Communication from the Commission on the future of VAT - General policy debate - Main contents

Document date	15-12-2011
Publication date	22-01-2013
Reference	18697/11
From	Incoming Danish Presidency
To	Working Party on Tax Questions - Indirect taxation (VAT)
External link	original PDF
Original document in PDF

COUNCIL OF PUBLIC Brussels, 15 December 2011

THE EUROPEAN UNION

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FISC 172

NOTE from: Incoming Danish Presidency to: Working Party on Tax Questions – Indirect taxation (VAT) No. Cion doc.: 18288/11 FISC 164 - COM(2011) 851 final i Subject: Communication from the Commission on the future of VAT

• - 

  General policy debate

• 1. 

  On 6 December 2011, the Commission presented a Communication to the European

  Parliament, the Council and the European Economic and Social Committee entitled "On the future of VAT – Towards a simpler, more robust and efficient VAT system tailored to the single market". The objective of the Communication is to 1) set out the fundamental features of a future EU VAT system which can continue to perform its function of raising revenue, while increasing the competitiveness of the EU, and 2) list the priority areas for further action in the coming years.

• 2. 

  The Commission presented the Communication at a half day meeting on 14 December 2011, organised by the outgoing Presidency.

18697/11 GM/df 1 3. The aim of the paper annexed to this note is to summarise relevant information for the

delegations and to provide them with several questions to be addressed during the forthcoming

policy debate.

• 4. 

  On the basis of the outcome of the policy debate(s), it is the aim of the Presidency to draft

  Council conclusions on the Commission’s Communication.

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ANNEX

BACKGROUND INFORMATION AND QUESTIONS FOR DISCUSSION

I. INTRODUCTION

• 1. 

  The common system of value added tax was introduced more than 40 years ago, at a

time when the marketplace looked very different from today. The system was

established in 1967 by the first and second VAT Directives. More detailed provisions

were introduced in 1977 with the adoption of the sixth VAT Directive, which has since

been subject to numerous bit-by-bit amendments.

• 2. 

  In revenue terms, VAT constitutes an important source of revenue for Member States

and possibly a growing one as the recession and aging populations affect other revenue

sources. It is therefore of great importance to ensure that the EU’s VAT system is fully

efficient and delivering to its full potential. Consequently, for several years improvement

of the VAT system has been one of the Commission’s fiscal priorities.

• 3. 

  On 1 December 2010, the Commission adopted a Green Paper 1 and a Commission Staff Working Document 2 on the future of VAT. The aim of the Green Paper was to launch a

  consultation process open to every stakeholder on an evaluation of the current VAT system as well as possible ways to strengthen its coherence with the single market and its capacity as a revenue raiser. Thus, on the basis of the 33 questions in the Green Paper, the public consultation gave stakeholders an opportunity to share their experience of the current system and express their views on the future of VAT.

1 Green Paper on the future of VAT – Towards a simpler, more robust and efficient VAT system, COM(2010) 695 i,

1.12.2010.

2 Commission Staff Working Document – Accompanying document to the Green Paper on the future of VAT,

SEC(2010) 1455, 1.12.2010.

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• 4. 

  The questions in the Green Paper covered in particular the treatment of cross border

supplies, as well as other key issues addressing tax neutrality, the degree of

harmonization required in the single market and reducing compliance costs ("red tape")

whilst limiting fraud and providing maximum flexibility for Member States.

II. THE CONSULTATION PROCESS

• 5. 

  Member States had an exchange of views on the content of the Green Paper at the Tax Policy Group meeting on 19 January 2010 and at the meeting of Deputy Director

  Generals for Indirect Taxation on 23 February 2011. Discussions during these meetings remained at a general level concentrating on the main objectives to be pursued and identifying some priorities, such as safeguarding VAT revenues and reducing compliance costs for businesses. Both groups welcomed the Green Paper and confirmed the need to reform the EU VAT system.

• 6. 

  The need for more technical discussions on certain aspects of the Green Paper was

indicated specifically at the Deputy Director Generals’ meeting. In response, the

Commission set up the Group on the Future of VAT with the objective of providing a

forum where experts from Member States could have more in-depth technical

discussions.

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• 7. 

