REPORT on the proposal for a Council directive amending Directive 77/388/EEC as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion and avoidance, and repealing certain Decisions granting derogations
9.6.2006 - (COM(2005)0089 – C6‑0100/2005 – 2005/0019(CNS)) - *
Committee on Economic and Monetary Affairs
Rapporteur: Christoph Konrad
DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION
on the proposal for a Council directive amending Directive 77/388/EEC as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion and avoidance, and repealing certain Decisions granting derogations
(COM(2005)0089 – C6‑0100/2005 – 2005/0019(CNS))
(Consultation procedure)
The European Parliament,
– having regard to the Commission proposal to the Council (COM(2005)0089)[1],
– having regard to Article 93 of the EC Treaty, pursuant to which the Council consulted Parliament (C6‑0100/2005),
– 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 Budgetary Control (A6‑0209/2006),
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 Commission.
| Text proposed by the Commission | Amendments by Parliament |
Amendment 1 RECITAL 1 A (new) | |
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(1a) In order to protect the Community against damage to its financial interests in relation to value added tax, and in particular against losses resulting from fraudulent or other illegal cross‑border activities, as the Member States have committed themselves to do pursuant to Article 280 of the Treaty, Member States should cooperate closely with the European Anti‑Fraud Office (OLAF). |
Amendment 2 RECITAL 9 A (new) | |
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(9a) This Directive should not encroach on the power of the Member States to levy taxes. |
Amendment 3 RECITAL 9 B (new) | |
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(9b) In order to fight tax evasion and avoidance effectively, the streamlining of derogations should be only a limited component of a comprehensive programme to reform the EU's value added tax) regime, and, thus, further reforms of the regime should be undertaken, aimed, inter alia, at combating tax fraud, with a view to modernising and simplifying, for example, financial services, e-services, double taxation situations, and public services. |
Amendment 4 RECITAL 9 D (new) | |
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(9d) The criteria for consideration in any change in the system for levying value added tax should be the effectiveness of tax collection, equality in tax treatment and practicability for businesses. |
Justification | |
In view of the already existing diversity and complexity of current VAT legislation, any change in the system must mean that all political objectives are achieved as simply as possible. It must result in legal provisions which are easier to apply and are more effective. | |
Amendment 5 ARTICLE 1, POINT 1 Article 4, paragraph 4 (Directive 77/388/EEC) | |
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(1) In Article 4(4), the following subparagraph is added: |
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“Where a Member State exercises the option provided for in the second subparagraph, it shall ensure that the application of this option creates neither unjustifiable benefit nor unjustified disadvantage for taxable persons.” |
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Justification | |
The legal premises on which the above provision is based are unclear and consequently pose the danger of legal uncertainty and/or abuse of the power to dispose. | |
Amendment 6 ARTICLE 1, POINT 2 Article 5, paragraph 8, second sentence (Directive 77/388/EEC) | |
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(2) In Article 5(8) the second sentence is replaced by the following: |
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“Where appropriate, Member States may, in cases where the recipient is not wholly liable to tax, take the necessary measures to prevent distortion of competition. They shall ensure that there is no unjustifiable benefit or unjustified disadvantage conferred.” |
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Justification | |
See Amendment 2. | |
Amendment 7 ARTICLE 1, POINT 7 Article 21, paragraph 2, point (c a) (new) (Directive 77/388/EEC) | |
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(ca) The distinction between those services in respect of which the taxable recipient is liable to pay tax and other services in respect of which, as has been the case to date, the enterprise providing the service is liable to pay tax, must be clearly and indisputably recognisable to, and ascertainable by, enterprises. |
Justification | |
To help businesses, it is very important that sectors in which the tax charge is to be reversed should be defined in exact terms admitting of no dispute and clearly distinguished from services which, as has been the case to date, have to be charged to the enterprises providing them. Uncertainties and disputes about the nature of charging entail additional red tape and financial outlay for businesses. | |
Amendment 87 ARTICLE 1, POINT 7 A (new) | |
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(7a) The following Article shall be inserted: "Article 30a In order to counter cross‑border value added tax fraud, affecting the Community's financial interests, and in particular so‑called carousel fraud, Member States shall call upon their competent authorities to cooperate closely with the European Anti‑Fraud Office (OLAF) where fraud is suspected. The Commission shall report to the European Parliament on progress in this area within the framework of its annual report in accordance with Article 280(5) of the Treaty." |
mendment 98 ARTICLE 1, POINT 7 B (new) Article 34 a (new) (Directive 77/388/EEC) | |
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(7b) The following Article shall be inserted: "Article 34a To determine the best long-term value added tax collection arrangements for the European Union, the Commission shall draw up a comprehensive comparative synopsis, assessing national thinking on the subject and specifying the many and varied consequences of changing the system to the reverse-charge model and the advantages and disadvantages for the Member States and businesses operating in the Union." |
- [1] Not yet published in the OJ.
