Explanatory Memorandum to COM(2018)329 - Amendment of Directive 2006/112/EC as regards the detailed technical measures for the operation of the definitive VAT system for the taxation of trade between Member States

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dossier COM(2018)329 - Amendment of Directive 2006/112/EC as regards the detailed technical measures for the operation of the definitive VAT system ...
source COM(2018)329 EN
date 25-05-2018


1. CONTEXTOFTHEPROPOSAL

• Reasons for and objectives of the proposal

As the date of 1st January 1993 for the launch of the single market approached, it became obvious that a definitive system for taxing transactions of goods could not be put in place in time to allow for the free movement of goods. Nevertheless, as of 1 January 1993 all tax controls on the internal borders of the European Community disappeared. Traders no longer became liable for value added tax (VAT) when their goods crossed between Member States. To achieve this ending of tax controls at borders, agreement had been necessary on major changes to the system for applying VAT to intra-Community transactions. The Commission’s original proposals – outlined in the Single Market White Paper of 1985 - were the subject of inconclusive debate until October 1989, when it was realised that the time was then too short for their implementation by January 1993. Instead, a less ambitious alternative was devised, making possible the ending of border tax controls whilst retaining key features of then existing arrangements.

It is this alternative, transitional VAT system that was put in place and still remains more than 25 years later. Those arrangements, as far as Business-to-Business (B2B) transactions on goods are concerned, split the cross-border movement of goods into two different transactions: an exempt supply in the Member State of departure of the goods and an intra-Community acquisition taxed in the Member State of destination. These rules were regarded as temporary and are not without drawbacks since allowing goods to be bought free of VAT increases the opportunity for fraud, while the inherent complexity of the system is not favourable to cross-border trade.

Following broad consultation, the Commission adopted its Action Plan on VAT – Towards a single EU VAT area – Time to decide1 (VAT Action Plan). The Commission announced, inter alia, its intention to adopt a definitive VAT system for intra-Union cross-border trade based on the principle of taxation in the Member State of destination in order to create a robust single European VAT area. The implementation of the VAT Action Plan was also part of the Fair Taxation package announced in President Juncker’s letter of intent accompanying the State of the Union 20172.

The Commission subsequently adopted a Communication on the follow-up to the VAT Action Plan Towards a single EU VAT area – Time to act3 in which it spelled out the gradual steps to be taken in the move towards that single European VAT area.

Besides the change to the definitive VAT system for cross-border trade, this move includes two other proposals to modify the VAT Directive: one as regards VAT rates4 and one as

COM(2016) 148 final.

State of the Union 2017. Letter of intent to President Antonio Tajani and to Prime Minister Jüri Ratas, 13 September 2017, accessible at https://ec.europa.eu/commission/sites/beta-political/files/state-union-2017-brochure_en.pdf. See also Annex I to the Commission Work Programme 2017, COM(2016) 710 final, Strasbourg, 25.10.2016, p. 3, accessible at https://ec.europa.eu/info/sites/info/files/cwp_2017_annex_i_en.pdf.

COM(2017) 566 final.

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regards the special scheme for small enterprises5. In addition, it includes a proposal for a Council Regulation on combating fraud in the field of VAT6.

As regards the change towards a definitive VAT system based on the principle of taxation in the Member State of destination a gradual two-step approach was announced: a first step settling intra-Union B2B supplies of goods and a second step covering supplies of services.

Contents

1.

The first step was further divided into two sub-steps. The first sub-step, presented simultaneously with the Communication, was a legislative proposal which outlined the


cornerstones for a

simpler and fraud-proof definitive VAT system for intra-Union trade7.

The current proposal represents the second sub-step. It contains the detailed arrangements to put these cornerstones in place for intra-Union B2B supplies of goods.

The present proposal will need to be complemented by a proposal for amending Regulation (EU) 904/2010 on Administrative Cooperation in the field of value added tax. The latter proposal is of a technical nature as it would consist in aligning the cooperation between Member States to the proposed changes to the VAT system for cross-border supplies of goods. This proposal will be made sufficiently in time for allowing its adoption and implementation at the date of entry into force of the present proposal.

