Explanatory Memorandum to COM(2009)672 - Implementing measures for the VAT Directive (Recast) - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2009)672 - Implementing measures for the VAT Directive (Recast). |
|---|---|
| source | COM(2009)672  |
| date | 17-12-2009 |
Article 397 of Council Directive 2006/112/EC i (hereinafter “the VAT Directive”) provides that “the Council, acting unanimously on a proposal from the Commission, shall adopt the measures necessary to implement this Directive”. This Directive was a recast of Council Directive 77/388/EEC i (hereinafter “the Sixth VAT Directive”).
On the basis of Article 29a of the Sixth VAT Directive (which contained the same provision as Article 397), the Council adopted such measures in Council Regulation (EC) No 1777/2005 i (hereinafter “Regulation 1777/2005”), which gave legal certainty to a number of non-binding guidelines agreed by the VAT Committee between 1977 and 2003.
Since the adoption of Regulation 1777/2005, the VAT Committee has agreed further guidelines, in particular a number of which relate to the adoption of Council Directive 2008/8/EC i. Therefore it is necessary to recast Regulation 1777/2005 to reflect the structure and numbering of the VAT Directive, and to incorporate the guidelines of the VAT Committee since the last exercise that are to be considered as measures necessary to implement the VAT Directive.
On 12 February 2008, the Council adopted the VAT Package which includes, among other elements, Directive 2008/8/EC. This Directive introduces changes to the VAT Directive as regards the place of supply of services which are very important for business stake-holders. Its objective is to simplify the operation of the VAT system and to ensure that VAT on services accrues to the country of consumption. Most of the changes need to be implemented by Member States into their national legislation with effect from 1 January 2010.
The VAT Package brings changes which will reshape the main rules applicable to the place of supply of services.
On the one hand, it introduces a general rule that the supply of services to a taxable person acting as such is taxed in the country of the customer, whilst that of the supply of services to a non-taxable person is taxed in the country of the supplier. As such, for these rules to be applied correctly, it is important that the supplier can not only correctly establish where the customer is located, but also his status. Many of the proposed measures relate to this.
On the other hand, there are also a number of further provisions which provide exceptions to these general rules in order to ensure in the most efficient way taxation of services at the place where they are consumed. This is the case, for example, for the supply of restaurant services, the hiring of means of transport, services connected with immovable property, etc. These provisions also require clarification for the correct application of the rules.
For these reasons, in order to assure, on the Community level, the smooth and coordinated transition to the new system, the Commission has undertaken in-depth and close consultations with businesses and Member States. As a result of this, the Commission is now presenting a proposal for a Council Regulation laying down implementing measures concerning practical issues relating to the adoption of the VAT Package.
However, this proposal could not only contain implementing measures for the VAT Package. Indeed, the former Regulation 1777/2005 needs to be recast in order to adapt its structure to the new structure of the VAT Directive after its recast in 2006. Moreover, guidelines agreed by the VAT Committee since 2005 on other matters should also be integrated.
Consultation of interested parties
In order to identify the areas where implementing measures would be appropriate, Member States were extensively consulted during Working Party meetings, FISCALIS seminars and VAT Committee meetings. Exchanges of views with businesses also took place.
There was no need for external expertise.
The Regulation aims at clarifying and giving legal certainty to existing practices. The measures concerned are of a purely technical nature and there is no need for an impact assessment.
Contents
- Legal elements of the proposal
- Grounds for and objectives of the proposal
- General context
- Consultation of interested parties and impact assessment
- Collection and use of expertise
- Impact assessment
- Subsidiarity principle
- Proportionality principle
- Recasting
- Type 1 Guidelines
- Type 2 Guidelines
- Type 3 Guidelines
The subsidiarity principle applies insofar as the proposal does not fall under the exclusive competence of the Community. The objectives of the proposal cannot be sufficiently achieved by the Member States.
Even though the Member States have the competence for transposition of Community law, it is essential that the provisions and incoming changes are transposed in the national legislations in a coordinated manner in order to avoid that divergent application rules adopted by the Member States could lead to double taxation or non-taxation.
For the reasons outlined above, only Community action can ensure equal treatment of business and citizens in the European Union. The proposal therefore complies with the subsidiarity principle.
The recast of Regulation 1777/2005 is necessary to adapt it to the VAT Directive, which has recast the Sixth VAT Directive on which the Regulation was based.
The new provisions are based on further guidelines agreed by the VAT Committee, in particular a number of which relate to Directive 2008/8/EC amending Directive 2006/112/EC as regards the place of supply of services. These measures are necessary to implement the VAT Directive.
The proposal therefore complies with the proportionality principle.
The proposal involves recasting
Additional information
Detailed explanation of the proposal
Part of the exercise consists in codification of elements covered by Regulation 1777/2005, which was adopted under the Sixth VAT Directive. However, a simple codification was not sufficient in order to adapt its structure and align it to the VAT Directive (which itself recast the Sixth VAT Directive). An exercise of recast is necessary for that. These changes are self-explanatory and do not need detailed explanation. Any adaptation made appears as underlined or strikethrough in the text.
On the other hand, this proposal includes new measures based on guidelines agreed by the VAT Committee on different matters prior to and since 2005, when Regulation 1777/2005 was first adopted. These new measures are of 3 types:
· Type 1: several guidelines agreed prior to 2005 on different elements of the VAT Directive but not included as part of the first exercise
· Type 2: several guidelines agreed since 2005 on different elements of the VAT Directive yet to be transformed into implementing measures
· Type 3: guidelines agreed recently and linked to changes introduced by the VAT Package.
Only these new elements will be briefly commented on below.