EXPLANATORY STATEMENT
I. Legislative background
The first directive on VAT dates back to 1967[1] and is perceived as the EU’s first political and legal commitment to founding a common VAT system, underpinning the objective of establishing a sound and competitive common market with ‘compatible’ VAT systems; by the early 1970s all MS had already introduced common VAT arrangements.
The next important step was made with the Sixth VAT Directive[2], introducing a broadly identical tax base for transactions. Later on, in line with the 1985 ‘Single Market White Paper’, the Commission tabled a package of proposals on the issue. These, however, proved unacceptable to the governments and it became clear that it would not be possible to comply with the set timetable of reaching a common point by 1993. The Council therefore decided to introduce a transitional system abolishing tax checks at frontiers. Ever since, the supposedly transitional VAT system (which was to have expired at the end of 1996) has been broadly applicable to trade in the EU.
II. Stimuli for change and objectives of the proposal
In 1996 the Commission once again came back with a new proposal aiming at introduction of a common system. Despite the fact that the 1987 ‘big bang’ approach (immediate switch-over) was abandoned and the 1996 proposal envisaged a gradual changeover, the system soon proved to be as difficult to implement.
For the sake of consistency between the new initiatives and the legislation already existing, the Commission decided to shift towards improving the present ‘transitional’ arrangements. The new strategy was announced in 2000[3] and the recommendations integrated therein made but one major observation, namely that the current VAT system imposes excessive costs and constraints on business. In October 2003 the Commission issued a revised strategy. The proposal can be treated as a ‘rationalisation exercise’ with the overall objective of amending the Sixth VAT Directive to provide MS with the optional provision of quick adoption of legally sound measures to combat unfair competition, counter loss of revenues and simplify the procedure for charging VAT.
– Derogations: operate under Article 27 and authorise any MS to introduce special measures in order to simplify tax collection and target its tax evasion or tax avoidance problems. At present there are about 140 derogations in force and their number is about to grow. Being aware of the lack of transparency and legal certainty, the Commission decided to undertake some efforts to rationalise this phenomenon by making certain particularly effective individual derogations applicable to all MS, without need for them to seek individual authorisations, as is the case at present, on an optional basis. The Commission believes that a wider use of these would protect compliant businesses from the competitive advantages gained by tax avoiders and evaders;
– tax avoidance and evasion: operates under Article 22(8) and gives MS a possibility to impose other obligations that they deem necessary for VAT collection and the prevention of tax evasion;
– simplification of tax application: operates under Title XIV and allows optional application of simplification procedures for VAT collection or tax release for some taxable persons (special schemes for small undertakings, farmers, etc.). The optionality of that provision has led to simplification regimes differing considerably from one MS to another and thus created confusion.
