european commission taxation and customs union the future of vat eu perspective donato raponi 26...

European Commission

Taxation and Customs Union

The future of VATEU perspectiveDonato Raponi

26 October 2011Copenhagen

2European Commission Taxation and Customs Union

GREEN PAPER

After more than 40 years, the European Commission has considered it was time for a critical look to the EU VAT system, therefore a broad based consultation with all stakeholders

Presentation of the Green Paper in December 2010 Consultation has been open until 31st May 2011 33 questions in total. Questions both for evaluating the current

system and for potential solutions Conference in Milano with tax administrations and stakeholders on

6 May


GREEN PAPER

+- 1700 contributions received (+- 8500 pages) : will be published on the web of DG TAXUD

Study launched on the evaluation of the present system: to be published soon on the Web of DG TAXUD

Discussion with Member States : Taxation Policy Group, Deputy Directors for VAT and the Future of VAT Working Group.

Opinions of the European Parliament, the European Economic and Social Committee


GREEN PAPERGeneral reflections

Value added tax (VAT) constitutes a major source of revenue for national budgets (in 2009: 784 billion in tax revenue, 21 % of national tax revenues) Indirect taxes are more growth-friendly than direct taxes broadening the tax base is a must to allow tax shifts

Enhancing the single market of vital importance (Europe 2020 strategy) Business: current VAT system too complex and burdensome Business: easier to import/export than intra-EU trade

The current arrangements expose the VAT system to fraud (about 12% of VAT remains uncollected)


THE FUTURE OF EU VATA VAT SYSTEM ADAPTED TO THE SINGLE MARKET

Some figures:

Intra-EU trade represents about 2500 billion €, in 1993 about 700 billion.

40 % of sales of manufactured goods leave the MS, 70 % of those going to other MS.

Which system ?

1967: commitment: taxation in the country of origin • Is it achievable ? Unanimity ( EP, ECOSOC, BUSINESS) : not

realistic in the foreseeable future• Need a pragmatic solution


THE FUTURE OF EU VAT A VAT SYSTEM ADAPTED TO THE SINGLE MARKET

System based on taxation at destination(rate and rules of MS of destination)

Several ways of achieving this objective:• Current transitional arrangements for intra-EU B2B

transactions but too complex, burdensome and do not cope well with normal commercial practices.

• Taxation at the place of establishment of the customer– Similar treatment of supplies of goods and services– Decoupling taxation rules from the physical flow of the

goods but connecting to the contractual flow

• Taxation at the place of arrival of goods – Flow of goods taken into account, similar to the current

concept of distance sales


THE FUTURE OF EU VAT A VAT SYSTEM ADAPTED TO THE SINGLE MARKET

The supplier charges VAT on cross-border B2B supplies: Equal treatment for domestic and cross-border transactions The intregrity of the VAT system with the fractional collection

mechanism reinstituted Economic evaluation shows significant advantages but impact for

businesses and tax authorities significant too This would require the implementation of a comprehensive One-

Stop-Shop.

Conclusion: EU VAT SYSTEM should be based on the principle of taxation at destination. Technical work on the different possible ways to implement the destination principle


THE FUTURE OF EU VATA SIMPLE SYSTEM

Compliance cost: 2 to 8 % of VAT collections Businesses engaged in intra-EU trade: additional burden : national

obligations, different options left to MS

Harmonisation of VAT procedures: substantial gains in trade, GDP and consumption

Possible initiatives: Provide the business with better and more reliable information at EU

level: rules and obligations relating to registration,invoicing, VAT returns,VAT rates, speicial obligations,limitation to the right of deduction…etc

Improvement of the EU legal process: larger involvement of stakeholders, more transparency in the process of establishing and interpretating EU vat law, publication of VAT Committee guidelines approved and explanatory notes for the implementation of new legislation…etc



Improvement of the governance of the VAT at EU level:

• Setting up of a communication channel at EU-level where Tax Authorities, the Commission and business representatives exchange views on practical matters of VAT administration.

Standardisation of VAT obligations:

• Divergent obligations oblige businesses to tailor IT specifications and procedures for each MS where they operate

• Is seen as a key to easing administrative burdens

Possible solutions: standardisation of obligations: declaration, registration … available in all languages



The One-Stop-Shop

• « mini » OSS for Eu providers of telecommunications, boroadcasting and electronic services supplied to final consumers within the EU: enter into force by 2015 = major milestone

• More general use of this concept

• Crucial instrument to reduce compliance costs and easing trade ( SMEs), especially in a VAT system based on taxation at destination


THE FUTURE OF EU VATMORE EFFICIENT SYSTEM

A broader tax base + a larger application of standard rate

Better efficiency of the tax More revenue


c

Broadening the tax base Public bodies and exemptions for certains activities in the

public interest• Study highlighted shortcomings of present rules:

– Lack of neutrality– Distorsions of competition– Complexity

• Possible solutions: – Full taxation (GDP: + 0,19, VAT revenue=+195 billion, public

employment: - 200.000) Concerns: cost of public goods, social security if education or health

activites taxes

– Targeted and progressive approach: starting with activities with a larger degree of private sector involvement: waste collection, water treatment …etc



Passenger transport services• Present rules = different treatments (exemption, reduced rates,

standard rates) depending of the means of transports and Member States

distortions of competition• Possible approaches:

– suppression of the exemption applied to international air and sea transport ?

– Extension of the exemption to the other means of transport ?



Structure of rates Approximation of rates : condition for the functioning of the origin

based system VAT system based on taxation at destination : no more a condition Business concerns: divergences in VAT rates = additional

compliance costs (reduction by 50 % the dissimilarity between MSin terms of the special VAT rates = + 9,8 % of intra-EU trade gains, + 1,1 of GDP)

Study: VAT rate is not the most suitable instrument for pursuing policy objectives

Equal treatment between products ( online formats and traditional formats)


THE FUTURE OF EU VATA MORE ROBUST SYSTEM

Fraud and avoidance: correlated to the compliance burden

Appropriate system for the taxation of intra-EU transactions

Simpler VAT system

Contribute to the robustness of the VAT system

VAT Collection• new ways:

– Split payment– Wharehouse model

Quick reaction mechanism• Provide MS with a legal base in order to take immediate national

measures to stop massive fraudulent practices


THE FUTURE OF EU VAT

Thank you

european commission taxation and customs union the future of vat eu perspective donato raponi 26...

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