27 Value added taxation
| (34146)
13027/12
COM(12) 428
| Draft Directive amending Directive 2006/112/EC on the common system of value added tax as regards a quick reaction mechanism against VAT fraud
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| Legal base | Article 113 TFEU; consultation; unanimity
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| Department | Treasury
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| Basis of consideration | Minister's letter of 3 June 2013
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| Previous Committee Reports | HC 86-xiii (2012-13), chapter 14 (17 October 2012) and HC 86-xxxvi (2012-13), chapter 6 (20 March 2013)
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| Discussion in Council | 21 June 2013
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
27.1 Council Directive 2006/112/EC, the Principal VAT Directive,
consolidated the legislation governing value added taxation in
the EU. In order to ensure smooth operation of the single market
and equal treatment for all businesses trading across the EU,
the Directive lays down rules to ensure a consistent approach
to the questions about how much VAT to charge, when it should
be declared and to which tax jurisdiction the tax should be paid.
27.2 Article 395 of the VAT Directive provides
for the possibility of Member States, on application to the Commission
and after agreement by the Council, having time-limited derogations
from the Directive's provisions to meet particular unforeseen
circumstances.
27.3 With this draft Directive the Commission
has proposed a Quick Reaction Mechanism (QRM) in response to an
agreed need to speed up the existing procedure for derogations
from the VAT Directive in the face of significant or rapidly increasing
fraud. The proposal would mean that where certain criteria were
met, temporary one-year derogations to counter VAT fraud could
be authorised quickly for use by requesting Member States. In
the first instance the only mechanism available under the system
would be a reverse charge (RCM), as used to counter certain Missing
Trader Intra Community (MTIC) frauds. However, the proposal also
provides for an extension of the QRM to other solutions though
a unanimous Decision by the Council. This system would significantly
reduce the need for a Member State to act to counter significant
emerging fraud without EU legal authority. Authorisation would
take the form of Commission implementing legislation subject to
the examination procedure and having, because of the need for
speed, immediate effect.
27.4 We have examined this matter twice and,
whilst recognising the utility of a QRM to facilitate speedy derogations
to cut off VAT fraud, have noted the Government's reservations
about the method proposed by the Commission, particularly the
threat it poses of allowing QMV in relation to some aspects of
taxation. When we last considered the proposal we noted that
the Presidency's intention to work on the issue, including the
approach to QRM proposed by the Commission, would continue the
threat of QMV being substituted for unanimity. So we urged the
Government, while continuing to seek an improved draft Directive
or an alternative proposal, to maintain its opposition to erosion
of unanimity in VAT matters. Before considering this matter again
we asked to hear about developments in the negotiations. Meanwhile
the document remained under scrutiny.[63]
The Minister's letter of 3 June 2013
27.5 The Exchequer Secretary to the Treasury
(Mr David Gauke) writes now to update us about the present position
in relation to the draft Directive. He tells us that:
- since his previous report to
us, a real willingness on behalf of Member States to engage and
resolve the Government's reservations has emerged;
- the European Council conclusions of 22 May,[64]
which look for agreement at the ECOFIN Council of 21 June, have
also provided impetus towards a compromise that will enable the
Member States to adopt measures which will be useful to all, including
the UK, in controlling VAT fraud;
- the revised Presidency proposal now on the table
enjoys a wide measure of support amongst Member States and looks
as if it could provide the basis for an agreement, possibly without
further discussion; and
- crucially the revised proposal does not allow
for any decisions to be made by QMV and would also be quick and
efficient.
27.6 The Minister explains that:
- in common with the Commission's
original proposal the revised QRM would provide for a domestic
reverse charge;
- this would take the form of an option which a
Member State could choose to exercise;
- to do so they would notify their intention to
the other Member States and the Commission, providing the information
set out on a standardised form;
- once all the relevant information has been provided
the Commission would have one month to consider whether the notification
met the criteria for applying the option;
- Member States would be able to register their
views with the Commission during this time;
- by the end of the month the Commission, taking
into account the views expressed, would either confirm it had
no objection to the use of the option or would notify an objection;
- in the latter case the Member State would not
be able to proceed, but in the former instance the Member State
would implement the option for a period of nine months;
- the proposal envisages that the Member State
would apply for a normal derogation at the same time as notifying
the option and that the timetable for the production of the proposal
by the Commission would be shortened to six months; and
- the system would be temporary, lasting until
December 2018 and subject to a review, reported at the end of
2017.
27.7 The Minister comments that:
- the 2017 and 2018 deadlines
proposed would be consistent with the deadlines in the accompanying
RCM proposal[65] and
with putting pressure on the Commission to work towards its VAT
strategy objective of reform of the VAT system to make it more
robust and more fraud-proof;
- the QRM now proposed is attractive;
- it would be as quick as the QRM outlined in the
Commission's original proposal and would allow for the same reverse
charge;
- the envisaged procedure eliminates, however,
the use of a comitology committee and any associated QMV; and
- Member States would have greater direct involvement
in the assessment of the notification than envisaged under the
original proposal, whilst the short lifespan of the notification,
combined with the accelerated timetable for the replacement, would
ensure that a normal derogation is more quickly in place than
would usually be the case.
27.8 The Minister says finally that:
- given the European Council
is looking for agreement on this dossier on 21 June, there is
quite some political impetus behind the proposal;
- the current proposal is attractive and represents
a significant improvement on the original one, while agreement
would deliver two useful anti-fraud measures — the QRM and
the linked RCM;
- he is currently consulting ministerial colleagues
to ensure that the compromise does not raise any wider issues;
but
- in view of the urgency, gives us this update
and an indication of the timetable.
Conclusion
27.9 We are grateful to the Minister for this
account of where matters now stand on the draft Directive. We
note the significantly improved proposal on the table and, on
the presumption that, if that proposed deal unravels on 21 June,
the Government will veto adoption of the measure pending further
negotiation, clear the document from scrutiny.
63 See headnote. Back
64
See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/137197.pdf. Back
65
(30967) 13868/09: see HC 19-xxviii (2008-09), chapter 5 (21 October
2009) and HC 5-ii (2009-10) chapter 14 (25 November 2009). Back
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