13 TH MEETING 2 MAY 2016

Transcription

1 EUROPEAN COMMISSION DIRECTORATE-GENERAL TAXATION AND CUSTOMS UNION Indirect Taxation and Tax administration Value added tax VAT Expert Group 13 th meeting 2 May 2016 taxud.c.1(2016) VAT EXPERT GROUP VEG N O 055 SUMMARY MINUTES 13 TH MEETING 2 MAY 2016 Commission européenne, 1049 Bruxelles / Europese Commissie, 1049 Brussel Belgium Tel.:

2 The Chair opened the meeting and welcomed the members of the group. 1. ADOPTION OF THE AGENDA The agenda (taxud.c.1(2016) ) was adopted as proposed. 2. RESULTS FROM THE DISCUSSION The following agenda points were discussed: 2.1. VEG N o 054: Sub-group on the topics for discussion: Welmory sp.z o.o. (Case 605/12) A member of the task team dealing with the Welmory case presented the working paper. He explained which parts had been modified or rewritten in order to clarify the position of the experts on the VAT concept of fixed establishment. The main changes relate to (i) the introduction; (ii) the part dedicated to the rationality test and (iii) Annex 3 with the concrete examples. For the future, from the experts perspective, it would be desirable if the Commission could provide explanatory notes on the rules related to fixed establishment. Such explanatory notes could be provided on the basis of the examples reported in the Annex by the experts. In that light, also guidance provided by the VAT Committee or a recommendation would be a useful tool for the interpretation of such concept. On the basis of this report, the members had an exchange of views. General comments Members were generally concerned that the concept of fixed establishment (FE) for VAT purposes could be influenced by concept of permanent establishment (PE) provided by the OECD for direct taxation. The two concepts are different but with the broadening of the notion of PE some considered that also the concept adopted for indirect taxation could be covered by the same interpretation. It was recognised that it is important to clarify the difference between PE and FE. Two concepts serve different purposes of taxation, respectively direct taxes apply to the whole of the income whilst indirect taxes apply to transactions carried out and their consumption. Therefore, the elements to be considered to determine whether there is a FE are (partially) different from the elements relied upon for there to be a PE. For some, the work carried out by the OECD (e.g. commentaries on articles of the model tax convention and BEPS) could be used at least to provide some guidance on the nature of both types of establishments as to the extent of three main common elements: (i) human resources; (ii) technical resources; (iii) permanence test. Amongst all these elements the presence of personnel probably will no longer be an essential requirement due to the digitalisation and automation of the economic activity. 2/8

3 However, there is no guidance on how to assess the economic reality of an establishment because that has to be examined on the basis of facts. Some guidance on the essential elements of an FE could be settled through the issue of implementing provisions. They could for example set out a list of detailed presumptions. Some members referred to the need to rethink such concept in the light of the destination principle as the origin principle is going to be progressively abandoned. The purpose of the working paper is to propose an interpretation that ensures legal certainty and simplification, to avoid jeopardizing the system with different models of establishment. As pointed out by one person, it is true that with its proposal of a 19 th VAT Directive, the Commission proposed to align the concepts as used for the purpose of direct and indirect taxation respectively, but at this stage is not possible to find convergence between the two concepts due to their development with different purposes. It was also pointed out that the concept of PE for direct taxation, as developed by the OECD, is not really appropriate for VAT purposes due to issues of timing. In fact, where for direct taxes the activity and the position of an entity can be assessed over a longer period, it is in the case of VAT necessary to ascertain the position of such entity immediately at the time of each supply, having regard to the available elements at that moment, in order to decide where the supply is taxable. Therefore, the assessment period of the essential elements of an FE should not and cannot be the same as for the PE. One member added that the "permanence" of the establishment should not be considered in terms of timing. In fact, sufficient resources and permanence have to be considered in relation to the transaction itself. Regarding VAT, it is necessary to decide in which extent human and technical resources are necessary to carry out the supply and whether these elements are there at the time of the supply, which is different from determining where revenue is raised or taxing rights accrue. In that sense it could be argued that the transaction could exists with no time permanence requirements, due to the fact that albeit before the supply there weren't such resources, but they were employed for this transaction, the latter is in any case relevant for VAT purposes. It is not possible to assess a transaction retroactively because once the fundamental conditions are met there will be a supply of goods or services and the place of taxation is already identified at that moment. At the same time, legal certainty would not be ensured if permanence and timing were to be considered as a bench mark. Article 11 of the VAT Implementing Regulation clarifies the concept of permanence without making reference to the issue of timing and does not specify the meaning of "fixed". From a tax compliance perspective, it is crucial to be able to establish the place of supply according to the permanence of the entity in order to avoid extra administrative burdens for businesses and tax administration. Specific comments On section 8: Fixed establishment through a parent subsidiary relationship One member suggested that for the assessment of the existence of an FE in a parent subsidiary relationship, Article 54 of the VAT Implementing Regulation should be 3/8

