REPORT on the amended proposal for a Council directive amending Directive 77/388/EEC as regards the place of supply of services

28.4.2006 - (COM(2005)0334 – C6‑0322/2005 – 2003/0329(CNS)) - *

Committee on Economic and Monetary Affairs
Rapporteur: Othmar Karas

Procedure : 2003/0329(CNS)
Document stages in plenary
Document selected :  
A6-0153/2006
Texts tabled :
A6-0153/2006
Debates :
Texts adopted :

DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

on the amended proposal for a Council directive amending Directive 77/388/EEC as regards the place of supply of services

(COM(2005)0334 – C6‑0322/2005 – 2003/0329(CNS))

(Consultation procedure)

The European Parliament,

–   having regard to the Commission proposal to the Council (COM(2005)0334)[1],

–   having regard to Article 93 of the EC Treaty, pursuant to which the Council consulted Parliament (C6‑0322/2005),

–   having regard to Rule 51 of its Rules of Procedure,

–   having regard to the report of the Committee on Economic and Monetary Affairs and the opinion of the Committee on Culture and Education (A6‑0153/2006),

1.  Approves the Commission proposal as amended;

2.  Calls on the Commission to alter its proposal accordingly, pursuant to Article 250(2) of the EC Treaty;

3.  Calls on the Council to notify Parliament if it intends to depart from the text approved by Parliament;

4.  Asks the Council to consult Parliament again if it intends to amend the Commission proposal substantially;

5.  Instructs its President to forward its position to the Council and the Commission.

Amendment 1

RECITAL 1

(1) The realisation of the internal market, globalisation, deregulation and technology change have all combined to create enormous changes in the volume and pattern of trade in services. It is increasingly possible for a number of services to be supplied at a distance. In response, piecemeal steps have been taken to address this over the years and many defined services are in fact at present taxed on the basis of the destination principle.

(1) The realisation of the internal market, globalisation, deregulation and technology change have all combined to create enormous changes in the volume and pattern of trade in services. It is increasingly possible for a number of services, such as electronically delivered services and telecommunication services, to be supplied at a distance. In response, piecemeal steps have been taken to address this over the years and many defined services are in fact at present taxed on the basis of the destination principle.

Justification

The amendment refers to those services of increasing importance, which are capable to be supplied at distance.

Amendment 2

RECITAL 6

(6) In certain circumstances, the general rules as regards the place of supply of services for both taxable and non-taxable persons are not applicable and specified exclusions apply. These exclusions should be largely based on existing criteria and reflect the principle of taxation at the place of consumption, while not imposing disproportionate administrative burdens upon certain traders.

(6) In certain circumstances, the general rules as regards the place of supply of services for both taxable and non-taxable persons are not applicable and specified exclusions apply. These exclusions should be largely based on existing criteria and reflect the principle of taxation at the place of consumption, while not imposing disproportionate administrative burdens upon certain traders, which requires value added tax obligations to be simplified by measures such as the introduction of a 'one-stop scheme'.

Justification

The amendment aims at emphasising that such exceptions, particularly in case of services provided at distance, will not create disproportionate administrative burdens on suppliers once the one-stop scheme is established.

Amendment by Jules Maaten

Amendment 3

RECITAL 8 A (new)

 

(8a) To ensure the proper application of VAT on services that are subject to the reverse-charge mechanism, the data collected by the supplier's Member State should be communicated to the Member State in which the recipient is established. Council Regulation (EC) No 1798/2003 of 7 October 2003 on administrative cooperation in the field of value added tax and repealing Regulation (EEC) No 218/92 should provide for such communication and should be amended accordingly. The adoption of this Directive is closely linked to the necessary amendments of the Regulation 1798/2003, as well as to the effective implementation of that VAT information exchange system (VIES) in order to include services in the exchange of information.