According to the Commission’s classification, there are three categories of measures laid down in the proposal, which can be identified as follows:
Precautionary measures: not arising directly from the derogations
– strengthening preventive provisions in the areas of ‘grouping’ (legal independence but close financial, economic and organisational links between taxable persons) and transfer of going concerns (transfer of all or part of the assets);
– clarification of adjustments of deductions related to capital items (Article 20(2) and (3)) that can equally apply to services of a capital nature, i.e. constituting a long-term investment;
Minor provisions:
– optional extension of the special measures related to gold trading to counter any VAT avoidance regarding investment gold (VAT exempt) used as raw material for production of consumer goods (VAT charged on supply);
Key provisions:
– optional provisions enabling, under certain circumstances and not to be applied to normal everyday transactions, valuation/revaluation of supplies at their open market value, this being one of the most vulnerable areas for avoidance;
– extension of optional use of a reverse charge mechanism for specified supplies to taxable persons such as: services relating to buildings and associated supplies of staff; waste, scrap and recyclable materials; land and buildings in respect of which the option to tax has been exercised; goods taken as security; goods sold in the course of the exercise of an assignee’s rights following the cession of the reservation of ownership; opted land and buildings in the course of a judicial liquidation. These are the identified areas that have proved to be troublesome for the MS, and the regular provisions are insufficient.
III. The rapporteur’s opinion
The rapporteur advocates and supports the aim of the Commission proposal. At present the Member States, acting according to their respective individual arrangements, apply more than 140 national derogations from the VAT directive in force, and these often relate to circumstances constituting similar kinds of VAT fraud. Following enlargement of the EU, the trend as regards requests for national derogations is once again moving upwards. It is therefore welcome that the Commission has summarised the derogations already in force in some Member States that have proved effective in combating tax evasion and avoidance because this will enable all the Member States – if they so wish – to use those arrangements to stamp out tax fraud. If the existing provisions are streamlined and simplified, the means of action available can be deployed rapidly, and Member States will not have to seek such derogations individually and on their own behalf and hence – in some cases – will be dispensed from the need to merely duplicate earlier applications from other quarters. The measures to combat VAT fraud will thus become much clearer to central and eastern European Member States in particular, as well as being quicker to implement. In this way, tax evasion can be tackled more effectively and swiftly on an EU-wide basis using the means already available, without need to transform the European VAT collection system. Businesses operating in all parts of the EU and the Member States will gain greater legal certainty. In addition, measures to tidy up the impenetrable derogations are provided for in cases where a person liable to pay tax is in financial difficulty.
In several Member States discussions have been continuing for quite some time on a fundamental change in the VAT collection system, the aim being to devise effective methods for eradicating turnover tax fraud. The reverse charge model, whereby tax is charged to businesses acquiring goods or a service, does seem to offer some advantages. Its advocates are convinced that the system would be a more effective way to prevent national and international tax fraud. Small and medium-sized businesses in particular frequently fall victim to tax fraud organised nationally or internationally: reducing this scourge therefore has to be a key goal of EU enterprise policy. On the other hand, those who do not wish the system to be changed along the above lines are of the opinion that small and medium-sized business would most likely be the first to suffer on account of the greater constraints and administrative formalities entailed in the reverse charge model. Given that the matter at issue is important to the Member States and to business alike, the rapporteur recommends that the Commission, which to date has been opposed to a change in the system, keep the debate in the Member States actively and intensively under review so as to find the right solution. To that end, the Commission should submit a comprehensive comparative synopsis, assessing the different national schools of thought and spelling out the consequences of any change and the advantages and drawbacks entailed. It should involve Parliament in the debate at an early stage and at regular intervals thereafter.
Leaving aside this fundamental issue to be resolved in the future, the Commission proposal consequently does not amount to a new initiative, but rather to sensible simplification and consolidation of existing rules, in some cases introducing greater flexibility. The rules in question should be available to Member States as an alternative, in other words alongside the rules and national derogations to combat tax evasion and avoidance that will remain in force. Member States do not have to apply them – or they could apply them selectively, say to particular offenders who commit tax fraud on their territory, but not to entrepreneurs as a whole. The possibility of seeking national derogations to deal with specific problems will continue to exist in the future, if necessary. Back in 2004 the Commission improved the application procedure for derogations and made it more transparent (Directive 2004/7/EC). At all events, the proposal marks a welcome first step in that it will make for rapid action to combat tax fraud.
