Documents considered by the Committee on 10 December 2014 - European Scrutiny Committee Contents


6 Value added taxation

Committee's assessment Legally and politically important
Committee's decisionNot cleared from scrutiny; further information requested
Document detailsDraft Council Directive concerning a standard VAT return
Legal baseArticle 113 TFEU; consultation; unanimity
Department

Document numbers

HM Treasury

(35419), 15337/13 + ADDs 1-3, COM(13) 721

Summary and Committee's conclusions

6.1 The Commission has proposed this draft Directive to introduce an EU level standard VAT return, aiming for a balance between simplification for EU business and the needs of all 28 tax authorities.

6.2 When we considered the proposal in January, we heard that while the Government accepted that there might be a case for standardised VAT return, it thought that the draft Directive went wider than that and would have unwelcome impacts. We noted that, as the draft Directive required unanimous agreement in the Council, the UK was well placed to insist on a more acceptable text or even a non-legislative solution to cross-border problems. We looked forward to hearing, at regular intervals, about progress in this regard.

6.3 The Government now tells us of an acceptable Greek Presidency text on provisions in relation to VAT return processes, of less helpful Italian Presidency consideration of information requirements for a standard VAT return and of the Latvian Presidency intention to continue negotiations.

6.4 We are grateful for this information about developments on the draft Directive.

6.5 However, we are concerned that the Government's report does not meet our request for information at regular intervals — we would have expected to receive a first report at the end of the Greek Presidency. So we wish to receive the next report no later than shortly after the end of the Latvian Presidency.

6.6 Meanwhile the document remains under scrutiny.

Full details of the documents: Draft Council Directive amending Directive 2006/112/EC on the common system of value added tax as regards a standard VAT return: (35419), 15337/13 + ADDs 1-3, COM(13) 721.

Background

6.7 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.

6.8 In November 2013 the Commission proposed 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 therefore tried to produce a compromise solution in order to provide a certain amount of flexibility. It proposed an implementation date of December 2016. In an attempt to minimise the risks associated with any implementation, the Commission annexed to the draft Directive its Detailed Implementation Plan — a series of preparatory actions it intended to undertake.

6.9 When, in January, we considered the proposal we learnt that the Government considered that, in proposing to set defined parameters for VAT returns and in standardising submission and correction procedures, the proposal raised issues of subsidiarity, particularly in relation to UK's risk analysis and taxpayer compliance activity. We heard that while the Government accepted that there might be a single market case for an EU level standardised VAT return, it thought that the draft Directive went wider than that and would have unwelcome impacts.

6.10 We considered the proposal for compliance with subsidiarity and concluded that the Commission had sufficiently demonstrated a strong internal market justification for EU-level action. We also considered 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, raised issues of proportionality rather than subsidiarity. Accordingly, we did not recommend that the House adopt a Reasoned Opinion on this proposal. But we noted that, as the draft Directive required unanimous agreement in the Council, the UK was well placed to insist on a more acceptable text or even a non-legislative solution to cross-border problems. We looked forward to hearing, at regular intervals, about progress in this regard. Meanwhile the document remained under scrutiny.

The Minister's letter of 27 November 2014

6.11 The Financial Secretary to the Treasury (Mr David Gauke) writes now to update us on progress under the Greek and Italian Presidencies on the draft Directive, first reminding us that while it could offer real benefits for businesses involved in cross border trade, it would be challenging to achieve a balance between simplification for EU business and the needs of 28 tax authorities.

6.12 The Minister then tells us that:

·  the Greek Presidency concentrated on provisions in relation to VAT return processes;

·  essentially this covered error correction, submission of returns (including by electronic means) and payment of VAT; and

·  the consequence is that the current text would enable the UK to retain its existing procedures, which are much favoured by UK businesses.

6.13 The Minister tells us that an orientation discussion at the June ECOFIN Council set the tone for the Italian Presidency. In particular it was suggested that:

·  the objective should be to reduce administrative burdens for businesses and national tax authorities, whilst at the same time ensuring no increase in the overall burden for businesses in any individual Member State; and

·  the Commission should explore a cost effective solution for setting up an EU VAT web portal to provide readily available information to businesses on the VAT rules across the Member States.

6.14 The Minister continues that:

·  the Italian Presidency has begun discussions on the information requirements of the standard VAT return;

·  some Member States are keen to include more and more information — others, in particular the UK, want to keep things as simple as possible;

·  the UK's current nine box return is supported by UK businesses and they want to retain that;

·  as the Office for Tax Simplification said in its recent report, Review of the Competitiveness of the UK Tax Administration, "The UK's VAT return always wins praise for simplicity — as one person put it 'I support the idea of a common EU VAT return, but only if the return is based on the UK model'";[6]

·  however, the Presidency has to date given ground and increased the information requirements, and also suggested that a common template should be mandatory; and

·  the Government and others do not agree and are therefore resisting that, due to the potential for increased burdens, costs and errors for businesses.

6.15 The Minister concludes by saying that:

·  the Italian Presidency gave a progress report to the ECOFIN Council on 7 November and undertook to reflect on the way forward; and

·  from bilateral discussions, the Government knows that the forthcoming Latvian Presidency plans to continue negotiations.

Previous Committee Reports

Twenty-fifth Report HC 83-xxii (2013-14), chapter 8 (27 November 2013).


6   See Review of the Competitiveness of the UK Tax Administration. Back


 
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Prepared 23 December 2014