Or. en

Justification

According to the Commission proposal, the change of the place of supply rules of services needs the inclusion of reverse charge services within the reporting obligations currently existing for intra-Community supplies of goods. Follows from it the necessary extension to services of the scope of the exchange of information between Member States through the VIES, currently limited to intra-Community supplies of goods. Therefore the Council Regulation (EC) No 1798/2003 of 7 October 2003 on administrative cooperation in the field of value added, which constitutes the legal basis for the exchange of information, shall be amended in order to include services within the scope of the exchange of information. The amendments to the Council regulation 1798/2003 are closely linked with the entry into force of the new rules laid down in the Directive proposal. Without the necessary amendments to the Regulation, Member States would be unable to control the intra-Community supplies of services. The lack of information would increase the risk of frauds. Since the VIES currently allows the transmission of data related with intra-Community supplies of goods only, it should be implemented in order to permit the exchange of data related with services. The effective adaptation of the VIES is a prerequisite to ensure the good functioning of the new rules on the place of supply of services.

Amendment by Zsolt László Becsey

Amendment 4

ARTICLE 1, POINT 1

Article 6, paragraph 6 (Directive 77/388/EEC)

(1) Where a single legal entity has more than one fixed establishment, services rendered between establishments shall not be treated as supplies.

deleted

Or. en

Justification

The current article in the Commission's proposal is distortive in the current form, because in this way a firm entrusted with some ancillary services by a large multinational company is forced to join a larger VAT Group that covers the multinational company and other smaller firms. Otherwise that firm outside of the VAT Group has to charge VAT. This threatens the competitiveness of the firms outside VAT Group.

Amendment by Zsolt László Becsey

Amendment 5

ARTICLE 1, POINT 2

Article 9, paragraph 3 (Directive 77/388/EEC)

3. For the purposes of paragraphs 1 and 2, where a person is a taxable person who also performs activities or transactions that are not considered to be taxable supplies of goods and services, he shall be deemed to be a taxable person in respect of all services supplied to him except where the services are for his own private use or that of his staff.

3. For the purposes of paragraphs 1 and 2, where a person is a taxable person who also performs activities or transactions that are not considered to be taxable supplies of goods and services, he shall be deemed to be a taxable person in respect of all services supplied to him.

Or. en

Justification

In practice businesses are in favour more of B2B rather than B2C. It is irrelevant to require the suppliers to detect the reason why the recipient wants to make use of transacted goods or services.

Amendment 6

ARTICLE 1, POINT 2

Article 9g, paragraph 1, point (c) (Directive 77/388/EEC)

(c) radio and television broadcasting services;

(c) linear and non-linear radio, television, and other audiovisual media services;

Justification

The amendment reflects on the technological developments in order to cover all kinds of audiovisual media services, both scheduled and on-demand services.

  • [1]  Not yet published in OJ.

EXPLANATORY STATEMENT

I. Legislative background

In July 2000 the Commission set out its new strategy regarding the VAT policy[1]. One of its priorities was to modernise the rules on the place of supply of services. The legislative changes were considered necessary due to the concept of place of supply of services developed at the occasion of drafting the Sixth Vat Directive. It was recognised then that although VAT was a consumption tax and by that definition should have been levied at the place of consumption, such an application of that principle would give rise to uncertainty and practical confusion. It was therefore agreed that in order to circumvent that kind of distortions, a 'reverted' principle of a place of supply of services should be applied, i.e. that a place of supply (and taxation) would be defined as the place where the supplier is located.

At the times when the principle was conveyed the potential distortions resulting from that reverted application were minimal as it resulted in the tax accruing to the country of consumption. Nevertheless, together with higher degree of completion of the Internal Market, dashing globalisation and popularity of distant commerce, the exceptions were liable to overtake the rule. In light of these developments and following the public consultation of 2002, the Commission has come up with a proposal[2] modifying the problematic rules.

Rather than tinkering with the existing rules and scrapping the hitherto law, the Commission's draft proposed to turn back to the original principle and define the place of supply for services between taxable persons (the so-called B2B) as the place where the customer is established, with taxation through self-assessment becoming the rule.

II. Objectives of the original proposal

The key principle of the Commission's original proposal was that any modification of the rules governing the place of taxation of services should result, as much as possible, in taxation at the place where the actual consumption occurs. The expected result should be a broad simplification of practicalities related to cross-border services sector.

The Commission's original proposal focused exclusively on the provisions related to services supplied to taxable persons - B2B. The Business-to-Consumer (B2C) issue was to be addressed subsequently. In the course of consultations it appeared nevertheless that due to largely similar considerations between the two sectors, it would be illogical not to deal with the latter being, in absence of specific provisions, taxed where the supplier is established. Bearing in mind that we live in the era of globalisation and attractiveness of the distant selling, there could be a risk of distortion of competition. The Commission has therefore decided to amend its original proposal and extend its scope onto B2C sector as well.