4 applied. It provides a sort of "rationality test", similar to the issue examined in section 10 of the same working paper, which is substantially based on the principle of effectiveness. The effectiveness of the supply is connected to two main issues: (i) whether there is a relevant use of the supply between the parent company and its subsidiary; (ii) how to recover the input tax of the fixed establishment. Regarding the matter of independence of the FE from the parent company it is worth to consider also other judgments than FCE Bank, albeit they are not expressly connected to the FE issue (i.e. cases Gmina Wroclaw or MDDP). All the criteria settled by the CJEU have to be taken into account when assessing the economic reality of such establishment (i.e. management decision, allocation of resources), bearing in mind that the decision-making power of a company is another relevant element to be considered. In that light the group of experts proposed to rephrase the opinion on that point, in order to make these criteria as clear as possible. Another issue that must be clarified is the interaction between an FE and a tax representative as well as the interaction between the presence of a VAT registration number and a permanent establishment. On section 9: Recipient fixed establishment One person wondered whether the existence of a supply is relevant when there is only an intra-group relation and whether an establishment could be conceived as an FE if it always acts as "passive". In that sense it could be argued that the member of the group receiving the supply is just a mere consumer and not an FE. However, in this scenario it seems that the FE is rather related to the status of the taxable person than a matter pertaining to the place of supply. This could lead to compliance issues and uncertainty about which rule to apply: Article 192a of the VAT Directive or Article 54 of the VAT Implementing Regulation. In other words it is necessary to clarify the concept of "passive" fixed establishment for VAT purposes which is not clear in the Welmory decision (see p. 16 of document n.054). Such problem relates to the outsourcing activities, the principle is exceptional when the outsourcer is receiving and using the supply. On section 10: Rationality test Members widely pleaded for more relevance to be given to the rationality test. It should be the first element to be assessed, albeit it gives a wide discretion to the tax administration. VAT legislation doesn't make any direct reference to such verification. It is possible to have some guidelines on that process through the interpretation of VAT provisions provided by the CJEU. In particular, in judgment Planzer Luxembourg, the rationality test was evoked (indirectly). Considering that there are no other guidance on that activity that tax administration must carry out, some members proposed to take into account the practical examples reported 4/8

5 within the Annex as guidance for the permanence test (e.g. example number 3/4 for nonestablished companies; example number 6 useful for the permanence test; example number 8 useful for the evaluation of the resources and the related assessment of the facts). Conclusion of debate It was agreed that the task team on the Welmory case would prepare a new version of the report, taking into account the amendments discussed during the meeting and circulate it before the next meeting, so that the report is ready for discussion during the next meeting of the VEG, and can be endorsed by the group Communication on an Action Plan on VAT Towards a single EU VAT area Time to decide 1 After a presentation of the VAT Action Plan, the Commission informed the VEG that the Dutch Presidency is working towards ECOFIN conclusions on the Action Plan adopted by the Commission on 7 April 2016, with a view to getting them adopted during the ECOFIN meeting of 25 May General comments Reverse charge The members were informed that some Member States have requested a VAT derogation for a general domestic reverse charge mechanism and that they have been asked by the Commission to fill in a questionnaire about the nature of the derogation and the reasons of the request. It is important to recall that the VAT Directive already allows a number of derogations, provided that certain conditions are met and the appropriate procedure is followed. However, the reverse charge based on derogations is always strictly limited in its scope and the sectors covered, and a general reverse charge would anyway require a modification of the VAT directive. Regarding generalised reverse charge for which some Member States are looking for, two main concerns were evoked: collecting the VAT at the end of the chain just shifts fraud elsewhere, notably to the final last stage of the supply chain, and creates new fraud opportunities. the risk of fraud moving to the Member States not applying the reverse charge. Some members considered that the VEG should prepare an opinion on the reverse charge issue, as the granting of a derogation for some Member States to apply generalised reverse charge might undermine the VAT system as such. The VEG agreed to provide their opinion as soon as possible, in view of the discussion scheduled in the ECOFIN. 1 COM(2016) 148, /8

6 VAT treatment of intra-eu supplies of goods proposed in the Action plan Regarding intra-eu supplies of goods, the Commission explained the staged approach it envisages: it explained that the best option for the EU as a whole would be to tax B2B supplies of goods within the EU in the same way as domestic supplies, thus fixing the main flaw of the transitional arrangements while keeping the underlying features of the VAT system intact. With this approach, domestic and cross-border supplies along the entire chain of a production and distribution will be treated the same way, and it will reestablish the basic features of the VAT in cross-border trade i.e. the fractionated payments system with its self-policing character. However, the Commission recognises that this cannot be achieved in short term and proposes, as a first step, that reverse charge would be maintained when the purchaser is a compliant business, certified by its tax administration. When this is not applicable, a one stop shop would be made available, but as compliant businesses represent the vast majority of taxable persons involved in cross-border transactions, the amounts of VAT channelled through the One Stop Shop would be only residual. This could also prevent the creation of missing trader schemes. When the conditions are fulfilled, in particular a higher level of cooperation and trust between Member States, the principle of taxation would be re-established and the One Stop Shop extended for all cross-border B2B supplies. During the exchange views, the VEG welcomed the way recommended, but considered that further work and time was necessary to put the full taxation into force. Therefore, the first step was welcomed, but it was acknowledged that notably the issue of chain transactions under such a system and the concept of "Certified taxable person" (CTP) needed further technical work possibly in sub-groups meetings with Member States representatives. Some members suggested extending the CTP mechanism to intra-group transactions and cross border supplies of services Certified taxable person (CTP) It was pointed out that the concept of "certified taxable person" needed further examination and should be preliminary tested. Such certification is strictly connected to VAT identification issues, in particular in cross border situations. For example it should be examined who is the business that needs the certification (e.g. the customer or the supplier or both). Common criteria should be set at EU level for uniform application and particular attention should be given to SMEs to ensure that they are not excluded from the certification Cross-border audits The Commission stated that it has still not received any feedback on cross-border audit under the MOSS system. Audit system for MOSS has to be implemented in short terms with the aim to boost the compliance. However, a member pointed out that it is contradictory to have a new auditing system just for supplies of goods and not for supplies of services. A real improvement would be achieved only with the extension of the OSS to all supplies. In order to put into place all the measures a double step approach will be used. 6/8