• Consistency with existing policy provisions in the policy area

The introduction of a definitive system for intra-Union supplies of goods is one of the main elements of the VAT Action Plan. This proposal replaces the transitional arrangements, applicable since 1 January 1993, by a definitive VAT system for intra-Union B2B trade under which domestic and cross-border transactions of goods will be treated in the same way. Furthermore, the definitive VAT system will create a robust single European VAT area which can support a deeper and fairer single market that helps to boost jobs, growth, investment and competitiveness.

• Consistency with other Union policies

The creation of a simple, modern and fraud-proof VAT system is one of the fiscal priorities set out by the Commission8.

Reducing regulatory burden, particularly for Small and Medium Enterprises (SMEs), is also an important objective highlighted in the Union’s growth strategy9.

The proposed initiative and its objectives are consistent with the Union SME policy as set out by the Small Business Act (SBA)10, in particular principle VII on helping SMEs to benefit more from the opportunities offered by the Single Market. In addition, it is consistent with the

COM(2018) 21 final.

Amended proposal for a Council Regulation amending Regulation (EU) No 904/2010 as regards measures to strengthen administrative cooperation in the field of value added tax (COM(2017) 706 final).

COM(2017) 569 final.

Annual Growth Survey 2017; see: https://ec.europa.eu/info/publications/2017-european-semester-annual-growth-survey_en

Europe 2020 – A strategy for smart, sustainable and inclusive growth; see:

eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:2020:FIN:EN:PDF

Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions - “Think Small First” – A “Small

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Single market strategy (SMS)11 and the objectives of the Regulatory Fitness and Performance programme (REFIT).

2. LEGALBASIS, SUBSIDIARITYAND PROPORTIONALITY

• Legal basis

The Directive amends the VAT Directive on the basis of Article 113 of the Treaty on the Functioning of the European Union. This Article provides for the Council, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, to adopt provisions for the harmonisation of Member States' rules in the area of indirect taxation.

• Subsidiarity (for non-exclusive competence)

According to the principle of subsidiarity, as set out in Article 5(3) of the Treaty on European Union, action at Union level may only be taken if the envisaged aims cannot be achieved sufficiently by the Member States alone and can therefore, by reason of the scale or effects of the proposed actions, be better achieved by the Union.

VAT rules for cross-border Union trade can, by their nature, not be decided by individual Member States since, inevitably, businesses located in more than one Member State are involved. Moreover, VAT is a tax harmonised at Union level and therefore any initiative to introduce the definitive VAT system for cross-border supplies of goods requires a proposal by the Commission to amend the VAT Directive12.

• Proportionality

The proposal is consistent with the principle of proportionality i.e. it does not go beyond what is necessary to meet the objectives of the Treaties, in particular the smooth functioning of the single market. As with the subsidiarity test, it is not possible for Member States to address problems such as fraud or complexity without a proposal to amend the VAT Directive.

• Choice of the instrument

A Directive is proposed in view of amending the VAT Directive.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS ANDIMPACTASSESSMENTS

Ex-post evaluations/fitness checks of existing legislation

A retrospective evaluation of elements of the Union VAT system was conducted by an external consultant in 2011 and its findings have been used as a starting point to the examination of the current VAT system13.

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2.

Communication from the Commission to the European Parliament, the Council, the European


Economic and Social Committee and the Committee of the regions – "Upgrading the Single Market:

more opportunities for people and business" (COM(2015) 550 final).

3.

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L


347, 11.12.2006, p.

1).

4.

Institute for Fiscal Studies (project leader), 2011, A retrospective evaluation of elements of the EU


VAT system:

ec.europa.eu/taxation_customs/sites/taxation

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• Stakeholder consultations

An extensive stakeholders consultation process took place in the context of the preparation of the legislative proposal COM(2017) 569 final which outlines the cornerstones of the definitive VAT arrangements. Since that proposal was adopted, a small amount of feedback, supporting the overall objective of creating a robust single European VAT area, has been received via the 'Better Regulation' portal and from events held with trade and business associations.