III. Objectives of the modified proposal

The proposed amendments to be applied to B2C sector should to a large extent be in line with the proposed rules for B2B services. However, in order to avoid excessive red tape for service providers stemming from the necessity to comply with a number of various VAT systems, the requisite accompanying mechanism needs to be brought in force in parallel to this proposal. Therefore the Rapporteur, following the Commission, would like to put a strong emphasis on the compatibility of the proposed modifications with the 'one-stop' mechanism tabled by the Commission in 2005 and to which the Parliament has already given its supportive opinion. The scheme's principal objective is to simplify VAT obligations for cross-border trading by allowing the suppliers to meet their tax requirements for all kind of cross-border activity in the very Member State of their establishment with their tax declarations being automatically transmitted to a given Member States where the services were actually supplied. This will help eliminating distortion of the competition as taxing services supplied to non-taxable persons at the place of consumption ensures that the influence of VAT rates on the place of supply will always be neutral.

IV. The Rapporteur's opinion

The Rapporteur reiterates his earlier support for the Commission's original proposal, which he believes provides for an urgently required updating of the rules on the place of supply of services and ensures much-needed flexibility, enabling the relevant legislation to deal with developments in the service sector. It also ensures the neutrality of the VAT rates and eliminates possible distortion of competition.

He welcomes as well the initiative of addressing the services supplied to non-taxable persons in line with the provisions foreseen for transactions between the taxable persons, as eliminating possible distortions of competition caused by the VAT rate incentive.

Further on, the Rapporteur stresses that VAT is in its definition imposed on consumption and application of that principle should be as broad as possible. He does agree that there is a list of services, such as intra-Community transport of goods and passengers or catering services provided on board ships, aircrafts or trains, that cannot comply with that principle and therefore the specific provisions are needed. The Rapporteur supports the introduced derogations accentuating nevertheless that better balance between the principle of place of consumption and the administrative procedures required. In the given examples of intra-Community transport, or services which can be supplied at a distance, the provisions in place are still quite burdensome and difficult to apply.

In the view of the above mentioned concerns, the Rapporteur urges the Council to implement the new provisions jointly with the 'one stop' scheme, allowing small and medium size enterprises to avoid unnecessary red tape on cross-border transactions and alleviate the administrative burden for a certain type of the above listed typed of services.

Having stated that, the Rapporteur intends to make no amendments to the Commission's modified proposal and recommends to the Members of the European Parliament to adopt it as it stands.

  • [1]  COM(2000)0348 of 7 Jul 2000 ‘A strategy to improve the operation of the VAT system within the context of the internal market’.
  • [2]  COM(2003)0822 of 23 Dec 2003.

OPINION of the Committee on Culture and Education (25.4.2006)

for the Committee on Economic and Monetary Affairs

on the amended proposal for a Council directive amending Directive 77/388/EEC as regards the place of supply of services
(COM(2005)0334 – C6‑0322/2005 – 2003/0329(CNS))

Draftsman: Gyula Hegyi

SHORT JUSTIFICATION

The proposal forms part of the new Value Added Tax (hereinafter: VAT) Strategy adopted by the European Commission in 2000, which identified the modernisation of the rules on the place of supply of services as a key priority.

Such modernisation finds its roots in the current VAT system. On the one hand, the rules define the place of supply of services, hence the place of taxation as the place where the service supplier is located. On the other hand, only minimum percentages of standard and reduced VAT rates are determined at Community level, while actual tax rates are effectively fixed by each Member State. Therefore, relocation of service suppliers into Member States applying more favourable VAT rates is likely to cause distortion of competition.

Notwithstanding the numerous exceptions which aim at taxing the services where the consumption takes place, due to technology changes it is possible for a growing number of services to be supplied at a distance. This may also lead to the relocation of service suppliers for tax evasion purposes.

Therefore, a modernisation of rules on the place of supply of services was inevitable, which was to be carried out in two steps.

Firstly, the European Commission proposed to amend the rules on services provided to taxable persons[1]. The proposal defined the consumer's place as main rule, while it only proposed ancillary changes on the rules of services supplied to non-taxable persons. Secondly, the current proposal is the final part of the reform, amending the provisions on the place of supply of services provided to non-taxable persons.

