Implementation of the Commission's work programme

Update

Donato RAPONIDG TAXUD

Head of VAT Unit

Malta Institute of Management VAT ConferenceMalta 15 October 2014

The Future of EU VATAs a follow up to the Green paper, the Communication of December 2011 lays down the fundamental features of the future VAT system:

• A EU system based on the destination principle: Doing business across the EU must be as simple and as safe as engaging in domestic activities

• Simple: A single set of simple, clear and modern rules and obligations

• Efficient and neutral: Restricted use of exemptions and reduced rates, equal rules governing the right of deduction

• Robust and fraud proof: Modern methods of collecting and monitoring VAT

Destination vs. origin principleEU concepts

• Destination: goods are taxed where consumption takes place

• Different options for implementing such a system:Option N° 2a: Adapting current rules whilst still following the flow of the goods with supplier charging the VAT of the MSOption N° 4b: Aligning with the rules governing the place of supply of services with the reverse charge mechanismOption N° 5a: Aligning with the contractual flow with the supplier charging the VAT of the Member of destination

•And options b ……

Destination vs. origin principleEU concepts

• Important question: person liable for payment of VAT?• Supplier liable for payment of VAT and charges VAT on all intra-

EU transactions. Requires a broader One-Stop-shop• Customer liable for payment of VAT when the supplier is not

established: Reverse Charge

• In-depth technical work with all stakeholders involved (VAT Expert Group) and MS (Future of VAT)

• Study EY, completed first quarter 2015• Conference in March 2015

The Future of EU VAT: other issues

• Towards a simpler VAT system

• Standardisation of VAT obligations• First step: an EU VAT return:

• proposal adopted by the Commission on 23 October 2013, ongoing discussion in the WP of the Council

• Agreement possible• application in 2020,• standardisation: main priority

Digital Economy

• Global debate on ensuring taxation from the Digital Economy.

• Technology now means that business can make transactions into markets without the need for a physical presence.

• Applying VAT to B2C transactions can ensure that revenues accrue to the country of destination – by applying the destination principle.

• The EU has been the leader globally on applying the destination principle.

International debateBEPS Action Plan

• One specific horizontal action is devoted to the digital economy (Action 1)

• Identify the main difficulties that the digital

economy poses for application of existing international tax rules

• Develop detailed options to address these difficulties

BEPS addressing B2B and B2C issues

1. B2B: VAT/GST guidelines endorsed by the Global Forum on VAT on 18 April 2014

2. B2C: work in progress, absence of effective international framework (creates tax planning opportunities, distorsions of competition and revenue losses).

• Consensus on allocation of taxing rights to the juridiction of the consumer

• VAT collection challenges

• Consumer self assessment• Compliance by non-resident suppliers (voluntary)• Appropriate mechanism for registration/payment of

foreign suppliers

Issues related to VAT

• Clarification from a VAT perspective• Transactions in the digital economy

• Supply of electronic services: supplies delivered over the Internet without any need for a physical presence, such as electronic music, books or videos(list of these services defined in the EU VAT Directive

• Supply of goods ordered on line

The VAT treatment will depend on the type of supply, the recipient (customer is business or an end consumer), the place of supply and the deductibility of the VAT

2015 Place of Supply Rules• Agreed by EU Council in 2008 as part of a phased reform to

place of supply rules. • From 1 January 2015 - B2C supplies of electronic services,

broadcasting and telecommunications will be taxed where the customer is established (Destination Principle).

• Significant development in EU Tax legislation.Place of supply: proxies

• High priority for the Commission and Member States.3 Implementing Regulations agreed which give a sound legal footing.Communication plan being rolled out.

• How to apply the rules in practice?Implementing Regulation agreed in June 2013.Extensive guidelines were published in 2014Covers who accounts for the tax, where is the customer located i.e. where

is the tax due, what is an electronic service, how to apply the MOSS etc.Objective is to give certainty to business and tax administrations, even

the instrument is not binding.Limits opportunities for double taxation and non-taxation

Mini One Stop Shop to support the 2015 Rules

• Vendor registration and remittance - business will be able to account in one MS in respect of supplies to other MS (where they don’t have an establishment).

