On 9 December 2019, the Council of the European Union published the ECOFIN Report on recent tax issues.
The Report reflected the below listed developments relating to indirect taxes.
- Definitive VAT system
- VAT rate reform
- VAT e-commerce
- SME reform
- Excise
- Energy Taxation
Executive summary
- There seems not be a consensus amongst Member States to implement the Definitive VAT regime as proposed by the European Commission although the principle ‘’taxation in the Member State of destination’’ is accepted
- Member States have an issue with the concept of Certified Tax Payer and the Liability of the Supplier
- A proposal is to introduce VAT Split Payment mechanism combined and automated transaction based reporting for both parties of the cross-border transaction
Objective
- Member States agree that the benefits of the definitive VAT system should outbalance its costs.
- The new system should effectively result in reduction of risks of tax fraud, avoidance and evasion, thus having positive effects on tax revenues,
- and should have positive or at least proportionate effect on compliance costs of businesses and tax authorities, while observing the principle of neutrality of VAT
Proposal Definitive VAT regime
The principle of “taxation in the Member State of origin of the supply of goods or services” should be replaced by the principle of “taxation in the Member State of destination” for the definitive VAT system for B2B transactions.
Objections Member States
- The majority of the Member States oppose the idea of introducing a concept of a certified taxable person and to apply different rules dependent on whether the customer is a CTP or not.
- Member States strongly oppose the abolition of the recapitulative statement requirement for intra-Union supplies of goods, if there is no effective replacement of this measure.
- A majority of Member States are concerned about potential negative effects of the supplier’s liability, such as administrative burden and costs for businesses, burden and costs for tax authorities, revenue losses in cases of insolvency and/or negative impact due to other forms of fraud.
- A number of Member States have voiced concerns that they may have difficulties in ensuring collection of tax from non-established suppliers while having to refund input VAT to customers.
- In the view of almost all Member States the proposed switch to supplier’s liability, if agreed, should be supplemented with solid and proportionate accompanying safeguard measures to the Commission proposal.
- Some Member States have a reservation on the proposal as regards its effect on their existing derogations.
Way forward
- Member States agree that this dossier still requires thorough technical analysis before the final policy choices are made.
- As already indicated by the Council, the best way forward is to continue focusing on the key elements of the Commission proposal and the analysis of options of accompanying measures.
- Many Member States have deemed it worthy to analyse in parallel or combined possibilities of reporting obligations and measures linked to the person that gets the right to deduct input VAT. These measures could include a restriction of the right for input VAT deduction of the customer if VAT is not paid by the supplier or a joint and several liability; in order to allow the customer to escape the consequences of these measures, they would have to be combined with a split payment or other system.
- Many Member States consider that the reporting obligations worthy to be analysed could include automated transaction based reporting for both parties of the cross-border transaction.
- Member States underline the importance that any of these additional measures should not have disproportionate effect on compliance costs of businesses and tax authorities.
- Member States agree that the next step could be to continue further exploring accompanying measures, also taking into consideration possible broader application of new technologies. Because these measures were not included in the Commission proposal and taking into account the complexity of these measures and the various alternatives, many Member States invited the Commission to explore these measures further and consult the Member States.
- The results of this analysis could contribute to the discussions at the WPTQ. However, for the time being, with a view to agreeing on a VAT system that would be better than the temporary one, it seems appropriate to consider a variety of options of which a switch to the supplier’s liability is one.
- Further work on the definite VAT system should not prevent or slow down efforts to improve the current VAT system.
Source: ECOFIN
