Documents considered by the Committee on 2 November 2016 Contents

1Value Added Taxation

Summary and Committee’s conclusions

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; recommended for debate in European Committee B (decision reported on 27 April 2016)

Document details

Commission Communication about an action plan on VAT

Legal base

Department

HM Treasury

Document Numbers

(37648), 7687/16, COM(16) 148

1.1In early April 2016 the Commission published this Action Plan to establish “A VAT area that is fit for purpose in the 21st century”. It set out the direction of travel the Commission envisages for the future of VAT and presented a set of ideas for wider EU debate. When we considered this Communication, in April 2016, the Government told us that the Commission’s Action Plan covers key UK priorities, including on VAT simplification and on VAT zero rates. We said that this document might prove to be the catalyst for the EU finally achieving a definitive VAT system. (We noted particularly that the Action Plan might facilitate zero rating of sanitary products in the UK.) Accordingly we recommended that it be debated in European Committee B.

1.2The Financial Secretary to the Treasury (Jane Ellison) now tells us that Council Working Groups have been discussing the proposals in the Action Plan and that the ECOFIN Council agreed Conclusions on the document in May 2016. She adds that the Council is likely to consider further Conclusions on 8 November 2016. The Minister, noting that the Government has failed to yet scheduled the debate we have recommended on the Action Plan, gives us a perfunctory justification for the Government acquiescing in Council Conclusions while this document is still under scrutiny.

1.3The Government is well aware of our dissatisfaction with its ongoing failure to schedule debates we have recommended. So we are greatly dismayed that it has acquiesced in Council decisions on the Commission’s Action Plan proposals before the debate we have recommended. We now urge the Government to schedule the recommended debate as soon as possible. We suggest that in, addition to the issues we mentioned previously, that Members might wish to explore in that debate:

Full details of the document

Commission Communication on an action plan on VAT—Towards a single EU VAT area—time to decide: (37648), 7687/16, COM(16) 148.

Background

1.4The EU has a common system of value added taxation, governed principally by the 2006 VAT Directive. The VAT Directive, in its present and earlier versions, is meant to be a temporary arrangement, pending Member State agreement on a permanent and definitive VAT system. The Commission now accepts that the existing system contributes to VAT fraud in cross-border trading.

1.5In early April 2016, following extensive consultations begun in late 2010, the Commission published this Action Plan to establish “A VAT area that is fit for purpose in the 21st century”. It set the direction of travel the Commission envisages for the future of VAT and presented a set of ideas for wider EU debate, under four headings:

1.6The Commission said that it expected to publish legislative proposals on VAT and the Digital Single Market later in 2016 with the aim of reducing the administrative burden on businesses arising from different VAT regimes. In 2017 it expected to present legislative proposals for SMEs that would seek to create an environment that is conducive to their growth and favourable to cross-border trade. Legislative proposals would be subject to unanimity.

1.7When we considered this Communication, in April 2016, the Government told us that the Commission’s Action Plan covers key UK priorities, including on VAT simplification and on VAT zero rates. It highlighted particularly that the Commission’s proposals for future VAT rates, endorsed by the European Council, would allow the Government to zero rate sanitary products, and address the significant loss to HM Revenue and Customs arising from VAT fraud.

1.8We said that this document might prove to be the catalyst for the EU finally achieving a definitive VAT system. Accordingly we recommended that it be debated in European Committee B. We suggest that in the debate Members might wish to explore:

The Minister’s letter of 27 October 2016

1.9The Financial Secretary to the Treasury (Jane Ellison) first comments that the Government agrees with our assessment that the Action Plan is politically important and a clear step towards the development of a definitive system for VAT in the EU. She comments that it contains a number of different ideas for short term action, which should help strengthen the current system, and that it also sets a framework for Member State discussion of longer term reform. However, the Minister adds that the extent and nature of future reform are still very much unknowns, especially given that the Action Plan does not contain legislative proposals, and that, similarly, the likely speed of any proposed change is unclear.

1.10The Minister then tells us that:

1.11The Minister reports that:

1.12The Minister says that she is “aware that [we have] has referred the Action Plan for debate, and that this debate has not yet been held. However, for the reasons set out below, it was thought that any delay to agreement could undermine progress and it was therefore judged that [the Government] should not block agreement at the May ECOFIN”. She then then sets out the reasons thus:

“The Conclusions included helpful language supportive of changes for which the government had been pushing, including VAT threshold simplification and VAT zero rates changes, both of which were identified in the EM as key UK priorities.”

1.13The Minister tells us that some further Conclusions are likely to go to the ECOFIN Council on 8 November 2016. She says that:

Previous Committee Reports

Thirtieth Report HC 342-xxix (2015–16), chapter 2 (27 April 2016).





4 November 2016