• Collection and use of expertise

The expertise collected by way of several studies referred to in COM(2017)569 final of 4 October 2017 for setting the cornerstones of the definitive VAT system covered the needs for the present proposal.

From these studies, the study on Implementing the ‘destination principle’ to intra-EU B2B supplies of goods14 was particularly relevant for this proposal.

• Impact assessment

A back to back impact assessment and evaluation was carried out which covered both the setting of the cornerstones of the definitive VAT system and the detailed arrangements for putting these cornerstones into place; see SWD(2017) 325 final and SWD(2017) 326 final of 4 October 2017. The preferred option, chosen in that impact assessment, would reduce crossborder VAT fraud by up to EUR 41 billion per annum and reduce compliance costs for businesses by EUR 938 million per annum.

The impact assessment was considered by the Regulatory Scrutiny Board on 14 July 2017. The Board gave a positive opinion to the Impact Assessment with some recommendations, in particular on the link of the proposal to other elements of the VAT Action Plan, the need for a staged approach and the concept of certified taxable person, that have been taken on board. The opinion of the Board and the recommendations are mentioned in Annex 1 to SWD(2017) 325 final.

The fundamental nature of the proposed changes means that all businesses will be impacted. They address the problems of fraud and complexity of the current transitional VAT system and the related compliance costs for all businesses. Simplifications such as the use of the One Stop Shop are also available to SMEs but they are not specifically targeted to that category of taxable persons.

The difficulties of SMEs, in particular when trading cross-border, are already addressed through a specific proposal which was presented on 18 January 201815. That proposal is together with the present proposal an integral part of the VAT Action plan.

• Regulatory fitness and simplification

As is indicated in the Impact Assessment, the compliance costs per euro of turnover for businesses doing intra-Union cross border trade have been established to be 11% higher compared with the corresponding VAT compliance costs per euro of turnover for businesses engaged solely in domestic trade.

EY, 2015; see: https://ec.europa.eu/taxation_customs/sites/taxation/files/docs/body/ey_study_destination_principle.pdf

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In view of assessing the impact on smaller businesses, a distinction has been made between SMEs that are engaged predominantly in domestic trade and SMEs that are already engaged in both domestic and intra-EU trade.

For this second category of SMEs, the proposed changes, and in particular the broadening of the scope of the one stop shop mechanism, could result in an average annual reduction of up to 17% compared to their current VAT compliance costs.

For all businesses, the monetary impact of the implementation is estimated to increase business costs, such as costs for updating the accounting and invoicing software and for professional training, by EUR 457 million in the year of implementation because of the need for business to adapt their internal procedures to the new rules, but results in a net business decrease of VAT compliance costs by EUR 938 million annually after the year of implementation.

However, the Impact Assessment accompanying the specific proposal on SMEs16, which as indicated above complements the present proposal, should result in a reduction in VAT compliance costs of up to 18% (or EUR 11.9 billion) for SMEs and an increase in SMEs’ cross-border trading activity of about 13%.

4. BUDGETARYIMPLICATIONS

The proposal will have no negative implications for the Union budget. Since the proposal would reduce cross-border VAT fraud by up to EUR 41 billion per annum, the total annual VAT revenue collected by each Member State, which is the starting point for the calculation of the VAT-based own resource, should increase.

5. OTHERELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

In its Communication of October 2017 on the follow-up to the VAT Action Plan, the Commission indicated that the implementation of the second step (covering cross-border services) in the gradual move to the definitive VAT system would be proposed by the Commission after due monitoring of the implementation of the first step (completed by the current proposal), the functioning of which in terms of robustness against fraud, of compliance costs for businesses and of effectiveness in the management of the system by the tax authorities, would be evaluated by the Commission 5 years after its entry into force.

