Source: EY Weekly VAT news – week to May 10, 2021
The Council of the European Union has published the Opinion of the European Economic and Social Committee (EESC) regarding a legislative proposal under examination which points out that the Commission has currently no implementing powers with regard to the VAT Directive. In this respect, the only available tool to implement the Directive’s provisions is the Advisory Committee set out in Article 398.
The Advisory Committee is made up of representatives of the Member States and of the Commission and it overseas the examination of matters relating to the application of EU VAT provisions raised by the Commission or by a Member State. The Advisory Committee can currently only agree non-binding guidelines on the application of the VAT Directive, while binding implementing measures can be adopted by the Council, based on a Commission proposal.
According to the Commission, the existing guidelines do not always ensure a uniform application of the EU VAT legislation, also due to demonstrated difficulties in reaching unanimous guidelines within the Advisory Committee.
In order to improve legal certainty and predictability, the legislative proposal envisages empowering the Commission to adopt implementing acts in certain areas covered by the VAT Directive, as well as the creation of a committee that will oversee the Commission’s new powers.
The proposed implementing role of the Commission will focus on those specific areas and concepts related to EU VAT that require uniform application and where more certainty and predictability are needed. The Council, in turn, will keep its implementing powers outside of the Commission’s prospective remit. In particular, the new rules maintain that the Commission, by means of implementing acts, will determine the meaning of the terms used in the following areas/concepts of the VAT Directive:
- Taxable persons for the purposes of VAT
- Transactions that are taxable for VAT purposes
- The place of taxable transactions
- Chargeable event and the chargeability of VAT
- Taxable amount of VAT
- Exemptions from VAT
- Deductions from VAT
- Obligations of taxable persons
- Certain non-taxable persons
- Special VAT schemes
The legal ground of the proposal is Article 113 TFEU, which enables the Council – acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the European Economic and Social Committee – to adopt provisions for the harmonization of Member States’ rules in the area of indirect taxation.
Conclusions and recommendations
- The EESC supports the general objective pursued by the Commission proposal, since ensuring legal certainty and predictability with regard to the VAT Directive is crucial to creating a level playing field across Member States and to further promoting the single market
- The ongoing divergences between Member States, with regard to both the interpretation and implementation of the VAT Directive, are undoubtedly harmful to the single market, as pointed out by the Commission. The EESC therefore urges swift and effective action in this respect
- More uniformity of the VAT rules could reduce compliance costs and be conducive to growth for all enterprises operating in the EU and, especially, for SMEs working on a transnational basis, as they are more impacted by regulatory differences between Member States
- Discrepancies with regard to the application of the VAT rules can bring about significant adverse distortions across the internal market and, as a consequence, negative social effects which should be prevented by ensuring more consistency in the application of the existing rules
- The EESC notes that the Commission proposal, and in particular the proposed outline of issues to be addressed under the new set of rules, might come up against significant resistance from many Member States, which could raise ‘principled objections’ to the Commission proposal
- The EESC calls for the consideration of other measures able to improve the single market as early as possible. It suggests that the Commission, as a first step, consider improving and strengthening the existing advisory Committee on VAT and its decision-making process, in order to enhance the unsatisfactory degree of uniformity of VAT rules across Member States
- The EESC considers it useful to trace heterogeneous applications and implementations of agreed VAT rules at national level. It is important to make the existing differences transparent, clear and public in order to improve uniformity under the current regulatory framework
- The EESC considers it important that the Commission carry out impact assessments of any differences in the implementation or interpretation of agreed VAT rules in any Member State. The impact assessments should be made public, duly discussed and followed up within the VAT committee
- The EESC also draws attention to some possible unwanted effects of the new proposal. The proposed implementing role for the Commission, in relation to some of the main concepts within the VAT Directive, could make it difficult to distinguish between the scope of the Commission’s new powers, on one hand, and what will actually constitute a modification of the VAT Directive, on the other. Such uncertainty might prevent the achievement of the necessary unanimous agreement to modify the VAT Directive within the Council in the future
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