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Ecofin report to the European Council on tax issues: E-Commerce, Definitive System, VAT rates reform, Extension reverse-charge, …

  • Council Conclusions on the implementation of the VAT e-commerce package
    • In December 2017 the Council adopted the VAT e-commerce package, consisting of a directive and two regulations, which set out new rules to overcome the barriers to crossborder online sales and to address challenges arising from the VAT regimes for distance sales of goods and for the importation of low-value consignments. These rules were supplemented in late 2019 by an amendment to the VAT Directive and a Council Implementing Regulation, in order for the new rules to enter into force on 1 January 2021. Due to the difficult circumstances of the COVID-19 pandemic, the date from which the new measures would apply was postponed to 1 July 2021.
    • At the same time, in its 2020 Communication on an action plan for fair and simple taxation supporting the recovery strategy12 , the Commission  announced an initiative called ‘VAT inthe digital age’ with the aim of updating the rules for the sharing economy, moving to a single EU VAT registration, modernizing VAT reporting obligations and facilitating e-invoicing.
    • In order to take stock of the situation, the Presidency convened the Working Party on Tax Questions (Indirect Taxation/VAT) on 31 January 2022 to discuss the state of play of the implementation of the VAT e-commerce package with a view to further work in this area. On the basis of this discussion, the Presidency presented delegations with draft Council conclusions on this subject.
    • The Working Party on Tax Questions (Indirect Taxation/VAT) examined these draft conclusions at its meeting on 25 February 2022 and submitted a text to the Working Party on Tax Questions (High Level), which reached agreement on the text at its meeting on 28 February 2022. The conclusions were  subsequently approved by the Council at its meeting on 15 March 2022
  • VAT definitive system
    • Following up on its VAT Action Plan – Towards a single EU VAT Area of 7 April 2016, the Commission suggested a two-step legislative approach for the definitive VAT system. The file was discussed in the Council under the Romanian, the Finnish, the Croatian and the German Presidencies.
    • Member States agree that this dossier still requires thorough technical analysis before the final policy choices are made. As already indicated by the Council, the best way forward is to continue focusing on the key elements of the Commission proposal and the analysis of options of accompanying measures. Further work on the definitive VAT system should continue while not preventing or slowing down efforts to improve the current VAT system.
  • VAT rates reform
    • On 18 January 2018, the Commission issued a proposal for a Directive amending Directive 2006/112/EC as regards rates of value added tax. The objective of this legislative proposal was to introduce rules on setting of VAT rates across the EU, with effect from the entry into force of definitive arrangements for the taxation of trade between Member States.
    • In essence, the Commission proposed to:
      • i) amend the EU rules on setting of reduced VAT rates (e.g. abolish current transitional provisions allowing to temporarily derogate from the general rules; revise Article 98 of the VAT Directive);
      • ii) grant Member States more freedom in their setting of rates (however Member States would have to ensure that their weighted average VAT rate exceeds 12% at any given time);
      • iii) introduce a “negative list” of goods and services on which application of reduced rates is not permissible (instead of the current “positive” list).
    • The Commission proposal was examined during the term of the Bulgarian, the Romanian, the Finnish, the Croatian, the German and the Portuguese Presidencies.
    • On 7 December 2021, under the Slovenian Presidency, the Ecofin Council adopted a general approach on the proposal with substantial changes to the Commission proposal. The agreed text included the preservation of the positive list of goods and services to which reduced rates can be applied – albeit with a number of additions and modifications to update and modernise the list – as well as a number of sunset clauses for environmentally harmful goods. It also struck a careful balance between granting equal access to existing derogations and preventing a proliferation of reduced rates and exemptions with deductibility of input VAT.
    • After the agreement on a general approach, the European Parliament was re-consulted on account of the substantial differences between the text agreed at the Ecofin Council and the Commission proposal on which the European Parliament was initially consulted. On 9 March 2022, the European Parliament provided its new opinion on the file.
    • After the legal-linguistic finalisation, the text was adopted at the meeting of the Ecofin Council of 5 April 2022. The Directive was subsequently published in the Official Journal on 6April 2022.
    • On 18 December 2020, the Commission submitted a Proposal for a Council Directive amending Directive 2006/112/EC as regards conferral of implementing powers to the Commission to determine the meaning of the terms used in certain provisions of that Directive18 (“VAT Committee Directive”). According to the Commission, the objective of the proposal is to provide a more uniform application of the EU VAT legislation. To achieve this,
      the Commission proposed to establish a comitology committee which would assist the Commission in the adoption of binding implementing measures by qualified majority voting.
      In the Commission´s view, this would make decision-making more efficient and save the European Court of Justice from having to solve interpretation questions so frequently.
    • During the discussions in the WPTQ (Indirect Taxation) over the first semester 2021, although in general Member States could support the overall objective of the proposal, many delegations expressed their reservations, especially as regards the shifting of power from the Council to the Commission and moving towards qualified majority voting. Some delegations were of the view that the current system can be improved, namely through the presentation of more proposals for Council implementing acts based on Article 397 of the VAT Directive.
  • VAT reverse charge mechanism extension
    • On 10 February 2022, the Commission published a proposal to extend the application period of the optional reverse charge mechanism in relation to supplies of certain goods and services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud.
    • The aim of the proposal is to prolong the possibility for Member States, contained in Article 199a of the VAT Directive, to apply the reverse charge  mechanism – which allows Member States to designate the recipient of a supply as the person liable for the payment of VAT – to combat fraud and the possibility to use the Quick Reaction Mechanism set out in Article 199b of the same directive to combat fraud in very specific cases.
    • The proposal was examined in the Working Party on Tax Questions, where the proposal was generally welcomed. The delegations agreed to prolong the proposed duration of the extension by one year, i.e. until 31 December 2026.
    • The European Economic and Social Committee and the European Parliament issued their opinions on the proposal respectively on 23 March and 3 May 2022.
    • The legislative text, finalized by the lawyer-linguists, was subsequently adopted by the Council at its meeting on 3 June 2022.
  • Ninth Commission report on VAT registration, collection and control procedures
    • Every three years the Commission presents a report on the VAT registration, collection and control procedures pursuant to Council Regulation (EEC, Euratom) No 1553/89, with the aim of fostering efficient and effective VAT administration procedures in order to limit revenue losses.
    • On 7 April 2022, the Commission published its ninth report, covering the period 2016-2019, and subsequently presented the report at the HLWP of 12 May 2022, where delegations took note of it.

Source data.consolium.europa.eu

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