The Commission has published the latest annual Taxation trends report. The report shows that revenues from consumption taxes (including VAT and excise duties) for the EU-28 increased as a percentage of GDP in 2015. However, the share of consumption taxes out of total revenue increased only slightly to 28.7% compared to 28.5% in 2014. The report also demonstrates that the average top corporate tax rate reduced from 22.5% to 21.9% between 2016 and 2017. The Taxation trends report provides detailed statistical and economic analysis of the tax systems of the 28 EU Member States, as well as Iceland and Norway. The report also includes country chapters where, for each country, key tax indicators are provided on tax revenues as a percentage of GDP for the years ranging from 2003 to 2015. These are supplemented by tables presenting the latest tax reforms in each country.
European Commission
Commission publishes taxation trends report – 23 August 2017
The Commission has published the latest annual Taxation trends report. The report shows that revenues from consumption taxes (including VAT and excise duties) for the EU-28 increased as a percentage of GDP in 2015. However, the share of consumption taxes out of total revenue increased only slightly to 28.7% compared to 28.5% in 2014. The report also demonstrates that the average top corporate tax rate reduced from 22.5% to 21.9% between 2016 and 2017. The Taxation trends report provides detailed statistical and economic analysis of the tax systems of the 28 EU Member States, as well as Iceland and Norway. The report also includes country chapters where, for each country, key tax indicators are provided on tax revenues as a percentage of GDP for the years ranging from 2003 to 2015. These are supplemented by tables presenting the latest tax reforms in each country.
European Parliament
ECON Committee Debates C(C)CTB and VAT – 30 August 2017
A number of tax debates took place at the ECON Committee in what was the Committee’s first work week after the summer break. The debates covered the two CCCTB proposals, as well as two VAT files on e-commerce, and administrative cooperation and the fight against fraud. As a reminder, the CCTB dossier is led by the MEP Alain Lamassoure (EPP/FRA), whilst Paul Tang (S&D/NLD) is in charge of CCCTB. On the VAT side, Catalin Sorin Ivan (S&D/ROM) is leading on e-commerce, and Ludek Niedermayer (EPP/CZE) on administrative cooperation.
VAT: thresholds and date of implementation
By contrast, the two VAT debates went by without major disagreements. Perhaps the largest complication relates to the question of thresholds in Mr. Ivan s report on VAT for e-commerce. As a reminder, the Commission proposed that companies with annual cross-border sales below 100,000 EUR are entitled to simpler procedures for determining their clients’ place of establishment. Businesses with a threshold below 10,000 EUR would be eligible to apply their national VAT rules.
Cora Van Nieuwenhuizen (ALDE/NLD) has proposed to increase the smaller threshold to 35,000 EUR, whilst the Greens-EFA Group would like to see this threshold increased to 100,000 EUR. The larger threshold, for its part, should be reduced from 100,000 EUR to 35,000 EUR, according to the Greens. Werner Langen (EPP/GER), for his part, stated his support for the initial Commission thresholds. The rapporteurs will meet in September to try to find a compromise to the threshold question.
With regard to the file on administrative cooperation, no controversies are to be expected. Mr. Niedermayer stated that the vote “will not be complicated one”, with a mere 22 amendments tabled. The S&D group is calling for the date of entry into force of the proposal to be in 2019, rather than the Commission s proposed 2021. The Commission argues, however, that its choice of 2021 is based on practical considerations, as national tax administrations will need sufficient time to prepare for implementation.
In terms of next steps, the Committee vote will be on 9 October and Plenary on 11 November for the e-commerce dossier. For the file on administrative cooperation, no estimates have been published yet for prospective vote dates, although they are likely to take place around the same time as for e-commerce.
Council
New VAT derogation for Croatia published – 28 July 2017
A new derogation from the VAT Directive for Croatia has been published for the attention of Member States. The derogation would authorise Croatia to grant a VAT exemption to taxable persons whose annual turnover does not exceed 45,000 EUR. The exemption would be valid from January 2018 until December 2020. All Member States must approve the derogation, although no major issues are to be expected.
Post-summer refresher: State of play of key tax files – August 2017
With summer now officially over, EU institutions will resume their heavy work agenda for a busy autumn. On the tax side of things, a number of ongoing initiatives are still pending, and several new ones are expected to be proposed in the next three months to come.
Major VAT reform in the horizon
VAT will keep the Commission and the Council busy throughout the autumn and beyond. The following legislative initiatives are to be expected:
- The proposal for the definitive VAT regime for cross-border trade is to be expected for end-September or early-October. This will be a first step out of a total of two for introducing the so-called destination principle
- A reform of the VAT rates is to be expected sometime between the definitive regime proposal and the end of the year. Two options are on the table: maintain the current minimum rate of 15% but extend the list of reduced rates, or grant Member States more flexibility with reduced rates as long as these are not detrimental to fair competition. This option would also include setting a number limit for reduced rates, and disqualifying certain items (like luxury goods).
- A proposal to amend the rules covering administrative cooperation in the area of VAT and to improve the fight against VAT fraud is to be expected by the end of the year. On the table, allowing for joint audits and reforming Eurofisc.
- A number of measures to simplify the VAT system for SMEs are to be expected by the end of the year. The Commission has expressed its concern that the current fragmented VAT rules in the EU are overly burdensome and complex for smaller companies to comply with.
On pending VAT files, the Estonian Presidency is aiming for a compromise on the VAT for e-commerce proposal in November.. The main ongoing topic is the question of the so-called fulfilment houses, which the UK brought to other Member States attention in April. The Estonian Presidency will present a compromise on this question on 6 September. The e-commerce proposal is a priority for the Presidency.
