10 Value added taxation
| (30406)
5985/09
COM(09) 21
| Draft Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing
|
| Legal base | Article 113 TFEU; consultation; unanimity
|
| Department | HM Treasury
|
| Basis of consideration | Minister's letter of 29 March 2010
|
| Previous Committee Report | HC 19-ix (2008-09), chapter 4 (4 March 2009)
|
| Discussed in Council | 16 March 2010
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
10.1 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 which says "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".
10.2 In that report, published in January 2009,
the Commission took the opportunity to discuss wider issues perceived
as weaknesses in VAT legislation. Thus the Commission discussed
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.[23]
10.3 On the basis of that report the Commission
suggested the need for further legislation, as proposed in this
draft Directive. 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,[24]
primarily concerned with the shortening of the timeframe for recapitulative
statements.[25] 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[26] 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 operated
this scheme by way of derogation.[27]
10.4 When we considered this proposal, in March
2009, we noted both the Government's positive view of the e-invoicing
and cash accounting aspects of draft Directive and its caution
about the proposed anti-fraud and more general invoicing measures.
We asked, before considering the document further, 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 the document remained under scrutiny.[28]
The Minister's letter
10.5 The Financial Secretary to the Treasury
(Mr Stephen Timms) now says that the Government's discussions
with UK business about the proposed measures have been carried
out informally during negotiation of the proposed legislation.
On the interplay between the views of UK business and the negotiations,
the Minister reminds us first of the intention to address the
varied application of the VAT rules on electronic invoicing across
the EU, a current deterrent to its widespread acceptability and
use by businesses, by removing the options that enabled Member
States to require the use of an advanced electronic signature
or electronic data interchange. He comments that this would enable
businesses to be free to send electronic invoices under the same
conditions as they would send paper invoices, an approach which
the Government and UK business supports.
10.6 Turning to the part of the draft Directive
concerning the VAT rules on invoicing more generally, where the
aim is to remove some inconsistencies in the current rules, the
Minister says that:
- this was mostly uncontroversial
and supported by UK business;
- one aspect, however, was opposed by the exempt
sector, including in particular financial and insurance businesses;
- this was a provision making it compulsory for
all businesses to issue VAT invoices for all supplies, including
those exempt from VAT, in contrast to the present situation which
allows Member States to release businesses from that obligation
in respect of exempt supplies made in their territory;
- this option applies in the UK, so the proposed
provision had a potential negative impact on these exempt sectors,
as it would have increased their administrative burdens substantially;
and
- the finance and insurance sectors were able to
provide a solid body of evidence to demonstrate that and the Government
was therefore able to pass this information on to other Member
States to help inform the negotiation process.
10.7 On that part of the draft Directive concerning
measures to combat VAT fraud, the Minister reminds us that the
Government remained to be convinced of the arguments for including
fraud measures within this set of proposals, which were predominantly
for the benefit of business. He then says that:
- in the event UK business made
strong representations about the way the proposed shortening of
the timeframe for recapitulative statements would work in practice;
- there were two principal objections to this proposed
change;
- first, as drafted, the provision would also impact
on the treatment of domestic invoices — while businesses
could accept that there was a rationale for a change with regard
to intra-EU supplies, they could see no sense in changing the
current treatment Member States apply to invoices within their
territory;
- the second objection was a practical one —
most businesses do not keep a record of the chargeable event and,
indeed, in some cases it can be rather difficult to tie down;
and
- such a rule was potentially unworkable and would
impose unnecessary additional burdens — by contrast, a rule
based on the date of invoice could work, was practical and would
not impose unnecessary additional burdens.
10.8 The Minister then reminds us, in relation
to the aspect of the draft Directive enabling all Member States
to offer the cash accounting scheme as an option for SMEs below
a certain turnover threshold, that this is already applied in
the UK (and some other Member States) by derogation and comments
that it is important to UK SMEs that this continues.
10.9 Turning to the actual development of the
negotiations on the proposed Directive the Minister tells us that:
- initial discussions commenced
under the Czech Presidency in the first half of 2009, based on
the original Commission draft;
- the Swedish Presidency continued the discussions
during the second half of 2009, based on its compromise texts;
- more recently the Spanish Presidency made the
matter a VAT priority, produced a large number of texts and held
many meetings in quick succession over recent weeks;
- five such texts moved away from the Commission's
proposal for facilitating the take-up of electronic invoicing,
changed the approach to the obligation to invoices for exempt
supplies and did not address the practical issues raised by UK
business in relation to domestic invoices; and
- from the Government's perspective, none of these
texts were wholly acceptable, given the valid concerns UK business
had raised.
10.10 The Minister says that the Government therefore
continued to press for substantial improvements to the draft Directive
and finally, on 12 March 2010, a sixth text emerged which:
- retained, for electronic invoicing,
the principles that the Commission aspired to and would enable
businesses to be free to send electronic invoices under the same
conditions as they would send paper invoices;
- would therefore help provide the right sort of
environment for greater take up of electronic invoicing in the
future and potentially reduce business burdens across the EU;
- included an option to enable a Member State to
remove the obligation to issue VAT invoices for exempt supplies
made in its territory;
- introduced a mandatory provision to remove the
obligation to issue VAT invoices in respect of cross border exempt
finance and insurance supplies within the EU;
- included the fraud provision, but without an
impact on domestic treatment;
- changed the rules for cross-border supplies so
that they would be based on the date of invoice and thus more
practical from a business perspective; and
- provided the legal base for the Government to
continue to operate the cash accounting scheme, once the UK's
existing derogation runs out at the end of 2012.
10.11 The Minister then says that:
- the Presidency presented this
text of the draft Directive to the ECOFIN Council for agreement
as a general approach;
- the Council, on 16 March 2010, agreed the general
approach, with inclusion in the text of a review clause which
would require the Commission to assess (based on an independent
economic study) the effectiveness of the new rules on electronic
invoicing by 31 December 2016;
- given that this text so closely reflected the
Government's negotiation priorities and the very real risk that
any further delay would potentially put hard won gains at risk,
it accepted the general approach, as did all other Member States;
and
- following some final tidying up of the text,
the Government expects the draft Directive to go forward to a
future Council, possibly on 8 June 2010, for adoption.
10.12 The Minister encloses with his letter an
impact assessment based on the most recent text of the draft Directive.
This shows that there would be no additional costs for the Government
or UK business and that UK business would benefit annually, over
the first five years, from a reduced administrative burden worth
between £0.9 million and £8.5 million.
10.13 Finally the Minister says:
"While it is regrettable that the scrutiny procedures
were not completed I hope that you can understand why the UK accepted
the general approach, given the circumstances."
Conclusion
10.14 We note that the text of this draft
Directive, to which the Government has agreed, meets its own objectives
and those of UK business and so we clear the document.
10.15 However, we are concerned about the
clear breach of the scrutiny reserve resolution occasioned by
the Government's participation in the general approach on the
draft Directive. We note the Minister's account of the intensive
discussions in the final stages of Council negotiations but find
unacceptable both:
- the lack of any indication
that the Government's negotiators attempted to assert the parliamentary
reserve; and
- the unapologetic and rather throwaway comment
of the Minister about non- completion of scrutiny procedures.
23 (30407) 5991/09: see HC 19-ix (2008-09), chapter
4 (4 March 2009). Back
24
(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
25
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
26
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
27
(28040) 16810/06: see HC 41-ii (2006-07), chapter 17 (29 November
2006). Back
28
See headnote. Back
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