Examination of Witnesses (Questions 360
- 366)
TUESDAY 17 APRIL 2007
MR MIKE
ELAND, MR
TONY WALKER
AND MR
RICHARD BROWN
Q360 Lord Cobbold:
Could you not have an automated clearing house where money could
be paid to them and then be refunded by that institution to the
other Member State?
Mr Brown: I think that is in principle possible.
Quite how wise it would be to embark on the computer system that
would be required to do that is an interesting point.
Q361 Chairman:
I come from a background where clearing and settlement is routine
but quite a complex transaction, being as I am a Director of the
London Stock Exchange. Are you beginning to suggest that people
are working on what is fundamentally a giant clearing and settlement
system which clears and settles VAT?
Mr Brown: No. What I am saying is that amongst
the options that are being discussed a system which would involve
that is one of the things that is under consideration, so it is
thinking about the idea rather than having thought about it.
Q362 Chairman:
And that system would give you more confidence in the virtue of
other people's fiscal authorities?
Mr Brown: Potentially. It also depends on the
patterns when, for example, people make compliance visits and
look at what it is they look at within a business's books. Would
they be as interested in looking at tax which was due in another
Member State as they are in looking at the tax which is due in
their own? It is potentially one of the attractive things about
getting the one-stop system in place, that you begin to get people
behaving in that way and you have a base that you can build on
and that you potentially can expand in the future.
Q363 Lord Maclennan:
You gave an answer which was answered again at the beginning in
the statement about tax ending up in "the right place",
but there were other points that you might be able to make positively
and negatively.
Mr Brown: The risks associated with fraud and
non-compliance under the various regimes, because it is inevitable
that in any VAT system which has elements of both input tax and
output tax associated with it there will be fraud risk and it
is making a judgment about the balance of the risks under the
different systems, are one of the points to be taken into account.
The third point was avoiding creating unreasonable burdens on
business, and it is probably worth saying here that it is the
case, I think, that businesses will find any alternative to the
current regime, which simply requires them to zero rate intra-Community
supplies, more burdensome than the arrangements we have at present.
Q364 Lord Kerr of Kinlochard:
That does not seem to be the view of the Tax Faculty of the Institute
of Chartered Accountants, judging by the paper they have put in.
They seem to see some attraction in the Commissioner Kovacs ideas.
Mr Brown: I think the overwhelming view from
business is that they prefer the zero rating of intra-Community
supplies.
Q365 Lord Blackwell:
There is one last option here, and we have the notes of a workshop
that was held by the Commission on 29 March where one of the proposals
put forward by the Germans, as I understand it, was that the generalised
reverse charge, which would be optional and therefore may apply
in some cases and not in others, as I understand it, may now become
hugely complex. On the other hand, if the generalised reverse
charge became a sales tax that would become fairly simple. Clearly
the Community went down the route of VAT rather than sales tax
some time ago but there are plenty of other countries around the
world that apply the simple sales tax rather than VAT. Given that
sales tax would avoid these problems of allocating taxes along
the way in intra-Community trading, what has the UK Government's
view been on whether this is something that has any merit to be
explored or not, and why?
Mr Brown: To start with, in relation to the
views about the introduction of sales tax specifically, it is
very striking that overwhelmingly, if you look around the world,
tax authorities and governments have chosen to adopt variants
on the value added tax system rather than sales tax systems. In
the OECD countries it is only the United States that does not
have a value added tax.
Q366 Chairman:
Quite a big country.
Mr Brown: However, they equally do talk about
the idea of introducing value added tax from time to time. One
of the reasons why more countries have been attracted by value
added tax as opposed to sales tax is that the fractionated nature
of the payment regime means that there is an element of self-policing
within the tax system and that that basically provides you with
greater taxing power than you would otherwise have. Very few of
the sales taxes which operate get into double figures. We do see
value added tax at rates of 20 per cent which appear to be sustainable.
In terms of the question about generalised reverse charge, one
of the things that is associated with it, particularly in the
ideas that the Germans and Austrians have put forward, is that
it will add a greater degree of complexity to business because
they will have to operate both within the reverse charge system
and outwith it if you have a threshold of anything like the sorts
of limits that Germany and Austria have talked about, so it would
be more complex for business, and I know that the Paymaster General
thinks it is certainly not something that she would be interested
in pursuing in the United Kingdom were the option to become available
to Member States.
Chairman: Thank you very much. I am not
sure we have achieved in our own minds, or perhaps in yours, any
real answers as to where we should go, but we have had at least
considerable illumination of what HM Revenue and Customs are doing
and to some extent the Treasury's thinking. Thank you very much
for coming.
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