7Value added taxation
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Committee’s assessment |
Politically important |
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Not cleared from scrutiny; further information requested |
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Document details |
(a) Proposed Council Directive amending VAT legislation; (b) Proposed Council Implementing Regulation concerning the VAT Directive; (c) Proposed Council Regulation about administrative cooperation and combating fraud concerning VAT |
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Legal base |
(a) and (c) Article 113 TFEU, special legislative procedure, unanimity; (b) Article 397 Council Directive 2006/112/EC, special legislative procedure, unanimity |
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Department |
HM Treasury |
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Document Number |
(38341), 14820/16 + ADDs 1–2, COM(16) 757; (b) (38342), 14821/16 + ADDs 1–2, COM(16) 756; (c) (38343), 14822/16 + ADDs 1–2, COM(16) 755 |
Summary and Committee’s conclusions
7.1The Commission has published three legislative proposals intended to overcome VAT barriers to cross-border supplies of goods and services to non-business consumers. Changes are envisaged in two tranches with implementation in either 2018 or 2021. Key elements for 2018 focus on the improvement of the current system for cross-border sales of digital services. Changes envisaged for 2021 are more fundamental. They focus on extension of the Mini One Stop Shop accounting simplification to cover intra-EU supplies of goods to private customers and widening the services covered by it, removal of the existing VAT relief for goods valued below €22 (£18.84) coming into the EU from outside, and optional ways to collect VAT arising on imports under €150 (£128.43). These proposals will be accompanied by consequential changes, to take effect in 2021, to the Regulation concerning administrative cooperation in relation to VAT.
7.2The Government tells us that it welcomes proposals to make it easier for businesses to trade cross border. However it implies that the proposals related to low value goods will need careful consideration and says that it will be working with stakeholders to test their understanding of the likely impacts of the proposals.
7.3While these proposals seem to presage useful amendments to the EU’s VAT regime we are retaining them under scrutiny pending information on developments during their negotiation. In particular we wish to hear about consideration of the low value goods aspects and the views of UK stakeholders about possible impacts of the proposals.
7.4We should also like to hear from the Government about how much of these proposals would it wish to import into the UK’s post-Brexit VAT regime and about what form of “fiscal frontier” there might be between the EU’s VAT regime and that of the UK.
7.5We note that these proposals were foreshadowed in the Commission’s VAT Action Plan “Towards a single EU VAT area—Time to decide”. We recommended that this document should be debated in European Committee B early last year.36 With a complete disregard for the scrutiny processes of the House the Government has failed to yet schedule this debate on major changes to the VAT system. There will have to be a post Brexit VAT regime in the UK; the extent to which it might match the EU regime remains an important question.
Full details of the documents
(a) Proposed Council Directive amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods: (38341), 14820/16 + ADDs 1–2, COM(16) 757; (b) Proposed Council Implementing Regulation amending Implementing Regulation (EU) No. 282/2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax: (38342), 14821/16 + ADDs 1–2, COM(16) 756; (c) Proposed Council Regulation amending Regulation (EU) No. 904/2010 on administrative cooperation and combating fraud in the field of value added tax: (38343), 14822/16 + ADDs 1–2, COM(16) 755.
Background
7.6The EU has a common system of value added taxation, governed principally by the VAT Directive of 2006. 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.
7.7In May 2015 the Commission’s Communication “A Digital Single Market Strategy for Europe” foreshadowed a package of VAT measures in support of promoting a Digital Single Market.37
7.8In early April 2016, following extensive consultations begun in late 2010, the Commission published an 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:
- recent and ongoing policy initiatives;
- urgent measures to tackle the VAT gap (the difference between expected revenue and revenue actually collected, a significant part of which results from fraud);
- medium term measures to tackle the VAT gap; and
- a modernised rates policy.
7.9The 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.
7.10As long ago as April 2016 we recommended that this document be debated in European Committee B. But disgracefully the Government has yet to schedule this debate.38
The documents
7.11This package of three proposals, grouped under the title “Modernising VAT for cross-border B2C [business to consumer] e-commerce”, is part of the proposed legislation foreshadowed in the Commission’s Action Plan and aims to overcome VAT barriers to cross-border supplies of goods and services to non-business consumers. Changes are envisaged in two tranches with implementation in either 2018 or 2021.
