14 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
|
| Legal base |
Article 93 EC; consultation; unanimity |
| Department | HM Treasury
|
| Basis of consideration |
Minister's letter of 17 November 2009 |
| Previous Committee Report |
HC 19-xxviii (2008-09), chapter 5 (21 October 2009)
|
| To be discussed in Council
| 2 December 2009 |
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
14.1 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.
14.2 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.
14.3 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.
14.4 When we considered this proposal last month
we heard that:
- the Government welcomed the production of a Community
solution to Missing Trader Intra-Community Fraud in relation to
emissions allowances and which would allow the continuation of
the Government's existing reverse charge for mobile telephones
and chips;
- in July 2009 the Government had acted promptly
to prevent the growth of Missing Trader Intra-Community Fraud
using emissions allowances by introducing a zero rate; and
- the proposed reverse charge would be equally
effective as a solution.
14.5 However, the Government told us also that it
had some reservations as to some aspects of the proposal. So we
said that before considering the matter further we wanted to hear:
- about progress in addressing the concerns the
Government had expressed on the potential reporting burden on
businesses and on the choice of commodities covered by the proposal;
and
- more detail about possible financial implications
for tax authorities and businesses.
Meanwhile the document remained under scrutiny.[45]
The Minister's letter
14.6 The Financial Secretary to the Treasury (Mr
Stephen Timms) writes now to tell us of developments during negotiations
on this proposal. He reports first on the issue of the commodities
to be covered by the reverse charge mechanism, saying that:
- it is clear that Member States' overriding concern
is to put in place quickly a Community response to VAT fraud in
emissions allowances traded under the Community's Emissions Trading
Scheme;
- the difficulties and the implied delay in achieving
agreement on a list of goods to be included in the pilot have
resulted in a compromise text which currently limits the experiment
to just mobile telephones, computer chips and emissions allowances;
- Member States may opt to apply the reverse charge
to any or all of these commodities;
- the Government's earlier concerns about restrictions
to the list of goods and the items on it therefore fall away —
the categories of supplies now covered are clearly key commodities
involved in Missing Trader Intra-Community Fraud;
- nevertheless, the scope of the experiment is
not yet agreed as some Member States believe that it should be
limited to emissions allowances alone as a specific, high profile,
response to an emerging problem; and
- the Commission has confirmed that the VAT Directive
derogation route (which allows a Member State to apply for a derogation
from some of the rules in the VAT Directive) remains open for
Member States seeking to apply a reverse charge to specific commodities.
14.7 The Minister tells us that the compromise text
also removes the Government's reservations over the balance between
burdens and the need for information to control, monitor and evaluate
the temporary arrangement. He says that:
- the new text no longer requires Member States
to introduce additional reporting requirements for both purchasers
and vendors;
- instead, with regard to goods it allows Member
States to decide what additional reporting is necessary given
the context of the current information required by the tax authorities;
- for emissions allowances there is no requirement
to introduce additional reporting requirements —there is
already a system of national registries which track the ownership
of emissions allowances;
- supplies are between businesses which usually
have a full right to deduct — this means that there is little
risk of tax loss and a new system of reporting is unlikely to
be proportionate; and
- the experiment is still optional, but, in order
to allow for a more thorough experience and evaluation, it has
been prolonged by six months until 30 June 2015.
14.8 The Minister says, with regard to the impact
on UK business, that:
- the compromise text allows for a far less onerous
reporting regime than in the original proposal;
- since the Government can keep its existing reporting
regime for mobile telephones and chips and is not required to
introduce new measures for emissions allowances, it does not anticipate
that there will be an increase on burdens on business from this
part of the proposal;
- there will be an increase in burdens for businesses,
however, from the move to a reverse charge for emissions allowances,
as accounting mechanisms will need to be changed as well as training
developed and delivered; and
- the Government has not been able to quantify
those costs but stakeholders that it has consulted generally appear
to support the reverse charge as a long term solution to the problem
of fraud in emissions allowances and have been most concerned
about additional reporting requirements.
14.9 The Minister continues that:
- similarly, the compromise proposal means that
the UK authorities will not be required to receive and process
either reports of purchases for mobile telephones and chips in
addition to the existing arrangements;
- nor will they be required to introduce new reporting
requirements for dealings in emissions allowances; and
- this means that there should be no additional
costs for HM Revenue and Customs arising directly from the requirements
of the Directive.
14.10 Finally the Minister says that the latest version
of the compromise text is being taken forward for discussion at
the 2 December 2009 ECOFIN Council, where the Swedish Presidency
hopes to reach agreement and that therefore, given the political
imperative behind reaching agreement as soon as possible in order
to protect the integrity of one of the Community's flagship environmental
policies, the Government may acquiesce in that agreement.
Conclusion
14.11 We are grateful for the Minister's account
of developments on this proposal, which seem to meet the earlier
concerns. We have no further questions to ask and now clear the
document.
45 See headnote. Back
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