Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
By Joe Kirwin
European Union finance ministers June 16 will try to reach agreement on legislation that would allow EU countries to lower value-added taxes on digital publications and a separate measure that would implement a controversial reverse-charging mechanism to fight VAT fraud.
Malta, which holds the rotating EU presidency, is hoping that nearly six months of closed-door negotiations and various compromise texts on both issues will result in separate agreements at the EU Council of Economic and Financial Affairs meeting. However, Maltese officials and EU member-nation diplomats acknowledged to Bloomberg BNA on the eve of the meeting that the two legislative proposals have become linked, and the disputes could scuttle a June 16 agreement.
“Some member states have made approval of the VAT and digital publication proposal conditional on the VAT and reverse-charging proposal getting approved,” a Maltese diplomat told Bloomberg BNA on the condition of anonymity. “Others have made approval of the reverse-charging mechanism conditional on the approval of VAT and digital publications. It it is very difficult to predict what will happen.”
“We have made it clear that we will not be offering any new compromises, so it will be up to member states to decide what they want to do,” the Maltese official told Bloomberg BNA.
As is the case with all EU tax legislation, unanimous consent of all 28 members will be required to approve both legislative proposals.
Based on negotiations to date, the proposal calling for VAT reverse-charging faces the biggest hurdles. Some EU countries led by the Czech Republic, Austria, and Slovakia are the driving force behind having the right to use VAT reverse-charging. They insist it will make it possible for their national tax authorities to reduce cross-border VAT fraud, especially the notorious “carousel” schemes estimated to cost the EU as much as 50 billion euros ($56 billion) annually.
However, other countries, as well as the European Commission, see VAT reverse-charging on cross-border sales to be a major shift away from the fundamentals that underpin a VAT system. Moreover, they believe transferring—or reversing—the responsibility for collecting VAT to the retailer disrupts the multiple-transaction chain of VAT payments that extends from the original supplier to the consumer.
The European Commission is due to propose an overhaul to the EU VAT system, which it says would be more effective at reducing VAT fraud, later in 2017. Some EU countries led by France, Italy, and Spain, with tentative support from Germany, insist that allowing reverse-charging will compromise efforts to overhaul the EU VAT system.
Lobbying groups representing retail businesses led by the European Association of Craft, Small and Medium-Sized Enterprises (UEAPME) insisted in a position paper issued in April that reverse-charging will lead to “uncertainty as well as to additional risks and costs” for small and medium-sized companies.
Meanwhile, negotiations over the pending plan to allow an option to reduce VAT on digital publications has hit a snag, as some countries led by the Czech Republic, Slovakia, Austria, and Denmark have raised liability concerns over claims they are violating EU fundamental rights guaranteeing “equal treatment” if they choose not to exercise the option.
However, the EU Council of Ministers’ legal service issued an opinion April 28 insisting the liability concerns on equal treatment aren’t warranted.
Maltese presidency officials told Bloomberg BNA they believe the liability concerns about equal treatment is a negotiating tactic to get their way with the VAT reverse-charging proposal.
To contact the reporter on this story: Joe Kirwin in Brussels at email@example.com
To contact the editor responsible for this story: Penny Sukhraj at psukhraj @bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)