7.12Key elements for 2018 focus on the improvement of the current system for cross- border sales of digital services. These changes include:
- introduction, in document (a), of an annual value threshold for digital services supplied cross-border within the EU, under which taxation will continue to take place where the business is based, rather than in the Member State of the customer—the lack of a threshold is currently a disincentive for smaller businesses to expand to supply such services cross-border;
- simplification, in document (a), of the existing Mini One Stop Shop (MOSS) to allow users to continue to comply with their home Member State’s rules for invoicing and record keeping; and
- requiring, in document (b), users with cross-border supplies of less than €100,000 (£85,618) per annum to obtain only one piece of evidence to identify where their customer is based.
7.13Changes, in document (a), which are envisaged for 2021, are more fundamental. They focus on:
- extension of the MOSS accounting simplification to cover intra-EU supplies of goods to private customers;
- widening the services covered by the MOSS;
- removal of the existing VAT relief for goods of low value below €22 (£18.84) coming into the EU from outside, that is the Low Value Consignment Relief (LVCR), which is a simplification for tax authorities where, in an analogue world, the costs of collection outweighed the revenue, but is now perceived to disadvantage EU suppliers whose supplies are taxed, while there are now also digital solutions to help collect tax due efficiently; and
- optional ways to collect VAT arising on imports under €150 (£128.43) after LVCR has been removed—either extend the MOSS system to cover such imports or require the carrier (postal or courier service) to account for VAT due.
7.14These proposals will be accompanied by consequential changes, in document (c), to take effect in 2021, such as amendments to MOSS return requirements, including:
- changes to the rules and procedures applicable to the exchange of information between business and tax administrations and the exchange of information and administrative co-operation between Member States; and
- a permanent mechanism to allow a 5% fee of the VAT collected on other Member States’ behalf to be levied to compensate Member States for IT investment on an expanded MOSS, ongoing maintenance, and the costs of controlling the tax for other Member States.
The Government’s view
7.15In her Explanatory Memorandum of 20 December 2016 the Financial Secretary to the Treasury (Jane Ellison) says that:
- the Government welcomes proposals to make it easier for businesses to trade cross border;
- in this respect it welcomes the proposal for a threshold in relation to digital services, the use of home country rules for invoicing and record retention and the relaxation of evidence rules for cross border supplies under €100,000 (£85,618);
- a threshold and “soft landing” easements in the rules for SMEs have been the subject of representations from the UK;
- the Government also supports staggering the implementation of measures, which means that measures which can be relatively quickly introduced will not be delayed by those for which there will need to be more preparation on behalf of both business and tax administrations;
- the changes envisaged for 2021, essentially the reform of distance sales within and into the EU, together with the abolition of LVCR are far reaching;
- the Government agrees that it is right to consider reform of LVCR and the wider use of MOSS for cross–border business to consumer sales of goods within the EU and into the EU;
- such changes, however, are significant and it will be important to ensure an appropriate balance between the benefits reform will bring, any additional burdens to be shouldered by business and tax authorities, and how effectively any new rules could be enforced;
- for example, introduction of the same threshold for intra-EU supply of goods will mean an overall reduction in the value of goods which can be sold without a requirement to register in another Member State, although this will be offset by the extension of availability of the MOSS simplification;
- the proposal for a retention of 5% of tax collected via the MOSS would prolong similar current arrangements and the Government has no objections to such a proposal;
- encouragement of cross border trade through a services threshold and home rules will help boost economies as smaller businesses can find and more easily supply new markets without suffering disproportionate burdens;
- the most significant direct financial implications would arise from the removal of the LVCR relief, which will mean the taxation of otherwise relieved supplies—extension of the MOSS to imports, combined with new rules on who will be held responsible for payment of the VAT, will encourage compliance and boost revenues;
- the Government believes that the Commission’s proposal, that the Standing Committee on Administrative Co-operation will adopt an implementing act, using the examination procedure, listing the third countries with which the EU has concluded agreements similar to the intra-EU VAT administrative co-operation agreements, would be appropriate; and
- the Government will be considering the Commission’s impact assessment carefully and working with stakeholders to test their understanding of the likely impacts.
Previous Committee Reports
None
36 (37648), 7687/16: see Seventeenth Report, HC 71-xv (2016–17), chapter 1 (2 November 2016) and Thirtieth Report, HC 342-xxix (2015–16), chapter 2 (27 April 2016).
37 (36836), 8672/15 + ADD 1: see Tenth Report, HC 342-x (2015–16), chapter 7 (25 November 2015) and Fifth Report, HC 342-v (2015–16), chapter 4 (14 October 2015).
38 Op cit.
23 January 2017