These are guidelines which were considered during the discussions during the previous exercise, but which for various reasons were not included in Regulation 1777/2005. Subsequent discussions in Working Party No 1 have lead to the conclusion that these guidelines were worth including in any subsequent exercise.
Article 2 concerns the acquisition of a new means of transport when moving house, and the return of a new means of transport by a non-taxable person originally supplied under the exemption provided for in Article 138(2)(a) of the VAT Directive.
Article 46 confirms that holiday accommodation referred to in point i of Annex III of the VAT Directive includes the hiring of caravans, tents and mobile homes.
Article 49 clarifies that the exemption for the supply of services relating to the importation of goods, where the value of the service is included in the taxable amount, also applies to services connected with the importation of movable property when changing residence.
Article 54 clarifies that if the recipient is located outside the Member State in which the supply takes place, the common VAT and excise duty exemption certificate to be found in Annex II is to be used as proof that the recipient is entitled to the exemption under Article 151 of the VAT Directive. The certificate should be retained by the customer as part of his accounting records, or, if the exemption is granted by means of a refund, attached to the application for refund.
These are guidelines on which unanimous agreement has been reached in the VAT Committee since the previous exercise, and which merit inclusion in this exercise.
Articles 7 and 12 clarify the treatment of digital photography processing, and the printing of paper format publications, in particular the conditions under which these should be regarded as a supply of goods or a supply of services respectively.
Article 52 states that the exemption for diplomats, international bodies, NATO forces and the like, under Article 151 of the VAT Directive applies to electronic services even where these are provided by persons to whom the special scheme for electronically supplied services applies.
Article 53 defines the elements of a body to be set up as a European Research Infrastructure Consortium (ERIC) which would enable it to be regarded as an international body and therefore benefit from the exemption in point (g) of Article 143 and point (b) of the first subparagraph of Article 151 i of the VAT Directive, providing it is recognised as such by its host Member State.
These are guidelines which result from changes to the VAT Package. They have reached unanimous or almost unanimous agreement in the VAT Committee.
Articles 3, 4 and 5 clarify elements of the scope of VAT, specifically supplies of services to persons established outside the Community; and supplies of services to persons who are entitled to non-taxation of their intra-Community acquisitions of goods.
Article 8 provides a definition of restaurant and catering services, whilst Article 9 makes clear that where the provision of food and/or beverages is made by one taxable person, and the provision of the support services allowing for its immediate consumption is made by another taxable person, then each supply should be assessed on its own merits.
A number of concepts need to be defined in order to facilitate the correct application of the place of supply rules introduced by the VAT Package. Those concepts, in particular, concern the determination of the place of establishment of a business (Article 14); the notion of a fixed establishment (Article 15); permanent address (Article 16); and usual residence (Article 17). It is also established that a letter box or brass plate company must meet certain requirements in order to be considered as a place of establishment of a business.
Articles 19 and 38 clarify that it is the means of passenger transport which determines the section of a passenger transport operation effected within the Community, not the passengers travelling in the means of transport.
Article 21 clarifies that where the status of the customer is a determinant for the place of supply of a service, this status shall only be determined in accordance with the conditions in Title III of the VAT Directive. Therefore, any special scheme which the customer may be subject to, such as that for small enterprises, can not be taken into account in this respect. In addition, the supplier should verify the information provided by the customer concerning his taxable status.
Article 22 confirms that where a non-taxable legal person is already identified for VAT purposes because his intra-Community acquisitions are subject to VAT, then he is regarded as a taxable person.
Article 23 lays down that where a taxable person receives a supply of services for his own, or his staff’s use, or more generally, for purposes other than those of his business, then that person shall not be regarded as a taxable person because he is not acting as such. When the supplier assesses the use to which the customer will put the service, the nature of the service shall be taken into account, and if there is any doubt, a self declaration may be required from the customer.
Article 24 clarifies that only the circumstances present at the time of the supply are relevant when assessing the purpose to which each service will be put, and any subsequent changes are irrelevant.
Article 25 states that where a single service is intended for mixed business and personal use of a taxable person, the entirety of that service shall be regarded as a supply to the taxable person acting as such.
Articles 26 to 30 deal with the clarification of the customer location, as this is particularly relevant in the new place of supply of services rules.
Article 35 clarifies that intermediary services, other than those of experts and estate agents in connection with immovable property, fall within Article 44 of the VAT Directive if supplied to a taxable person, and Article 46 if supplied to a non-taxable person.
The place of supply rules state that the ‘section of a passenger transport operation effected within the Community’ is the section of the operation between the points of departure and arrival within the Community, with the point of departure being the first point of passenger embarkation within the Community, and that of arrival being the first point of disembarkation within the Community. As these points of embarkation and disembarkation may lie some distance within the territory of a Member State, there may be a ‘section of a passenger transport operation’ which, whilst it is not ‘effected within the Community’, is nevertheless on the territory of a Member State. Articles 39 and 40 clarify the treatment of restaurant and catering services on ships, aircraft or trains in these situations.
Article 41 defines a means of transport as referred to in Articles 56 and 59 of the VAT Directive; Article 42 lays down the treatment of contracts for the hiring of a means of transport, particularly when two contracts follow each other; and Article 43 clarifies the place where a means of transport is regarded as being actually put at the disposal of the customer.
Article 56 clarifies the notion of the intervention of a fixed establishment in a supply for the purposes of the application of point (b) of Article 192a of the VAT Directive, and Article 57 clarifies that where a taxable person has established his business in a Member State where the VAT is due, then Article 192a of the VAT Directive shall not apply, irrespective of whether that place of establishment actually intervened in that supply.
Article 58 states that where a supplier meets the conditions in Articles 21 and 23, the customer may be held jointly liable under Article 205 of the VAT Directive.
1777/2005