29 September 2009
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| Deposited in Parliament | 2 October 2009
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| Department | HM Treasury |
| Basis of consideration | EM of 12 October 2009
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| Previous Committee Report | None
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| To be discussed in Council
| Not known |
| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
5.1 The Community legislation governing VAT requires the vendor
of a good or service to account for tax due. A reverse charge
mechanism requires the recipient of such a supply, rather than
the vendor, to account for the tax.
The document
5.2 This draft Directive would allow a change to the normal VAT
rules to permit Member States to opt to apply a reverse charge
mechanism until 2014 to a maximum of three categories of supplies
drawn from a short list contained in the proposal. Member States
would be able to specify a maximum of two supplies of goods, from
mobile telephones, computer chips, perfumes and certain precious
metals, together with supplies of emissions allowances forming
part of the Emissions Trading Scheme under Directive 2003/87/EC.
The Commission presents the proposal as part of its response to
Missing Trader Intra-Community fraud. The categories selected
are the supplies where the Commission has most evidence of such
fraud and where, in some cases, alternative treatment already
applies. A reverse charge would ensure that a seller could not
disappear with tax which has been charged and paid, but not accounted
for to the tax authorities.
5.3 The list of supplies proposed by the Commission
is limited so as to help it to evaluate the anti-fraud and wider
effects of the introduction of the reverse charges. Therefore
the option offered in the draft Directive is:
- subject to conditions and reporting
requirements, for both Member States and businesses, designed
to help with the evaluation; and
- given the experiment represents a new and systematic
departure from the normal rules, limited to December 2014.
The Government's view
5.4 The Financial Secretary to the Treasury (Mr Stephen
Timms) says that the Government welcomes the production of a Community
solution to Missing Trader Intra-Community fraud in relation to
emissions allowances and which will allow the continuation of
the Government's existing reverse charge for mobile telephones
and chips. The Minister adds that in July 2009 the Government
acted promptly to prevent the growth of Missing Trader Intra-Community
fraud using emissions allowances by introducing a zero rate and
that the proposed reverse charge will be equally effective as
a solution.
5.5 However, the Minister comments further that:
- the Government has some reservations
as to whether the appropriate balance has been achieved in the
proposal between burdens on business and the need for information
to control, monitor and evaluate the temporary arrangement;
- the draft Directive would require Member States
to introduce additional reporting requirements for both the vendor
and the purchaser involved — in terms of the benefit to
tax authorities and the burden on business a mandatory requirement
may not in all cases be justified; and
- the Government would like to explore whether
the proposed commodities are the most appropriate and whether
a restriction to three, from a list of five options, best serves
the interests of Member States in tackling fraud and of the analysis
of the experiment.
The Minister says also that there are likely to be
financial implications arising from the proposal for both the
tax authorities and business.
Conclusion
5.6 Any attempt to reduce Missing Trader Intra-Community
fraud is welcome and we assume that there will be a willingness
to adopt the legislation for this experiment without undue delay.
Nevertheless, before we consider this document further we should
like to hear from the Government:
- about progress in addressing
the concerns expressed on the potential reporting burden on businesses
and on the choice of commodities covered by the proposal; and
- with more detail about possible financial
implications for tax authorities and businesses.
Meanwhile the document remains under scrutiny.
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