To that purpose, the Commission will seek to obtain from Member States any relevant information as regards the level and the evolution of the administrative costs and of fraud. The Commission will also seek to collect input from all relevant business stakeholders as regards the level and the evolution of their compliance costs.

• Explanatory documents (for directives)

The proposal does not require explanatory documents on the transposition.

• Detailed explanation of the specific provisions of the proposal

The main substantial changes proposed to the VAT Directive are explained hereafter by topic. These substantial changes do result in a number of subsequent amendments of a technical nature in the VAT Directive.


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Certain changes concern provisions for which amendments are already proposed in the proposal COM(2017)569 final of 4 October 2017. That proposal provides, in response to a request from the Council, for improvements to the current VAT system to be made whilst the work on the definitive VAT arrangements for intra-Union trade is ongoing. The proposed changes for the so-called 'quick fixes' remain entirely valid since they should enter into force well ahead of the present proposal.

Nevertheless, the subsequent introduction of the definitive arrangements for B2B supplies of goods as foreseen in the present proposal does require the adaptation to these new arrangements of the provisions contained in the previous proposal regarding the concept of certified taxable person, call-off stocks or chain transactions.

In addition, since the objective of the present proposal is to introduce the definitive arrangements for B2B supplies of goods, the proposed Article 402 which sets out the cornerstones for the taxation of trade between Member States, covering goods and services, needs to be adapted to the fact that these cornerstones are partially put into effect by this proposal.

In addition, this proposal provides the opportunity for replacing the outdated notions of 'Intra-Community' or 'Community' by the notions of 'Intra-Union' and 'Union' in a range of provisions of the VAT Directive.

The recent Commission proposal as regards the special scheme for small enterprises (COM(2018) 21 final, of 18 January 2018) also requires a few technical updates such as the abovementioned replacement in the light of the present proposal. To avoid ambiguity, these changes are not included in the present proposal but shall be handled during the negotiations in Council.

Subject matter and scope of the tax: Articles 2 to 4

As indicated above, the current VAT system splits cross-border B2B supply of goods into two different transactions for VAT purposes: an exempt supply in the Member State of departure of the goods and an intra-Community acquisition taxed in the Member State of destination.

It is proposed that a cross-border B2B supply of goods within the Union will give rise to a single transaction for VAT purposes: an intra-Union supply of goods. Consequently, the concept of an intra-Community acquisition of goods as a transaction subject to VAT is to be removed from Articles 2 to 4.

Since an intra-Community acquisition of goods would no longer exist as a transaction subject to VAT, all subsequent provisions within the VAT Directive related to that concept need to be deleted and to be reviewed in the light of the proposed mechanism for taxing the cross-border B2B trade in goods within the Union.

The concept of intra-Union supplies of goods: Article 14

It is proposed to add a point (3) to paragraph 4 of Article 14 which contains a definition of intra-Union supplies of goods. Intra-Union supply of goods shall mean a supply of goods carried out by a taxable person for a taxable person or for a non- taxable legal person whereby the goods are dispatched or transported, by or on behalf of the supplier or the person acquiring the goods within the Union, from one Member State to another Member State.

5.

Certain supplies enumerated in paragraph 5 of Article 14 shall not be regarded as intra-Union supplies, even when the two conditions for qualifying, namely as regards the status of the


customer and as regards the transport of the goods, would be fulfilled. This is the case for supplies of goods with assembly or installation, with or without a trial run, supplies of goods that are exempt under Article 148 or 151 and supplies by a flat-rate farmer defined in Article 295.

The rules on the place of supply of goods: Article 35a

The rules on the place of supply of taxable transactions determine the Member State in which VAT is due.

The general rules for determining the place of supply of goods without transport (the place where the goods are located at the time the supply takes place) and the place of supply of goods with transport (the place where the goods are located when dispatch of the goods or transport begins) remain.

