As a reunion of the Economic and Financial Affairs Council, comprising the economics and finance ministers from all the Member States and responsible (among others) for taxation matters, the ECOFIN configuration at the Council met on 2 October 2018.
While the implementation of a new ‘definitive’ VAT system is on the way, the ECOFIN Council agreed on some transitional and urgent measures which are hereafter listed:
Let’s examine these provisions further.
1. Short-term ‘quick fixes’
The short-term ‘quick fixes’ constitute adjustments, mainly taken in view of the preparation for the adoption of the new VAT ‘definitive’ system. These are aimed at fixing specific issues arising from the application of the current EU VAT rules. These fixes will be applicable as from 1 January 2020.
In a nutshell, the European Commission presented to the Council three legislative proposals mainly dealing with the ‘improvement of the current EU VAT rules for cross-border transactions’. On 2 October 2018, the Council agreed on the following four quick fixes which were contained in these proposals:
2. VAT GRCM
The idea behind this adjustment is to combat VAT and more specifically carousel fraud. Carousel fraud or missing trader fraud happens where the traders do not remit the VAT they receive from their customers to the tax authorities. In the meantime, the customers ask for a tax deduction on the valid invoices they hold for the services rendered by the traders. In such a case, the supplies are purchased and then resold without the payment of any VAT. This scheme often happens as regards intra-EU supplies, but can also occur when services are rendered.
3. VAT rates for electronic publications
Currently, since the Commission against Luxembourg case, there is a mismatch between the VAT rate applicable to physical publications and the one applicable to e-books in a number of Member States. Indeed, the 2006/112/EC Directive (‘VAT Directive’) provides that electronically supplied services are taxed at the standard VAT rate throughout the European Union, while books on all means of physical support (books, newspapers and periodicals) can benefit from the application of a (super or) reduced (or sometimes zero) VAT rate.
In light of this, the European Commission submitted, in 2016, a proposal to the Council of the EU regarding the VAT rates applicable to books, newspapers and periodicals. This document was discussed at the ECOFIN Council in 2017 and 2018 without obtaining unanimous support from the Member States.
However, due to the urgent need to obtain an alignment of taxation for both the categories of publications and in order to maintain the technological progress in a constantly growing digital economy, the Council agreed on 2 October 2018 with going ahead with a proposal allowing Member States to apply reduced, super-reduced or zero VAT rate to electronic publications.
Note that the application of the super-reduced and zero rates should only be allowed in case the Member State currently uses them for physical publications.
This item constitutes one of the contributions to the EU’s digital single market plan and should apply until the introduction of a new ‘definitive’ VAT system proposal.
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