• MOSS will be a simple web interface with quarterly tax returns.• 2003 scheme (non-union scheme) will be integrated into the

new system.• There will be revenue sharing in initial stages.

30% in 2015 and 2016

15% in 2017 and 2018.

• MOSS Guidelines for Business published in all languages of the EU as well as Russian, Chinese and Japanese.

• Measures to coordinate audits are being developed in coordination with MS.

• The Commission is monitoring the IT implementation in each MS.

Where next? – Possible EU Policy options

• The natural next step is a broader One Stop Shop to include all B2C distance supplies of goods and services – already included as an action in the EU Commission Communication on the Future of VAT (December 2011).

• Registration thresholds for distance sales of goods should be unnecessary as it will be simple for business to comply.

• Audit and compliance regime – home country auditing, mutual assistance, joint audits, revenue sharing.

• Commission services consider that there is a need to revisit the small consignment exemptions for B2C supplies into the Community. Provide a level playing field.

• Commission expert group on taxation of the digital economy will report in June 2014.

Digital economy: conclusion

• VAT is part of the solution to ensure taxation from the

Digital Economy in Europe and elsewhere.

• Vendor registration/remittance through a simplified

(web-enabled) mechanism is a proven means by which

business can account for the taxes due. 

• Ensuring compliance is evolving (as it does for every

tax).

• Need to consider Revenue Sharing

The future of VAT: others issues

• An EU VAT web portal • Providing business with more accurate and reliable information on

Member State rules and obligations

• step by step approach, linked with standard VAT return

• Ecofin conclusions

• Improving the governance of VAT at EU level• Tripartite EU VAT forum and VAT Expert Group

• Project group: intra-Eu ruling• Guidelines and explanatory notes

- invoicing - Place of supply of services

- services related to immobable property: consultation launched, Fiscalis seminar in Madrid in November

The Future of EU VAT: other issues• Towards a more efficient VAT system

• Broadening the tax base• Public bodies : gradual approach towards taxation

Studies: copenhagen Economics: economic effects (published on Taxud Web site)

Seminar with stakeholders and MS

Public Consultation: closed: 600 contributions

Preparation of the impact assessment and proposal (begining 2016)

• Passenger transport: more neutral and simpler rules

Study launched end 2012: assessment of the present system: distorsion of competition, results expected November 2014, followed by a public consultation and conference

f

Review of the reduced ratesReview of the reduced rates based on 3 criteria:

• Abolition of those reduced rates which are not compatible with the single market

• Abolition of reduced rates on goods and services for which consumption is discouraged by other policies

• Similar goods and services should be subject to the same VAT rate, convergence between on-line and physical environment

• Launching of public consultation on 8 October

• Targeted consultation of a technical nature

• Written comments received

• Studies: e-bools and structure on VAT reduced rates

IMPORTANT: part of the assessment process and no policy decisions have been taken !!

The Future of EU VAT: other issues• Towards a more robust and fraud-proof VAT system

• Quick reaction mechanism (to combat VAT fraud)• Directives adopted• 1st request: refused

• Better cooperation with third countries (key issue: supply of services): mandate presented end of 2013: Russia and Norway

• Improve the efficiency of tax administrations of the EU• Report on art. 12 presented end of 201

• Reviewing the way VAT is collected and monitored• Study to be launched in 2015 on Split payment system ?

Vouchers

• Vouchers are not mentioned in the VAT Directive.

• Vouchers can have an impact on:

• The time of taxation• The place of taxation• The taxable amount• Compliance obligations• ……

Vouchers

• Defining vouchers for purposes of VAT Time of taxation Dealing with the distribution of multi-purpose vouchers Dealing with discount vouchers

Possible agreement on limited solution Distribution services and the related taxable amount in the distribution chain of MPV: further discussions

Conclusion

• EU VAT harmonised legislation applied across Europe (28 countries, 500 million inhabitants,35 million taxable persons)

• Main drivers: • Internal Market: facilitates the integration of cross-border

trade in the EU • Fiscal consolidation: +-1000 billion revenue

• Main difficulties: • Business: compliance costs, legal certainty (EU trade)• Member states: fraud (VAT gap 18 %)

Conclusion

• THANK YOU