However, a new exception to the general rule is proposed in Article 35a according to which the place of supply of an intra-Union supply of goods shall be deemed to be the place where the goods are located at the time when dispatch or transport of the goods to the customer ends.

The combination of the definition of intra-Union supplies of goods in Article 14(4)(3) and the new proposed place of supply rule in Article 35a ensures the taxation of a cross-border B2B supply of goods within the Union in the Member State of destination.

Under the current VAT rules, cross-border supplies to taxable persons who carry out only supplies of goods or services in respect of which VAT is not deductible, to taxable persons subject to the common flat-rate scheme for farmers and to non-taxable legal persons are, below a certain threshold and when the acquirer did not opt for taxation at destination, still taxed at the Member State of supply (origin).

This exception adds to the complexity of the current arrangements. It has also lost of its relevance since the threshold has never been reviewed since its implementation in 1993. This exception is therefore not retained also because, contrary to the current situation, under the proposed rules the supplier will take care of the reporting and payment obligations related to these supplies.

Taxation at destination is thereby ensured for all intra-Union B2B supplies of goods. The only exception are the supplies made under the margin scheme provided for in Articles 311 and onwards (Article 35c). Further taxation at destination will not apply either for the cross border supplies of goods that are exempt under Article 148 or 151 and for the cross border supplies of goods by a flat-rate farmer defined in Article 295 since, as indicated above, they are excluded from the notion of intra-Union supplies of goods.

Chargeability of the tax: Article 67

An amendment to Article 67 is proposed that determines a single rule for the chargeability of VAT on intra-Union supplies. According to this rule VAT shall become chargeable on issue of the invoice, or on expiry of the time limit referred to in the first paragraph of Article 222 if no invoice has been issued by that time (fifteenth day of the month following that in which the chargeable event occurs).

6.

It is further specified that those provisions allowing Member States to determine, in certain cases, different moments of chargeability of VAT shall not apply with respect to intra-Union


supplies of goods. In absence of this specification the supplier making intra-Union supplies in several Member States would have to comply with the options taken by the different Member States of arrival of the goods, which would increase complexity.

Person liable for payment of VAT: Articles 193, 194a, 199a and 199b

The principle laid down in Article 193 remains that VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, unless in other provisions, enumerated in that same Article 193, it is stipulated that VAT is payable by another person.

As an exception to Article 193, a new Article 194a is proposed according to which VAT shall be payable by the person to whom the goods are supplied insofar he is a certified taxable person as defined in Article 13a if the goods are supplied by a taxable person not established within the territory of the Member State in which the VAT is due. The concept of certified taxable person was included in the Commission's proposal of 4 October 201717.

As regards intra-Union supplies of goods, the combination of the rules of Articles 193 and 194a means that the supplier is in principle liable for the payment of the VAT in the Member State of arrival of the goods except where the supplier is not established in the Member State of taxation and the customer is a certified taxable person according to Article 13a. In the latter case, the customer will pay the VAT due by way of reverse charge in the Member State of arrival of the goods.

Article 199a allows Member States to provide until 31 December 2018, for certain supplies specified in this provision, that the person liable for payment of VAT shall be the taxable person to whom these supplies are made.

In the recently adopted report on the effects of Article 199a and 199b on combatting fraud18, the Commission indicated that it will present an appropriate legislative proposal for prolonging the existing measures. This will be a separate proposal that will cover the period from 1 January 2019 until 30 June 2022, given that the envisaged date of entry into force of the present proposal is 1 July 2022.

The amendments of Article 199a proposed hereafter relate to the period from 1 July 2022 onwards. They concern the timespan and the scope of the supplies covered.

As regards the timespan, it is proposed to extend the option to make use of this provision until 31 December 2028. The other dates laid down in this provision are adapted accordingly.

As regards the supplies to be included in this provision, it is obvious that the proposed content has to be assessed in the context of the overall change of the taxation of the cross-border movement of B2B supplies of goods. The proposed changes intend to provide a fundamental response to cross-border fraud relating to transactions in goods and should therefore make the existing patchwork of temporary reverse charge measures in Article 199a, to the extent to which they also aim to give a response to this kind of fraud, redundant. The transactions that remain covered by the temporary measures of Article 199a are therefore limited to those services previously covered in this provision.