This opinion deals with provisions related to culture and education. Your draftsman strongly believes that sooner or later the whole taxation policy of the European Union should be harmonized, providing similar conditions and possibilities for all citizens of our communities. Your draftsman also believes that taxation policy should encourage cultural and educational services by the lowest possible VAT rates in every Member State. Obviously, these are long term goals. The current proposal of the European Commission is a small step into the right direction.

Firstly, as regards services to be supplied at a distance, in cases where the place of supply of services shall be the place where the consumer is located, it is of high importance to introduce the 'one-stop scheme' allowing suppliers to use a single VAT number for all services provided throughout the EU and therefore fulfil all obligations related to VAT in the Member State, where they are established. In the absence of such scheme, more administrative burdens would be created, which may hamper the supply of cross-border services.

Secondly, as regards recent technology changes and especially the proposal of the European Commission on the Television without Frontiers Directive[2], both linear and non-linear audiovisual media services need to be mentioned in the current proposal.

Finally, Council Regulation 1777/2005/EC of 17 October 2005 laying down implementing measures for Directive 77/388/EEC on the common system of value added tax amending Annex L to Directive 77/388/EEC gives a detailed list for electronically supplied services. This list comprises, amongst others, automated distance teaching and workbooks completed by students online and marked automatically, without human intervention. From a technical point of view, it is more coherent to include teaching supplied without the physical presence of the service provider in Annex L rather than mentioning it separately in Article 9 point (d).

AMENDMENTS

The Committee on Culture and Education calls on the Committee on Economic and Monetary Affairs, as the committee responsible, to incorporate the following amendments in its report:

Text proposed by the Commission[3]Amendments by Parliament

Amendment 1

RECITAL 1

(1) The realisation of the internal market, globalisation, deregulation and technology change have all combined to create enormous changes in the volume and pattern of trade in services. It is increasingly possible for a number of services to be supplied at a distance. In response, piecemeal steps have been taken to address this over the years and many defined services are in fact at present taxed on the basis of the destination principle.

(1) The realisation of the internal market, globalisation, deregulation and technology change have all combined to create enormous changes in the volume and pattern of trade in services. It is increasingly possible for a number of services, such as electronically delivered services and telecommunication services, to be supplied at a distance. In response, piecemeal steps have been taken to address this over the years and many defined services are in fact at present taxed on the basis of the destination principle.

Justification

The amendment refers to those services of increasing importance, which are capable to be supplied at distance.

Amendment 2

RECITAL 6

(6) In certain circumstances, the general rules as regards the place of supply of services for both taxable and non-taxable persons are not applicable and specified exclusions apply. These exclusions should be largely based on existing criteria and reflect the principle of taxation at the place of consumption, while not imposing disproportionate administrative burdens upon certain traders.

(6) In certain circumstances, the general rules as regards the place of supply of services for both taxable and non-taxable persons are not applicable and specified exclusions apply. These exclusions should be largely based on existing criteria and reflect the principle of taxation at the place of consumption, while not imposing disproportionate administrative burdens upon certain traders, which requires value added tax obligations to be simplified by measures such as the introduction of a 'one-stop scheme'.

Justification

The amendment aims at emphasising that such exceptions, particularly in case of services provided at distance, will not create disproportionate administrative burdens on suppliers once the one-stop scheme is established.

Amendment 3

ARTICLE 1, POINT 2

Article 9f, paragraph 1, point (c) (Directive 77/388/EEC)

(c) services relating to scientific and educational activities, except for the teaching services referred to in point (d) of Article 9g(1), including the activities of the organisers of such activities and, where appropriate, ancillary services;

(c) services relating to scientific and educational activities, except for the teaching services referred to in Annex L, including the activities of the organisers of such activities and, where appropriate, ancillary services;

Justification

The amendment aims at improving coherence with a view to Amendment 5.

Amendment 4

ARTICLE 1, POINT 2

Article 9g, paragraph 1, point (c) (Directive 77/388/EEC)

(c) radio and television broadcasting services;

(c) linear and non-linear radio, television and other audiovisual media services;

Justification

The amendment reflects on the technological developments in order to cover all kinds of audiovisual media services, both scheduled and on-demand services.

