European Scrutiny Committee Contents

68 Value added taxation



COM(09) 672

Draft Council Regulation laying down implementing measures for Directive 2006/112/EC on the common system of value added tax (Recast)

Legal baseArticle 113 TFEU; consultation; unanimity
DepartmentHM Treasury
Basis of considerationMinister's letter of 28 July 2010
Previous Committee ReportHC 5-vii (2009-10), chapter 5 (20 January 2010) and HC 5-xvi (2009-10), chapter 1 (30 March 2010)
Discussion in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionCleared


68.1 In 2006 Council Directive 2006/112/EC, the VAT Directive, which entered into force on 1 January 2007, consolidated the legislation governing value added taxation in the EU.[294] Article 397 of the VAT Directive says "The Council, acting unanimously on a proposal from the Commission, shall adopt the measures necessary to implement this Directive." Article 398 establishes "the VAT Committee", a Commission chaired advisory body, to examine questions raised by the Commission, or Member States, in order to agree how the provisions of the Directive should be applied, where there is some doubt.

68.2 With this draft Regulation the Commission proposed a recast (that is codification, or consolidation, together with some substantive amendment) of Council Regulation (EC) No 1777/2005, which prescribed the implementing measures for the pre-2007 VAT legislation.[295] The aim of the proposal was to provide clear and uniform interpretation of selected areas of the VAT Directive.

68.3 In addition to recasting the measures in Council Regulation (EC) No 1777/2005 to reflect the structure and numbering of the VAT Directive, there were articles in the proposal derived from guidelines as to how the VAT Directive's provisions should be interpreted, which had been unanimously, or nearly unanimously, agreed by Member States in the VAT Committee. New measures proposed were of three types:

  • Guidelines agreed within the preceding year that were directly linked to the changes to the rules for "place of supply" in Council Directive 2008/8/EC, which entered into force on 1 January 2010[296] — there were 30 of these, forming by far the largest and most significant category of measures;
  • four Guidelines relating to different elements of the VAT Directive which were agreed in the VAT Committee prior to adoption of Council Regulation (EC) No 1777/2005, but which for various reasons were not included within it; and
  • four Guidelines relating to different elements of the VAT Directive which had been agreed in the VAT Committee since adoption of Council Regulation (EC) No 1777/2005.

68.4 When the previous Committee considered this document, in January 2010, it heard, in relation to "place of supply" rules, that:

  • although the then Government broadly welcomed the proposal and supported the objectives in principle, it had identified a small number of issues on which it proposed to undertake some further analysis and consult with UK business;
  • the Government also needed to ensure sufficient time was built into the discussions of the proposal to enable the detail to be tested against commercial transactions undertaken under the new "place of supply" rules, before being finally consolidated into a legally binding Regulation; and
  • it would therefore continue to work with business to monitor what happens in practice and to obtain a clearer picture on these issues. 

On the other new provisions in the draft Regulation our predecessors heard that they covered a range of topics which broadly reflected the Government's existing approach or which provided welcome clarifications, but that while it would be desirable to achieve agreement to this category of new measures, they were not as important as the "place of supply" category.

68.5 The previous Committee commented that, clearly, this draft Regulation would serve a useful purpose and it recognised that the draft was largely unexceptionable. Nevertheless, before considering the document further it asked to hear from the Government about progress in improving the text in the light of its further analysis and its consultations with UK business.

68.6 Our predecessors considered the matter again in March 2010, having heard from the then Government that:

  • the Spanish Presidency was then producing a compromise text of the draft Regulation which, when issued, was expected to be discussed at Council working party meetings planned for 14 April and 5 May 2010;
  • depending on the content of the compromise text and the outcome of the meetings, the Presidency might then take the proposal to the ECOFIN Council on either 18 May or 8 June 2010 for political agreement;
  • the Government had held initial discussions with UK business, through existing HMRC and Treasury liaison fora, including the Joint VAT Consultative Committee and the VAT Forum;
  • this had led to creation of a Joint Working Group, to review the text in detail;
  • business welcomed the clarity and consistency that such implementing measures would provide and so early agreement would be advantageous, provided the content was satisfactory;
  • the Joint Working Group was to undertake a review of the Presidency compromise text when it emerged to test that; and
  • this would inform the Government negotiation position for the meetings in April and May 2010.

68.7 The then Minister told the previous Committee that:

"If the legal text or the outcome of those discussions provides UK businesses with the right level of clarity and consistency, then business will be keen to see early agreement and the Government would certainly not wish to stand in the way of that."

It said that:

  • it did not yet wish, in the absence of a definitely acceptable text, to clear the document;
  • if, however, the Government judged it appropriate the Committee would be content for it to support a political agreement, under the terms of Article (3)(b) of the House of Commons Scrutiny Reserve Resolution of 17 November 1998;
  • whether the Government made use of this dispensation or not it would, of course, wish to have a further account of developments on the proposal; and
  • meanwhile the document remained formally under scrutiny. [297]

The Minister's letter

68.8 The Exchequer Secretary to the Treasury (Mr David Gauke) tells us that:

  • in the event Council negotiations have still not concluded;
  • the Belgian Presidency is taking the matter forward as a priority and may be able to conclude discussions in the next few months, with a text going to the ECOFIN Council thereafter;
  • officials have continued discussions with UK business and have feed its views into the EU discussions;
  • UK business welcomes the overall clarity and consistency that the latest text provides and would now like to see agreement as soon as possible; and
  • on that basis, the Government would be prepared to accede to a political agreement on the proposal if it should go the Council before the end of the Belgian Presidency.


68.9 We are grateful to the Minister for his account of where matters stand on this draft Regulation. In the light of the welcome of UK business for the latest text of the proposal we now clear the document.

294   (25558) 8470/04: see HC 42-xx (2003-04), chapter 23 (18 May 2004). Back

295   (26014) 13394/04: see HC 42-xxxv (2003-04), chapter 12 (3 November 2004). Back

296   (26739) 11439/05: see HC 34-v (2005-06), chapter 6 (12 October 2005), HC 34-xv (2005-06), chapter 3 (18 January 2006) and Stg Co Debs, European Standing Committee, 16 February 2006, cols. 3-20. Back

297   See headnote. Back

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