  The Group on the Future of VAT met for three full-day meetings on 24 May 2011,

5 July 2011 and 3 October 2011. Discussions during these meetings covered a number of

topics including:

• a) 

  Reviewing the way VAT is collected and monitored; b) Protecting bona fide traders and combating fraud – optional reverse payment; c) An EU-platform for the cooperation between tax authorities and business; d) VAT treatment of SME’s; e) VAT treatment of public bodies and VAT exemptions in the public interest; f) VAT treatment of passenger transport.

• 8. 

  As part of the consultation process the Commission also hosted a one-day conference in Milan on 6 May 2011. The conference was attended by representatives from business,

  tax authorities, the OECD, academics and other stakeholders. The program was grouped into three sessions:

  • a) 

    Adapting the VAT system to the single market; b) Enhancing the administration of the VAT system; c) The keys to fiscal consolidation and neutrality of VAT.

• 9. 

  On 14 July 2011, the European Economic and Social Committee (EESC), which had

been consulted by the Commission under Article 304 of the Treaty on the Functioning of

the European Union, issued an opinion 3 which unreservedly endorsed the Commission’s

Green Paper process.

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• 10. 

  On 13 October 2011 the European Parliament adopted an own-initiative resolution on

  the future of VAT 4 . The resolution and accompanying report, adapted by Parliament by

  a strong majority, shows clear support from Europe’s elected representatives for the initiative to overhaul the current VAT system.

• 11. 

  The public consultation ended on 31 May 2011 and the Commission received 1726

  5

  replies in total to the consultation .

  • 12. 

    These replies have – together with the contributions from the Tax Policy Group and the Deputy Director Generals, the work of the Group on the Future of Vat, the outcome of the Milan conference, the EESC opinion and the resolution passed by the European

    Parliament – fed into the present Communication of 6 December 2011 on the future of VAT.

III. QUESTIONS FOR THE DISCUSSION

During the policy debate on 12 January 2012, Delegations will be invited to consider the following questions suggested by the Presidency:

A. Long term objectives

• 1. 

  Can Member States endorse the conclusion of the Commission with respect to the

abandonment of the origin principle and the ensuing move towards a properly

functioning destination-based EU system of VAT?

4 Resolution of 13 October 2011, P7_TA-PROV(2011)0436.

5 They are available together with a report summarising their main elements at

http://ec.europa.eu/taxation_customs/common/consultations/tax/2010_11_future_vat_en.htm

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• 2. 

  Can Member States endorse the proposed guiding principles for future work, i.e. ‘simple’, ‘efficient and neutral’, and ‘robust and fraud proof’?

B. Priority areas for further work

The Communication contains a range of initiatives designed to help make the EU VAT system simpler, more efficient, more robust and fraud-proof, and better tailored to the single market:

1. Towards a simpler VAT system

In response to the strong and urgent call for simplification of the EU VAT system, it is suggested that this objective should be pursued through a number of legislative and non-legislative measures.

  Member States are invited to indicate whether they can generally support the

ideas set out under this heading?

For certain non-legislative measures, the Communication contains a concrete request to the Member States or the Council. In particular:

  With a view to providing businesses with more accessible and better

information at EU level, Member States are invited to confirm their willingness to accommodate the EU VAT web portal?

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  With a view to improving the governance of VAT at EU level, Member States

are invited to express their views on (i) the need for enhanced stakeholder consultation covering the entire legislative process and (ii) how best to involve stakeholders when new legislative proposals are being negotiated in Council?

2. Towards a more efficient VAT system

  With reference to the principle of VAT as a broad based tax and recalling the

principle of neutrality, Member States are invited to express their views on the proposed initiatives regarding (i) public bodies, (ii) passenger transport services, (iii) non-profit-making organisations and (iv) VAT rates? In view of the objective of increasing the efficiency of VAT, will it be necessary to supplement these initiatives with other measures?

3. Towards a more robust and fraud-proof VAT system

With reference to the goal of a more fraud-proof VAT system, it should be recalled that a number of measures have already been taken in recent years in the context of the VAT anti-fraud strategy. The efficiency of these measures however, is difficult to assess until they are all fully in force.

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Increasing revenue by decreasing tax fraud and evasion might make a significant contribution to fiscal consolidation and in the Commission’s Communication it is suggested to go beyond what has already been agreed and set out some additional actions.

  Member States are invited to express their support, or otherwise, for additional

actions at EU level in the fight against VAT fraud?

4. A VAT system tailored to the single market

  Member States are invited to express their views on the process towards

establishing a properly functioning destination-based EU system of VAT?

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