7 2.2.5 Digital single market (DSM) Regarding to the development of the DSM, the Commission explained that the first evaluation of the 2015 changes to the place of supply rules for electronic services and the Mini-One-Stop-Shop (MOSS) was largely positive and that it intended to submit a proposal to extend the MOSS to online supplies of goods by end The proposal will cover both intra-eu supplies and imports. For intra-eu supplies of goods, the proposal will remove the distance sales thresholds and systematically tax distance sales in the Member State of destination in accordance with principles agreed at OECD level. This should reduce the burden for suppliers ( no need to monitor the threshold for up to 28 Member States; no need to register in up to 28 Member States) and remove distortions resulting from rate differentials. For imports, the proposal will remove the exemption threshold (between EUR 10 and 22) and allow third-country vendors to pay VAT in the Member State of the customer via the MOSS for sales of a value not exceeding EUR 150. The change will remove distortions between third-country and EU suppliers and simplify customs procedures for goods on which VAT will be paid via the MOSS. It should also lead to increased compliance as the exemption threshold is currently abused to a large extent. For imports of goods of a value not exceeding EUR 150, for which the MOSS is not used, simplified customs procedures are envisaged. The envisaged date of entry into application of the proposal is 1/1/2021. Some members pointed out that the current system is not efficient and that the extension of the MOSS to online sales of goods supplied intra-eu or imported from third countries would improve voluntary VAT compliance by businesses VAT rates VAT rates as well are a crucial part of the Action Plan: the current rate system shows a lack of consistency and the need to modernize it according with the market development. It is possible to reform the VAT rates legislation in order to provide to Member States more flexibility but some members of the group feared that the unanimity rule could be an obstacle for a genuine rationalisation of the system, in the light of the destination principle. Another issue that has to be examined is the relation between exemptions and rates flexibility because of their impact on the tax recovery and on the neutrality of supplies. According with the destination principle it would be possible to modify, for example, the scheme for public bodies. Another possibility is to request for derogation based on an option to tax a supply whether it is exempted according with the Directive. With the Commission s proposal on insurance and financial services now having been withdrawn, a new initiative will be necessary if the issues faced by the sector are to be addressed. Given the complexity of the issues at stake and having regard also to the lack of agreement by the Council on the former proposal, it will take time before any initiative can be envisaged. Most likely, it will take at least 3 or 4 years before a genuine solution can be envisaged at EU level. 7/8

8 2.3. Info update Membership in the VAT Expert Group new Call for applications for the selection of members The Commission services informed the VEG that a new call for application will be issued in July, as the current mandate is coming to its end. If feasible, the Commission's services intend to modify the current decision in order to extend the duration of the mandate to three years. Indeed, the experience accumulated over the last four years in relation to the working of the group shows that there is a need to allow for more continuity and improved efficiency in the work of the VEG by extending the term of office from two to at least three years. The application form will be published soon (July) on TAXUD web page and the deadline for application will be in September Seminar in Dublin on modernising VAT groups, September 2016 The Commission services informed about this Seminar which is being organised under the Fiscalis 2020 programme. It will bring together experts from the VEG and national authorities from the Group on the Future of VAT with a view to discuss various aspects in relation to VAT groups. An invitation to attend the Seminar will be circulated shortly Feasibility study and other projects The Commission services informed the group members on the feasibility studies that are going to be launched to obtain detailed information on the SME scheme and VAT rates to assess which impact each option proposed in the VAT Action Plan would have. The Commission requested to Italy a report on the application of the Split payment system for public bodies. The feasibility study on the VAT web Portal will be published in June. The Commission pointed out it could not afford all the costs of such project as it has already financed the MOSS: therefore a financing decision would be necessary if it were to be put in place. In that light expert's opinion is welcome. 3. FOLLOW-UP The VEG released its opinion on the Action plan on 20 May 2016 and it was published on 23 May ECOFIN adopted its conclusions on the Action Plan on 25 May The next meeting of the VEG, initially scheduled for 4 July 2016 had to be cancelled. A last meeting of the VEG in its current composition will, tentatively, be organised before end of September. *** 8/8