Finally, France and Czech Republic are working towards a compromise on the e-publications proposal. The Czechs are suspected of blocking progress on the file due to France s objections related to the reverse charge mechanism proposal, which the Czech government is pushing for. The Estonian Presidency is aiming for a political agreement on e-publications at the 10 October meeting of EU finance ministers.
Austrian EU Presidency to Prioritize Tax – 1 August 2017
Austria will take up the responsibility of Council Presidency from Bulgaria for the second half of 2018. Reportedly, the Austrian Presidency will maintain the ongoing policy momentum on tax, and keep anti-tax evasion and tax- avoidance high on the agenda. The Finance Minister, Hans Joerg Schelling, revealed that he has already discussed a possible Presidency agenda with Commissioner Moscovici. The agenda would include the Common Consolidated Corporate Tax Base (CCCTB), addressing the question of the so-called “virtual permanent establishments”, and introducing VAT to all mail order sales. The denomination of a virtual permanent establishment would apply to digital companies that are not considered to have a taxable presence in a given jurisdiction under the current definition of a “permanent establishment”, despite generating sales there. Austria has promises to deliver concrete proposals on the matter. Overall, Austria’s commitment to continue the anti-tax abuse agenda well into 2018 demonstrates that the political momentum on tax is all but fading, despite significant progress at the EU-level.
Council to consider VAT derogation for Poland – 23 August 2017
A new proposed VAT derogation has been published, this time to be granted to Poland. The derogation would allow Poland to apply the reverse charge mechanism to hard drives such as solid-state drives (SSDs) and hard disk drives (HDDs).
Poland has requested the derogation as a result of growing fraudulent practices on its hard drive market through the use of the “missing trader” mechanism (MTIC). The fraud mechanism consists of fraudulent operators registering entities at a specified address and for a period of time submitting tax returns. These entities wait for a right moment to perform a few large domestic sales, collecting VAT from customers and close their business without paying VAT. It is often impossible to audit the entities due to the use of virtual offices, frequent changes of the registered office, or the lack of documents regarding the performed transactions.
The derogation would apply from 1 January 2018 until 31 December 2020. The approval of the derogation will be up to the Member States by unanimity. http://data.consilium.europa.eu/doc/document/ST-11719-2017-INIT/en/pdf
Cout of Justice of the EU
Deduction of input tax – 14 September 2017
CJEU has issued a ruling on input tax deductions. The case code is C‑132/16. In its ruling, the Court establishes that a taxable person may deduct input VAT from construction or property improvement services provided to a third party, if this third party enjoys the results of the services free of charge and are used both by the taxable person and the third party for their economic activity. The condition is that those services should not exceed what is necessary to allow that taxable person to carry out the taxable output transactions and where their cost is included in the price of those transactions.
MEP Questions & Answers
VAT fraud – 4 August 2017
The European Commission has replied to a question asked by the MEP Andrey Kovatchev (EPP/BUL) with regard to VAT fraud. In his question, Mr. Kovatchev states that the current VAT system is vulnerable to fraud and tax avoidance. Carousel fraud alone results in VAT revenue losses of approximately €50 billion in 2014. He asks the Commission whether it has taken concrete steps to access information exchanged between Member States with a view to preventing and combating carousel fraud, and whether it will require Member States to report cases of fraud and other types of irregularities. In his reply, Commissioner Moscovici reiterates that the Commission will table a legislative proposal for the definitive VAT system by the end of 2017, which should address current weaknesses in the VAT system. The Commission is also examining how to reinforce administrative cooperation between Member States, notably in terms of enabling a swifter and more efficient detection of cross-border fraud cases. A legislative proposal will also be submitted before the end of 2017. And finally, the Commissioner confirms that the Commission regularly collects information on information exchanges between Member States and the use made of the existing cooperation instruments to evaluate their effectiveness.
VAT on sports activities – 8 August 2017
The European Commission has replied to a question asked by the MEP Theodoros Zagorakis (EPP/GRE) with regard to VAT on sports activities. In his question, Mr. Zagorakis asks the Commission whether it has comparative data on VAT for sports in Member States, and whether there is scope for reducing VAT rates in Europe for sports undertakings. In his reply, Commissioner Moscovici states that the Commission is not aware of any Member State collecting data on VAT revenues from sports activities. According to EU VAT law Member States can either apply the standard VAT rate or a reduced VAT rate to the use of sport facilities. However, reducing VAT rates for the use of such facilities falls under the responsibility of each individual Member State. The Commissioner, moreover, confirms that 16 Member States apply the standard rate to the use of sport facilities, whereas 12 Member States apply a reduced rate.
International
“India’s new tax system hit by severe teething pains” – 27 August 2017
The new tax regime in India has hit its first obstacles as millions of companies have failed to access the online platform for the national GST, probably burdened by server traffic. Local accountants have reported that less than half of their clients have been able to complete their payment obligations.
Events
- 12/10/2017, Future of VAT: Digitalisation is here! , Accountancy Europe, Brussels: https://www.accountancyeurope.eu/events/future-vat-digitalisation
- 23-24/11/2017, Annual Conference on European VAT Law 2017 , ERA, Brussels: https://www.era.int/cgi-bin/cms?_SID=d6547e623b34b78a0c7442f38349d1f2a96055c300556568356052&_sprache=en&_bereich=artikel&_aktion=detail&idartikel=126351
