The upcoming new European Commission’s plans for a EU carbon border tax has already attracted a lot of criticism. The prospective plans of the Commission would be to compel third countries to meet its climate standards, or else face extra taxes to their products at the EU’s borders.
EU risks trade fight over carbon border tax plans
The upcoming new European Commission’s plans for a EU carbon border tax has already attracted a lot of criticism. The prospective plans of the Commission would be to compel third countries to meet its climate standards, or else face extra taxes to their products at the EU’s borders.
EU officials are concerned that the measure could be seen as protectionist and are carefully trying to design provisions that are compliant with WTO rules. It remains to be seen whether this is possible, and what the international reactions to such a measure could be. Read more
EU finance ministers (ECOFIN) find major compromises on VAT
On 8 November, EU finance ministers’ ECOFIN meeting reached a number of key decisions on VAT as well as the EU list of non-cooperative jurisdictions.
Fight against VAT fraud
First, the finance ministers agreed new measures to facilitate the fight against VAT fraud in the e- commerce sector.
These measures are introduced via amendments to the Regulation on administrative cooperation to fight against VAT fraud, and to the VAT Directive through new requirements on payment services providers.
For example, the now approved rules establish quarterly information exchange requirements for payment service providers that will allow the ‘Eurofisc’ network to exchange and analyse payment data on cross-border sales. Moreover, the European Commission will have to set up a ‘central electronic system for payment information’ (CESOP) to investigate suspected cases of fraud or detecting VAT fraud.
VAT simplifications and reductions in burdens for SMEs
The member states also approved new rules to create a special VAT scheme for SMEs. Until quite last minute it was still unclear whether or not an agreement could be reached, but in the end the Finnish Council Presidency found a way to bridge differences between countries.
Under the compromise, supplies of goods and services by small businesses with a national annual turnover of up to EUR 85,000 may be exempt from VAT. Moreover, member states that allow such an exemption to companies established in their territory will be required to apply the same exemption to supplies made in their territory by taxable persons established elsewhere in the EU, as long as their annual turnover from activities in the whole of the EU does not exceed 100,000 euros.
The UK, Spain and Hungary are not completely happy with the outcome as they see the new thresholds and provisions as not meaningfully reducing administrative burdens. However, none of the three blocked the compromise in the end.
In the meanwhile, the Council’s legal service has recommended to the Finnish Presidency to consult the European Parliament again, given the big differences between the Commission’s initial proposal and the final outcome.
European Parliament
European Parliament publishes draft positions on two VAT proposals
MEP Lidia Pereira (EPP/Portugal) has published her draft opinion on two VAT proposals by the European Commission: the first one on strengthening VAT administrative cooperation to fight against fraud, and the second on VAT requirements for payment service providers.
Ms. Pereira considers including virtual currency exchange platforms in the scope of the two proposals and calls on EU member states to invest in the digitalisation of their tax collection procedures using blockchain.
ECON Committee will vote on the draft opinions in the next few weeks, followed by a confirmatory vote in Plenary. On all VAT files the Parliament only submits a non-binding opinion but has no decision-making powers otherwise.
ECON Committee discusses VAT fraud
On November 4, ECON Committee discussed two draft opinions on VAT requirements
for payment service providers and measures to strengthen administrative cooperation in order
to combat VAT fraud. Both were prepared by the MEP Lidia Pereira (EPP/Portugal).
At the discussion, Csaba Molnár (S&D/Hungary) proposed to add reference to AML to the administrative cooperation Directive in order to ensure all the necessary information is shared with competent authorities.
Ondřej Kovařík (RE/Czech Republic) called for measures to prevent double reporting and would prefer to avoid transaction by transaction reporting.
And finally, Eugen Jurzyca (ECR/Slovakia) called for an analysis of the effectiveness of national anti VAT fraud measures to understand why some EU member states have a 50 times bigger VAT gap than others. He also warned against imposing high administrative burdens on payment service providers.
A vote in ECON for both reports is currently scheduled for 2 December, and a Plenary vote for the week of 16 December.
Czech Republic granted right to apply generalised reverse charge mechanism
On 6 November, EU member states showed green light to Czech Republic applying the VAT generalized reverse charge mechanism (GRCM) from 1 January 2020 to 30 June 2022.
The GRCM was introduced into EU legislation in 2018 after a long battle in the Council, which included Czech Republic taking the VAT for e-publications file as ‘hostage’ to other member states approving the GRCM provision.
The GRCM applies only to the supply of services and goods for transactions above EUR 17,500 and in a member state where missing trader fraud accounts for at least 25% of the VAT gap. Czech Republic fulfils all the above conditions, and its government indicates that the GRCM should yield almost EUR 400 million.
Parliament adopts position on VAT distance sales of goods
The European Parliament has adopted its position on the Commission proposal on VAT distance sales of goods and e-commerce. The file was led in the Parliament by the MEP Ondrej Kovarik (RE/Czech Republic).
In the opinion, the Parliament notably supports introducing new requirements on market platforms such as Amazon and eBay. The platforms will have to keep data on sales made through their interfaces even when sellers outside the EU have not fulfilled their tax obligations.
EU Member States are still negotiating on the file and will have to adopt it by unanimity.
CJEU Rulings
Case C-270/18: Tax exemption for small electricity producers
C-692/17: VAT exemption for transactions concerning the granting, negotiation or management of credit
C-653/18: Right to VAT exemption where the person acquiring the goods exported is not identified
Case C-68/18: Tax rate applicable to energy products
