Weekly Tax News – 8 October 2018

ECOFIN agreed on VAT directives

On 2 October, the ECOFIN agreed on three VAT directives.

The first approved Directive entails a temporary derogation from normal VAT rules in order to better prevent VAT fraud. The Directive will allow Member States that are most severely affected by VAT fraud to temporarily apply a generalised reversal of VAT liability. This so-called generalised ‘reverse charge’ mechanism involves shifting liability for VAT payments from the supplier to the customer. The directive is expected to be adopted without further discussion once the European Parliament has delivered its opinion.

A second approved Directive allows Member States to apply reduced, super-reduced or zero VAT rates to electronic publications, thereby allowing the alignment of VAT rules for electronic and physical publications. The Directive will be adopted without further discussion once the text has been finalised in all official languages.

Finally, the Directive on four short-term quick fixes to the EU's current VAT rules has been adopted. The Council agreed on the 'quick fixes' initially presented by the Commission:

  • call-off stock. The proposal provides for a simplified and uniform treatment for call-off stock arrangements, where a vendor transfers stock to a warehouse at the disposal of a known acquirer in another Member State;
  • VAT identification number. To benefit from a VAT exemption for the intra-EU supply of goods, the identification number of the customer will become an additional condition;
  • chain transactions. To enhance legal certainty in determining the VAT treatment of chain transactions, the proposal establishes uniform criteria;
  • proof of intra-EU supply. A common framework is proposed for the documentary evidence required to claim a VAT exemption for intra-EU supplies.

In the course of the ECOFIN, the finance ministers also agreed on a Regulation to strengthen administrative cooperation and to improve the prevention of VAT fraud. The Regulation will improve how tax administrations cooperate amongst themselves and with other law enforcement bodies. The regulation will enter into force twenty days after its publication in the Official Journal, with most of the provisions being applied as of 1 January 2020.

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Palau removed from the list of non-cooperative jurisdictions

In the course of the ECOFIN meeting of 2 October, the finance ministers agreed on the removal of Palau from the EU's list of non-cooperative tax jurisdictions, as they consider that it has taken political commitments to respond to the EU’s concerns. Furthermore, Liechtenstein and Peru have completed the necessary reforms to comply with all the tax good governance principles identified at EU level: as a consequence, the two countries will be removed from annex II of the conclusions (so-called grey list). As a result, the list now includes only six countries: American Samoas, Guam, Namibia, Samoa, Trinidad and Tobago and the American Virgin Islands.

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MEPs approved three draft reports on VAT

On 3 October, during the plenary of the European Parliament in Strasbourg, the MEPs adopted three draft reports for opinions concerning the VAT system. The report by Jeppe Kofod (S&D, Denmark) on the harmonisation and simplification of certain rules (that also proposed a VAT dispute settlement mechanism to be set in place by no later than 1 June 2020) was adopted by a vast majority. A similar majority voted for the adoption of the report of Tibor Szanyi (S&D, Hungary) who aims to set in place a clearer system of VAT rates also proposing a general lower limit of 15% and an upper limit of 25%. Finally, MEPs also approved the draft report by Sirpa Pietikäinen (EPP, Finland) on the optional reverse charge mechanism and the early warning mechanism to flag up VAT fraud.

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ICRICT pushes Juncker on CCCTB

On 1 October 2018, the Independent Commission for the Reform of International Corporate Taxation (ICRICT) wrote a letter to the President of the European Commission Juncker to give the full support on the proposal for a Common Consolidated Corporate Tax Base (CCCTB). The letter, that was signed, amongst others, by the Economists Stiglitz and Piketty and the French MEP Eva Joly, highlights that CCCTB is “the most efficient way of tackling tax avoidance strategies using transfer pricing”. Furthermore, the letter gives the full support of the group to the efforts of the Commission to tax the digital economy, suggesting that “a common consolidated corporate tax base including a digital factor in order to adequately tax and apportion MNEs’ profits is the best way forward”.

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