17 COM(2017)569 final, 4.10.2017.

18 Report from the Commission to the Council and the European Parliament on the effects of Articles

7.

199a and 199b of Council Directive 2006/112/EC on combatting fraud (COM(2018) 118 final of


A comparable approach is suggested for the amendment of Article 199b. This provision lays down the rules governing the Quick Reaction Mechanism which allows Member States in very specific circumstances to designate the recipient of the goods and services as the person liable for VAT. For the same reason as in Article 199a, supplies of goods would no longer be covered by the Quick Reaction Mechanism.

Identification: Article 214

Intra-Union supplies of goods, defined in Article 14, paragraph 4, point 3 include, inter alia, supplies made by a taxable person to a non-taxable legal person.

8.

An amendment to Article 214 is therefore proposed according to which Member States


shall

take the measures necessary to ensure that a non-taxable legal person who is the recipient of an intra-Union supply is identified by means of an individual number.

Recapitulative statements: Articles 262 to 271

Intra-Union supplies of goods should under the proposed system no longer be included in the recapitulative statements. The principle of VAT being charged by the supplier on the intra-Union supply re-installs the self-policing character of VAT. Consequently, ensuring an administrative follow-up to the physical flow of goods through the recapitulative statement within the Union is no longer justified.

When the recipient of an intra-Union supply is a certified taxable person, goods will continue to circulate VAT free within the Union. Nevertheless, it would be incoherent with the concept of a certified taxable person, which is considered to be a reliable taxable person, to maintain the obligation of submitting recapitulative statements for such transactions.

9.

The obligation to submit


recapitulative statements is therefore only maintained for services.

Member States may introduce, under certain conditions, special measures to simplify the obligation to submit recapitulative statements. It is proposed to simplify the procedure for taking up this option, by replacing the requirement of a unanimous decision from the Council by a consultation of the VAT Committee.

Special schemes for non-established taxable persons: Articles 358 to 369x

Chapter 6 of Title XII of the VAT Directive currently contains three schemes with a distinctive scope, namely:

– a special scheme for services supplied by taxable persons not established within the

Union;

– a special scheme for intra-Union distance sales of goods and for services supplied by

taxable persons within the Union but not in the Member State of consumption;

– a special scheme for distance sales of goods imported from third territories or third

countries.

The first and third schemes are only marginally affected by this proposal.

In view of implementing the principle of a single registration scheme for declaration, payment and deduction of the tax, substantial changes to the second scheme are proposed.

Taking into account the adoption by the Council of Directive (EU) 2017/2455 of 5 December 201719, this second scheme will as of 1 January 2021 allow the taxable person registered for the scheme in a Member State (the Member State of identification) to electronically submit quarterly mini One Stop Shop VAT returns detailing supplies of services and intra-Union distance sales to non-taxable persons in other Member States (the Member State(s) of consumption), along with the VAT due. These returns, along with the VAT paid, are then transmitted by the Member State of identification to the corresponding Member States of consumption via a secure communications network. This scheme avoids that these taxable persons need to be registered for VAT in each Member State of consumption. The current proposal provides for a further extension of this scheme.

As regards the definitions used for the purposes of this scheme, a definition of Member State of taxation is added in Article 369a. Member State of taxation means the Member State in which the supply of goods or services is deemed to take place.

The scope of transactions covered by the scheme, set out in Article 369b, is amended. It is proposed that the option to make use of the scheme should be available to any taxable person not established in the Member State of taxation in relation with the supplies of goods and services made in that Member State for which he is liable to pay value added tax. It will thereby no longer be limited to Business-to-Consumer transactions but also include B2B transactions.