By extending the scope of the reverse charge mechanism in specific cases, the Commission is, to a very limited extent, introducing reverse charging: adjustment of the deductions allowable for ‘capital items’ (the term is to be defined by the Member States) is now also to apply expressly to services which have the characteristics of capital items and are treated as such. VAT payments are particularly difficult to scrutinise in some sectors, for example in the building industry or as regards the supply of certain used materials. The new Annex M lists the types of waste concerned in this instance. Especially on this point, it has to be ensured in the interest of businesses that the sectors to which reverse charging is to apply are defined exactly and beyond dispute and clearly distinguished from the services which, just as they have to date, require tax to be charged to the provider. Uncertainties and disputes about the nature of charging would lead to additional red tape and financial outlay for businesses and thus be counterproductive. They must therefore be averted.
The Commission proposal sensibly tidies up existing arrangements without in any way encroaching on the scope for national decision-making. The rapporteur believes, at any rate, that the harmonisation of VAT collection is the only tax policy which should be dealt with at European level. That apart, tax competition is central to the economic advance of the Member States and absolutely essential to preserve.
OPINION OF THE COMMITTEE ON BUDGETARY CONTROL (4.5.2006)
for the Committee on Economic and Monetary Affairs
on the proposal for a Council directive amending Directive 77/388/EEC as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion and avoidance, and repealing certain Decisions granting derogations
(COM(2005)0089 – C6‑0100/2005 – 2005/0019(CNS))
Draftsman: Herbert Bösch
SHORT JUSTIFICATION
Under Article 27 of the Sixth VAT Directive[1], the Council, acting unanimously on a proposal from the Commission, may authorise any Member State to introduce special measures derogating from the provisions of the Sixth VAT Directive, in order to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance.
Currently, over 140 derogations are being applied by Member States. This number will grow in the near future, since Member States which joined the EU on 1 May 2004 are now introducing requests for derogations. In addition, they will almost certainly come across other special measures in their legislation which will require a Community legal base.
In its communication of 7 June 2000 to the Council and the European Parliament on a strategy to improve the operation of the VAT system within the context of the internal market[2], the Commission undertook to rationalise some of the large number of derogations currently in force. The Commission's communication of 20 October 2003[3], which reviewed and updated the strategy, reiterated this. It was envisaged that such a rationalisation would involve making certain individual derogations available to all Member States through an amendment to the Sixth VAT Directive. These derogations would be those which had already proved themselves effective and which tackled problems that were shared by more than one Member State.
The number of derogations and the similar problems they tackle is indicative of the fact that in recent years, as a consequence of VAT evasion and fraud, VAT collection has become an important issue.
VAT fraud, particularly fraud involving so-called intra‑Community carousel transactions, causes enormous losses every year. The Ifo Institute for Economic Research estimates total losses of national VAT revenues in Germany in the years 2003 to 2005 at EUR 17 000 to 18 000 annually, a third of which is attributable to cross-border fraud. Other Member States are also suffering losses of VAT revenues running to thousands of millions of euros, which are estimated to represent up to 10% of their total revenues.
In this context, it should be pointed out that only actual revenues are able to be taken into account for the purpose of collecting VAT own resources and that the losses are therefore undermining the operation of the Community's system of own resources.
