16 Value added taxation
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12391/10
COM(10) 381
| Draft Directive amending Directive 2008/9/EC laying down detailed rules for the refund of VAT, provided for in Directive 2006/112/EC, to taxable persons not established in the Member State of refund but established in another Member State
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| Legal base | Article 113 TFEU; consultation; unanimity
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| Department | HM Treasury
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| Basis of consideration | Minister's letter of 27 September 2010
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| Previous Committee Report | HC 428-i (2010-11), chapter xx (8 September 2010)
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| Discussed in Council | September 2010
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
16.1 Under Council Directive 2008/9/EC, with effect from 1
January 2010, VAT registered taxpayers have until 30 September
of the calendar year following the refund period to submit their
VAT refund claims. This means, for example, that businesses had
until 30 September 2010 to submit any VAT refund claims in respect
of the 2009 calendar year. Under the previous paper-based EU VAT
refund system, businesses only had a six-month period to submit
their refund claims, so the new arrangements are relatively generous
and business-friendly. However, although Member States tax authorities
were meant to have their electronic VAT refund portals up and
running from 1 January 2010, a small number did not do so until
mid-May 2010.
16.2 Council Directive 2008/9/EC specifies in
some detail the core common data fields that must be included
on each Member State web-based portal. However, Member States
have had divergent views about the detailed design of their own
portals. Some businesses have contended that the different approaches
adopted by tax administrations make it difficult for them to submit
claims in several Member States.
16.3 Given the delay in some Member States in
setting up electronic VAT refund portals the Commission presented
this draft Directive in July 2010 to ensure that EU businesses
in all Member States could obtain their VAT refunds by allowing
an exceptional six-month extension for the first year, that is
from 30 September 2010 until 31 March 2011.
16.4 The Commission suggested also, in the draft
Directive, that Member States harmonise some features of their
national VAT refund web portals to make them more inter-operable
and accessible for taxpayers. It proposed, subject to the opinion
of the EU Standing Committee for Administrative Cooperation, it
be granted the power to adopt and implement a more fully harmonized
EU system.
16.5 When we considered this proposal in September
2010 the Government told us that although at first sight the draft
Directive seemed sensible and reasonable, the impact and consequences
were not straightforward and the Government had concerns about
both aspects of the proposal. As to the proposed extension of
the deadline for making claims:
- any extension would entail
costly IT system changes for HMRC and VAT refund agents;
- it would create operational
problems for HMRC, as it had deployed additional resources to
deal with the anticipated surge in refund claims ahead of the
September 2010 deadline;
- it would create confusion for EU businesses as
it was very unlikely that any Member State would be able to change
their IT systems to accept late claims before the 30 September
2010 deadline expired;
- although the Commission had provided some background
information in its explanatory memorandum on the proposal there
was no detailed analysis or supporting evidence; and
- the Government had concerns that the proposed
deadline extension had not been fully thought through and that
it was a superficial knee-jerk response to lobbying by a small
number of EU businesses.
We were told also that the proposed extension to
the deadline would impose additional IT system change costs on
HMRC of between £100,000 and £150,000 (and could not
be implemented in time) and that it would impose un-quantified
costs on VAT refund agents.
16.6 As regards the Commission's proposal that
it be granted additional powers to develop and implement a fully
harmonised pan-EU VAT refund system, we heard that:
- the Government questioned whether
this was either necessary or appropriate;
- it had recently implemented a new web-based portal
in accordance with core requirements agreed by the Commission
and the adoption of new, revised requirements would require costly
amendment of the UK's IT system; and
- as the Commission's explanatory memorandum lacked
detailed analysis or supporting evidence, it would be inappropriate
to agree to what had been proposed.
16.7 Finally we were told that:
- the proposal did not currently
feature on any advance ECOFIN Council agenda, although it would
need to be adopted before the end of September 2010, when the
current deadline expired;
- given that the first Council working group discussion
on this proposal would not take place until 20 September 2010
the timetable was unrealistic; and
- time would also need to be factored in for consultation
with the European Parliament and the Economic and Social Committee.
16.8 We agreed with the Government that this
proposal seemed ill-considered and inappropriate and noted the
unrealistic timetable. We asked to hear, before considering the
matter further, how Council consideration of the proposal was
developing. Meanwhile the document remained under scrutiny.
The Minister's letter
16.9 In his letter, of 27 September 2010, which
we did not receive until 28 January 2011, the Economic Secretary
to the Treasury (Mr David Gauke) said that:
- the proposal was first discussed
at a Council working group on 20 September 2010;
- at that meeting the Government challenged the
Commission about the appropriateness of the proposals;
- with regard to the proposed extension to the
deadline, the Commission referred in general terms to the problems
which businesses across the EU were having submitting their VAT
refund claims and insisted that action here was necessary;
- in response, all Member States except the UK
were willing to accept an extension to the deadline;
- the Government entered both a policy and parliamentary
scrutiny reservation;
- as regards the second element of the proposal,
several Member States joined the UK in challenging the need for
the Commission to be given additional (unspecified) powers to
further harmonise the functioning of Member States' VAT refund
systems;
- as a result, the Presidency concluded that this
element of the proposal would need to be discussed further at
the next EU Standing Committee on Administrative Co-operation
meeting on 11 October 2010;
- however, given the deadline for businesses to
submit 2009 VAT refund claims was 30 September 2010, the Presidency
concluded that there was an urgent need to come to a conclusion
on the proposed extension to that deadline; and
- it had therefore decided to take that element
to COREPER on 29 September 2010 (the European Parliament was expected
to deliver a favourable opinion on the extension by then) to seek
general agreement — the extension would then go to a future
Council meeting for final adoption.
16.10 The Minister continued that:
- in the light of the working
group discussion, HMRCs most recent experience with claims submitted
by UK businesses to two Member States and representations from
businesses, there was a far stronger case for the deadline extension
than appeared to be the case before;
- there were clearly problems with a number of
VAT refund web portals — all EU businesses (including UK
businesses) were having difficulties making claims to two particular
Member States as a result of technical issues at their end;
- EU businesses (but not UK ones) were highlighting
problems with at least nine other Member States too;
- there had been a general expectation within the
EU business community (largely as a result of a Commission Press
Release at the time the proposal emerged) that the extension would
be granted and many EU (and UK) businesses had therefore held
off putting in their refund claims;
- it was now apparent that an extension of the
deadline for making claims would not in fact entail costly IT
system changes for HMRC or for VAT refund agents;
- given these circumstances, the Government now
accepted that an extension of the deadline would be the most desirable
outcome and businesses across the EU needed to be given a clear
signal about this before 30 September 2010; and
- the Government was therefore now willing to agree
to this aspect of the proposal and would indicate that at the
COREPER meeting on 29 September.
The Minister concluded that:
- any other approach would create
uncertainty and potentially deny many businesses their legitimate
rights to be able to submit VAT refund claims; and
- he regretted that the scrutiny process could
not be completed but hoped that we would understand the reasons
behind the Government's decision.
Conclusion
16.11 If we had received this letter in a
timely manner we would, given the new information given in it,
have cleared the proposal from scrutiny, which we now do. And
in the circumstances we would have accepted the Minister's justification
for the breach of scrutiny.
16.12 However, it is most regrettable that
we did not receive the Minister's letter until very recently,
and then only when it was realised that final consideration of
the proposal remained outstanding. This incident appears to have
resulted in a breakdown in the Treasury machinery and we look
to the Minister to ensure that this sort of mistake does not reoccur.
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