It is proposed to make the scheme also available to taxable persons not established within the Union under the condition that they appoint an intermediary which is established in the Union. Comparable to what is already foreseen in the special scheme for distance sales of goods imported from third territories or third countries, the intermediary is the person that becomes liable for the payment of the VAT and for fulfilling the obligations laid down in the scheme in the name and on behalf of the non-EU established taxable person he represents.

Considering the widening of the scope of transactions covered by the scheme, it is proposed to amend Article 369f by adding that taxable persons making use of the scheme shall submit monthly One Stop Shop VAT returns when their annual EU turnover is above EUR 2 500 000.

Article 369g, which defines the content of the VAT return to be submitted under the scheme also needs to be reviewed. Currently, the information to be provided only relates to the value and the VAT due on supplies made by the taxable persons.

Including the right for the taxable person to exercise the deduction of input VAT in the One-Stop-Shop VAT return is only possible when some additional information is provided in that return and in particular:

- the total amount of VAT that has become chargeable on supplies of goods and services for which the taxable person as recipient is liable to pay the tax and on the importation of goods where the Member State exercises the option under the second paragraph of Article 211;

- the VAT for which deduction is made;

- amendments relating to previous tax periods;

- the net amount of the VAT to pay or to be refunded or credited.

10.

Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and


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Since deduction will be made on the VAT returns submitted through the scheme, an amendment to Article 369i is proposed which stipulates that the taxable person shall pay the sum of the net amounts of VAT (VAT due minus VAT deductible) due in each Member State of taxation.

A new Article 369ia is proposed defining the conditions under which a taxable person in a credit position in a given Member State of taxation can obtain a refund of the credit from that Member State. Moreover, a new Article 369ib is proposed which determines the conditions under which an amount to be refunded to the taxable person in the Member State of identification can be used for the payment of VAT due in the Member State(s) of taxation.

An amendment to Article 369j is proposed in order to determine the interaction between the right to deduct under the special scheme and the refund procedures laid down in Directive 86/560/EEC20 for taxable persons not established in the Union and Directive 2008/9/EC21 for taxable persons established in the Union. This provision is necessary in order to avoid potential abuse by taxable persons that would exercise a right to deduct under the special scheme and would submit a request for refund for the same amount of input VAT.

In principle a taxable person has the right to make the deduction of the input VAT on the VAT returns submitted through the scheme. However, when a taxable person making use of this special scheme does not make any supplies of goods and services covered by this special scheme for which VAT has become chargeable in a Member State of taxation in a given tax period, nor in the three preceding tax periods when he is submitting quarterly returns or in the eleven preceding tax periods when he is submitting monthly returns, no deduction of VAT incurred may be made in that Member State of taxation in that VAT return. Instead of that, the taxable person should claim the input VAT back via the refund procedure in the Member State in which VAT was charged.

Derogations: Articles 370 to 390c

Chapter 1 of Title XIII of the VAT Directive contains a series of derogations which may be applied until the adoption of the definitive arrangements. For those States which were Member States on 1 January 1978, most of the derogations they may apply are spelled out in Annex X to the VAT Directive. As explained above, the present proposal is the first step in the process of putting the definitive system of taxation of intra-EU trade at destination into place. As part of this step, it is proposed to delete those derogations for which, if they were maintained, the proposed changes of the place of supply rules and of the designation of the person liable for payment of VAT would lead to complexity for the taxable persons and the tax administrations.

In particular, the option to apply a derogation would be suppressed for goods that could be the object of intra-Union supplies (movable goods). In that case, the supplier would have to know, for each Member State in which these intra-Union supplies take place, whether that Member State made use of the derogation or not and, if so, which are the conditions applied by those Member States.

20

Thirteenth Council Directive 86/560/EEC of 17 November 1986 on the harmonization of the laws of the Member States relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in Community territory (OJ L 326, 21.11.1986, p. 40).

11.

Council Directive 2008/9/EC of 12 February 2008 laying down detailed rules for the refund of value added tax, provided for in Directive 2006/112/EC to taxable persons not established in the Member


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