AMENDMENTS
The Committee on Budgetary Control 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 | Amendments by Parliament |
Amendment 1 RECITAL 1 A (new) | |
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(1a) In order to protect the Community against damage to its financial interests in relation to value added tax, and in particular against losses resulting from cross‑border activities, as the Member States have committed themselves to do pursuant to Article 280 of the Treaty, Member States should cooperate closely with the European Anti‑Fraud Office (OLAF). |
Amendment 2 ARTICLE 1, POINT 7 A (new) | |
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(7a) The following Article shall be inserted: "Article 30a In order to counter cross‑border value added tax fraud, and in particular so‑called carousel fraud, affecting the Community's financial interests, Member States shall call upon their competent authorities to cooperate closely with the European Anti‑Fraud Office (OLAF) where fraud is suspected. The Commission shall regularly report on progress in this area to the European Parliament within the framework of the annual report in accordance with Article 280(5) of the Treaty." |
Amendment 3 ARTICLE 1, POINT 7 B (new) Article 34 a (new) (Directive 77/388/EEC) | |
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(7b) The following Article shall be inserted: "Article 34a To determine the best long-term value added tax collection arrangement in the European Union, the Commission shall draw up a comprehensive comparative synopsis, assessing national thinking on the subject and specifying the many and varied consequences of changing the system to the reverse charge model and the advantages and disadvantages entailed thereby for the Member States and businesses operating in the Union." |
PROCEDURE
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Title |
Proposal for a Council directive amending Directive 77/388/EEC as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion and avoidance, and repealing certain Decisions granting derogations | |||||
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References |
COM(2005)0089 – C6-0100/2005 – 2005/0019 (CNS) | |||||
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Committee responsible |
ECON | |||||
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Opinion by |
CONT | |||||
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Enhanced cooperation – date announced in plenary |
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Draftsmen |
Herbert Bösch | |||||
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Previous drafts(wo)man |
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Discussed in committee |
19.4.2006 |
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Date adopted |
4.5.2006 | |||||
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Result of final vote |
+: –: 0: |
13
1 | ||||
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Members present for the final vote |
Herbert Bösch, Paul van Buitenen, Simon Busuttil, Szabolcs Fazakas, Ingeborg Gräßle, Ona Juknevičienė, Nils Lundgren, Hans-Peter Martin, Jan Mulder, Borut Pahor, José Javier Pomés Ruiz, Bart Staes, Kyösti Virrankoski | |||||
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Substitute(s) present for the final vote |
Janusz Wojciechowski | |||||
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Substitute(s) under Rule 178(2) present for the final vote |
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- [1] Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ L 145, 13.6.1977, p 1.) Directive as last amended by Directive 2006/18/EC (OL L 51, 22.2.2006, p. 12).
- [2] COM(2000)0348.
- [3] COM(2003)0614.
PROCEDURE
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Title |
Proposal for a Council directive amending Directive 77/388/EEc as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion and avoidance, and repealing certain Decisions granting derogations | |||||
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References |
COM(2005)0089 – C6-0100/2005 – 2005/0019(CNS) | |||||
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Date of consulting Parliament |
14.4.2005 | |||||
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Committee responsible |
ECON | |||||
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Committee(s) asked for opinion(s) |
CONT |
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Not delivering opinion(s) |
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Enhanced cooperation |
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Rapporteur(s) |
Christoph Konrad |
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Previous rapporteur(s) |
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Simplified procedure – date of decision Date of decision |
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Legal basis disputed |
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Financial endowment amended |
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Parliament to consult European Economic and Social Committee |
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Parliament to consult Committee of the Regions – date decided in plenary |
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Discussed in committee |
23.1.2006 |
20.3.2006 |
18.4.2006 |
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Date adopted |
30.5.2006 | |||||
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Result of final vote |
+: –: 0: |
40 0 0 | ||||
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Members present for the final vote |
Zsolt László Becsey, Pervenche Berès, Sharon Bowles, Udo Bullmann, Ieke van den Burg, David Casa, Jan Christian Ehler, Jonathan Evans, Jean-Paul Gauzès, Robert Goebbels, Gunnar Hökmark, Karsten Friedrich Hoppenstedt, Othmar Karas, Piia-Noora Kauppi, Christoph Konrad, Guntars Krasts, Kurt Joachim Lauk, Astrid Lulling, Gay Mitchell, Cristobal Montoro Romero, John Purvis, Alexander Radwan, Bernhard Rapkay, Karin Riis-Jørgensen, Dariusz Rosati, Eoin Ryan, Antolín Sánchez Presedo, Manuel António dos Santos, Peter Skinner, Margarita Starkevičiūtė | |||||
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Substitute(s) present for the final vote |
Harald Ettl, Donata Maria Assunta Gottardi, Werner Langen, Andrea Losco, Giovanni Pittella, Gilles Savary | |||||
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Substitute(s) under Rule 178(2) present for the final vote |
María del Pilar Ayuso González, Godfrey Bloom, Ville Itälä, Holger Krahmer | |||||
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Date tabled |
9.6.2006 |
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Comments (available in one language only) |
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