8 Value added taxation
| (35419)
15337/13
+ ADDs 1-3
COM(13) 721
| Draft Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards a standard VAT return
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| Legal base | Article 113 TFEU; consultation; unanimity
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| Document originated | 23 October 2013
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| Deposited in Parliament | 29 October 2013
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| Department | HM Treasury
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| Basis of consideration | EM of 7 November 2013
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| Previous Committee Report | None
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| Discussion in Council | Not known
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared; further information requested
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Background
8.1 The principal VAT Directive, Directive 2006/112/EC,
requires all taxable persons to submit a declaration (a VAT return)
with all the information needed to calculate the tax that has
become chargeable and the deductions to be made, including, as
required, the total value of the relevant transactions. However,
Member States retain discretion over the content of the declaration,
frequency of submission, payment, error correction and all other
related processes.
The document
8.2 The Commission proposes this draft Directive
to amend the principal VAT Directive to introduce a standard EU
VAT return. Achieving a balance between simplification for EU
business and the needs of all 28 tax authorities, for whom the
VAT return is an important tool, is challenging. The Commission
has therefore tried to produce a compromise solution in order
to provide a certain amount of flexibility.
8.3 The draft Directive would provide for:
· a mandatory minimum of five specified
boxes (plus two others for a transitional period until 2019) which
a VAT return must have;
· a further 21 optional boxes (and so a
maximum of 26 boxes in total) which a VAT return may have;
· other information requirements —
in respect of certain territories or special schemes — to
be standardised through the comitology procedure (based on QMV);
· introduction of standard rules, for example
on frequency of submission, length of return periods (with
monthly returns as the norm), timing of payments, error corrections
and other associated procedures; and
· underpinning this, extensive use of the
comitology procedure to determine much of the technical detail,
definitions, procedures, error correction mechanisms and common
electronic submission methods.
8.4 The Commission proposes an implementation date
of December 2016. In an attempt to minimise the risks associated
with any implementation, the Commission annexes to the draft Directive
its Detailed Implementation Plan — a series of preparatory
actions it intends to undertake.
8.5 The draft Directive is also accompanied, as is
usual, by an impact assessment (and an executive summary of the
assessment), which sets out the Commission's rationale and supporting
evidence and some estimates of the potential costs savings. The
key points are:
· the estimates are at a global level;
· 99% of businesses registered in the
EU are small and medium enterprises (SMEs) and the anticipated
reduction in administrative burdens would principally affect them;
· 30 million companies are obliged to submit
VAT returns in the EU — 130 million returns are from micro
enterprises;
· the estimated cost of submitting all returns
is €30 billion (£25.5 billion) per annum;
· the estimated cost saving of the proposal
is €15 billion (£12.7 billion) — €9 billion
(£7.6 billion) on reduced administrative burdens and
€6 billion (£5.1 billion) on removal of obstacles to
cross-border trade;
· the cost saving is on the basis of 19
Member States reducing the current number of boxes downwards,
to a maximum of 36 boxes, as opposed to the maximum of 26 boxes
proposed ( the impact assessment is based on an assumed model
of 36 boxes and does not therefore fully reflect the legislative
proposal);
· set up and switch over costs for business
could range from €2.9 billion (£2.4 billion) to €4.25
billion (£3.6 billion);
· implementation costs to each Member State
would be on average €30.5 million (£25.9 million); and
· Member States might also incur costs associated
with loss of information, including changes to risk analysis tools
and staff training.
The Government's view
8.6 The Exchequer Secretary to the Treasury (Mr David
Gauke) says first that the Government considers that, in proposing
to set defined parameters for VAT returns and in standardising
submission and correction procedures, the proposal raises issues
of subsidiarity, particularly in relation to UK's risk analysis
and taxpayer compliance activity. Noting that Article 113 TFEU
states that indirect tax harmonisation should only take place
"to the extent that such harmonisation is necessary to ensure
the establishment and functioning of the internal market and to
avoid distortion of competition", he explains the Government
view thus:
· the Commission contends that Member States
lack the initiative to act and have not so far shown willingness
to make the necessary improvements, thus requiring the Commission's
initiative;
· but the UK has a very simple VAT return,
with only nine boxes, and other Member States could take a similar
approach under the terms of existing EU law;
· the Government accepts there is a case
for an EU framework for Member States to require taxpayers to
submit VAT returns, for the effective functioning of the single
market;
· it can also see that EU level action might
be desirable where cross-border activity is concerned;
· but this proposal goes far wider;
· it will impact on all UK businesses, whether
or not they engage in cross-border activity; and
· it will also impact more generally on
UK risk analysis and taxpayer compliance activity.
8.7 Turning to the policy implications the Minister
says that:
· the Government is committed to ensuring
that there is no further transfer of sovereignty or powers to
the EU over the course of this Parliament;
· it will therefore resist any elements
of the proposal that it considers are not consistent with the
principles of fiscal sovereignty, subsidiarity and proportionality;
· the Government recognises that the different
VAT declarations in place across the single market can be a barrier
for businesses which want to trade with other Member States and
that these problems can be particularly acute for SMEs;
· its objective is to cut red tape for businesses
and to encourage them to increase their cross-border trade, so
the Government welcomes the Commission's focus on the issue;
· it is concerned, however, that the proposal
does not deliver its stated objective and might perversely increase
the burdens on UK businesses;
· there are also cost implications for the
UK arising as a result of changes to the national VAT return,
if the proposal were adopted as currently set out;
· furthermore, because of the range of options
proposed, it could well be the case that no two Member State's
VAT returns would be the same, thus reducing any benefits from
a standardised VAT return;
· the Government also has concerns about
the proposed use of comitology (subject to a QMV procedure) for
agreement of much of the detail, which would undermine its position
that tax matters should be decided by unanimity — it opposes
such provisions;
· at the moment, therefore, the Government
is not convinced that a legislative solution is the right way
forward;
· it will continue to work with the Commission,
other Member States and UK businesses to see if there are better
ways to respond to business concerns;
· the proposal does not resolve the key
problem of lack of availability of information about rules in
other Member States that most concern UK businesses involved in
cross-border trade within the EU; and
· UK businesses have indicated that clearer
information about the VAT declarations and underlying rules in
operation across the 28 Member States would make a real difference.
Conclusion
8.8 We have considered the proposal for compliance
with subsidiarity and conclude that the Commission has sufficiently
demonstrated a strong internal market justification for EU-level
action — principally to introduce a standard VAT return
which can be submitted electronically by businesses throughout
the EU. The proposed action is clearly in keeping with the predominant
internal market purpose of the Article 113 TFEU legal base. We
also consider that many of the Government's arguments, notably
concerning the inclusion of non cross-border business in the proposal
and its (as yet unquantified) impact on UK businesses, raise issues
of proportionality rather than subsidiarity. Accordingly, we
do not recommend that the House adopts a Reasoned Opinion on this
proposal.
8.9 We note that as the draft Directive requires
unanimous agreement in the Council, the UK is well placed to insist
on a more acceptable text or even a non-legislative solution to
cross-border problems. We look forward to hearing, at regular
intervals, about progress in this regard. Meanwhile the document
remains under scrutiny.
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