A. GENERAL POLICY QUESTIONS
21. COMMON SYSTEM OF VALUE ADDED TAX (THE VALUE ADDED
TAX COMMITTEE) (9118/97) AND GENERAL ARRANGEMENTS FOR PRODUCTS
SUBJECT TO EXCISE DUTY AND ON THE HOLDING, MOVEMENT AND MONITORING
OF SUCH PRODUCTS (9527/97)
Letter from Lord Tordoff, Chairman of the Committee,
to Dawn Primarolo MP, Financial Secretary to the Treasury
Sub-Committee A and the Select Committee have scrutinised
these two documents.
We agree with the Government that EC-level decisions on rates
of excise duty and VAT should remain subject to unanimity in the
Council. However, we are concerned that differences in interpretation
and implementation of the Sixth VAT Directive and of the excise
Directives lead to legal uncertainty for traders and governments
and to the risk of double taxation or non-taxation.
We should be interested to know the views of traders engaged
in cross-border transactions in the Community on the proposals
now put forward by the Commission. It appears from your Explanatory
Memoranda that consultation on these issues has either not taken
place at all or has been directed broadly at the whole of the
Commission's proposed VAT work programme. It we are right, we
suggest that a consultation exercise on these specific issues
should now be carried out.
If, following a consultation exercise, traders were known
to support the adoption of proposals on the lines of those suggested
by the Commission, we think that the Government's opposition to
these limited proposals would not be in the best interests of
the full and equitable operation of the Single Market.
This letter does not raise the scrutiny reserve on these
12 November 1997
Letter from Dawn Primarolo MP, Financial Secretary
to the Treasury, to Lord Tordoff, Chairman of the Committee
Thank you for your letter of 12 November, concerning the
scrutiny of these documents.
I am pleased to learn that your Committee supports the Government's
determination to maintain unanimity as the basis for EC decision-making
on important indirect tax issues, although I am rather surprised
that your Committee limits that support for unanimity to questions
of excise duty and VAT rates. The Government firmly believes that
the importance of maintenance of unanimity extends much more widely.
In addressing the points that you raise in your letter I shall
seek to explain why we take this view. I am sorry if the Explanatory
Memoranda which I submitted in July are in any sense deficient
in this regard.
While the Commission in its twin proposals seeks to draw
a distinction between questions of tax/duty rates and other issues
(arguing that the former are of such political sensitivity as
to remain subject to unanimity, while the latter are suitable"
for QMV decision making), the Government believes that the principle
of unanimity is of importance in a much wider field of indirect
tax matters. We are not persuaded that QMV would be appropriate
or acceptable in the fiscal areas that the Commission proposes.
The Government shares your Committee's concerns about the
potential problems associated with differences in interpretation
and implementation of EC VAT and excise Directives, but does not
feel that such potential problems justify such a radical change
as a substantial shift to QMV decision-making on the basis of
Commission-generated implementing Regulations. Such a shift -
which would effectively vest in the Commission the power to bring
forward detailed Regulations, which in turn would be decided upon
in the relevant Committee by QMV - would represent a wholly unacceptable
development. Put simply, even outside the specific issue of rates,
were certain decisions in the VAT area to be the subject of such
QMV decision-making there would be a serious risk that such decisions
could prove to be equally damaging to the UK's interests.
Perhaps it would be useful if I illustrated this argument
with one or two examples. If the Sixth Directive were to be substantially
subject to such QMV decision-making there would be an inherent
risk that decisions would materially affect the scope of the tax
(by, for example, determining the definition of economic activity
or of the taxable person), the rate of tax applicable to certain
activities (by, for example, determining the scope of the exemptions),
and indeed the management of the tax (by determining, for example,
the registration threshold, reporting/accounting requirements
upon business, or the methods of audit and control).
Decisions on such VAT issues by QMV at the EC level would
very probably often fall to the disadvantage of the UK - either
in terms of the revenue effect on the Exchequer, or more probably,
in terms of the burdens and constraints placed upon business.
There is, I readily acknowledge, a tension here between the desire
for greater uniformity of application/operation of the EC VAT
regime (which the Commission contends will be achieved through
vesting it with implementing powers), and the importance we attach
to maintenance of the flexibility available to Member States to
tailor their VAT systems to their own domestic needs and priorities.
On balance we believe that it would be a serious mistake if sacrifice
such important flexibility to the goal of uniformity.
On excise the position is slightly different in that there
is a very limited degree of Qualified Majority Voting for certain
specified administrative mattes. However, the basic principle
in terms of our commitment to unanimity for fiscal issues, beyond
what could be regarded as purely administrative, stands.
You ask specifically about the views of traders, and suggest
formal consultation on these proposals. Given the Government's
firm commitment to the maintenance of unanimity in tax matters
I think that formal consultation would be a rather artificial
exercise (and be seen as such by business). That is not to say
that UK traders have not had the opportunity to comment, both
through the usual channels of communication which Customs maintain,
and in representations to Ministers. Some do favour the more prescriptive
route proposed by the Commission, seeing this is a means of achieving
greater consistency and certainty at the EC level. Others are
much more wary, recognising that it might well have adverse implications
for the UK VAT system and for UK businesses. In particular, qualms
have been expressed about the principle of any delegation (below
the Council) of decision-making on VAT. The Institute of Directors
has, for example, arguing that matters of interpretation should
continue to lie with the courts.
On the excise side, where we have been consulting traders
about ways to tighten up on fraud, there have been calls for greater
consistency in the arrangements for the movement of duty suspended
goods within the EC. We are currently considering how best to
achieve this objective.
Finally, I note your letter does not raise the scrutiny reserve.
Perhaps it would be helpful if I updated you on the status of
the negotiations on these two proposals. Both have had an initial
airing in the relevant Council working groups. The VAT Committee
proposal was firmly opposed by the vast majority of Member States,
and it looks most unlikely to make any progress. The Excise Committee
proposal met with a somewhat less hostile reception from Member
States. It is possible that in further discussion of this proposal
the Commission may seek to make it more palatable to the Member
States by limiting the scope of its application to an extended
range of administrative matters.
18 December 1997
Letter from Lord Tordoff, Chairman of the Committee,
to Dawn Primarolo, Financial Secretary to the Treasury
Thank you for your letter of 18 December about these documents.
I have passed your letter to Sub-Committee A for further
consideration. Your letter sets out in more detail than your earlier
Explanatory Memoranda the Government's position on these issues.
In the light of this further consideration I shall write to you
again. In the meantime, this letter does not raise the scrutiny
13 January 1998