Amendment 5

ARTICLE 1, POINT 2

Article 9g, paragraph 1, point (d) (Directive 77/388/EEC)

(d) teaching supplied without the physical presence of the service provider.

deleted

Justification

Annex L of the sixth VAT Directive gives an illustrative list of electronically supplied services, which comprises, amongst others, automated distance teaching and workbooks. It is therefore more coherent to include point (d) in Annex L.

PROCEDURE

Title

Amended proposal for a Council directive amending Directive 77/388/EEC as regards the place of supply of services

References

COM(2005)0334 – C5-0322/2005 – 2003/0329(CNS)

Committee responsible

ECON

Opinion by
  Date announced in plenary

CULT
2.2.2006

Enhanced cooperation – date announced in plenary

 

Draftsman
  Date appointed

Gyula Hegyi
23.11.2005

Previous drafts(wo)man

 

Discussed in committee

20.3.2006

 

 

 

 

Date adopted

25.4.2005

Result of final vote

+:

–:

0:

24

1

0

Members present for the final vote

Maria Badia I Cutchet, Christopher Beazley, Ivo Belet, Giovanni Berlinguer, Marie-Hélène Descamps, Jolanta Dičkutė, Věra Flasarová, Milan Gaľa, Vasco Graça Moura, Lissy Gröner, Mario Mauro, Manolis Mavrommatis, Ljudmila Novak, Zdzisław Zbigniew Podkański, Christa Prets, Karin Resetarits, Pál Schmitt, Nikolaos Sifunakis, Hannu Takkula, Helga Trüpel, Thomas Wise, Tomáš Zatloukal

Substitute(s) present for the final vote

Gyula Hegyi, Erna Hennicot-Schoepges, Åsa Westlund

Substitute(s) under Rule 178(2) present for the final vote

 

Comments (available in one language only)

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PROCEDURE

Title

Amended proposal for a Council directive amending Directive 77/388/EEC as regards the place of supply of services

References

COM(2005)0334 – C6-0322/2005 – 2003/0329(CNS)

Date of consulting Parliament

13.01.2004, 14.10.2005

Committee responsible
  Date announced in plenary

ECON
15.01.2004, 27.10.2005

Committee(s) asked for opinion(s)
  Date announced in plenary

CULT
2.2.2006

IMCO
27.10.2005

 

 

 

Not delivering opinion(s)
  Date of decision

IMCO
21.11.2005

 

 

 

 

Enhanced cooperation
  Date announced in plenary

 

 

 

 

 

Rapporteur(s)
  Date appointed

Othmar Karas
16.11.2005

 

Previous rapporteur(s)

Othmar Karas

 

Simplified procedure – date of decision  Date of decision

 

Legal basis disputed
  Date of JURI opinion

 

 

 

Financial endowment amended
  Date of BUDG opinion

[

/

 

Parliament to consult European Economic and Social Committee
– date decided in plenary

0.0.0000

Parliament to consult Committee of the Regions – date decided in plenary

 

Discussed in committee

20.02.2006

20.03.2006

25.04.2006

 

 

Date adopted

25.04.2006

Result of final vote

+:

–:

0:

37

2

0

Members present for the final vote

Zsolt László Becsey, Pervenche Berès, Pier Luigi Bersani, Sharon Bowles, Udo Bullmann, Ieke van den Burg, David Casa, Jan Christian Ehler, Elisa Ferreira, Jean-Paul Gauzès, Robert Goebbels, Sophia in 't Veld, Othmar Karas, Wolf Klinz, Christoph Konrad, Guntars Krasts, Kurt Joachim Lauk, Astrid Lulling, Gay Mitchell, Cristobal Montoro Romero, Joseph Muscat, John Purvis, Alexander Radwan, Bernhard Rapkay, Eoin Ryan, Peter Skinner, Margarita Starkevičiūtė, Ivo Strejček, Sahra Wagenknecht, John Whittaker

Substitute(s) present for the final vote

Jorgo Chatzimarkakis, Harald Ettl, Satu Hassi, Ján Hudacký, Werner Langen, Jules Maaten, Thomas Mann, Íñigo Méndez de Vigo, Corien Wortmann-Kool

Substitute(s) under Rule 178(2) present for the final vote

 

Date tabled

28.4.2006

 

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