30.4.2004   

EN

Official Journal of the European Union

C 117/15

1.1

On 23 December 2003, the Commission presented a proposal for a Council directive (1) amending Directive 77/388/EEC, known as the Sixth Directive, as regards the place of supply of services.

1.2

This proposed directive, whose purpose is to change the place of supply of services where these transactions take place between taxable persons, is part of the Commission's work programme to improve the functioning of the internal market.

1.3

On 7 July 2000, the European Commission adopted a communication which presented its strategy to improve the operation of the VAT system within the context of the internal market (2). The purpose of this strategy was to draw up an action programme aimed at achieving four key objectives:

The proposal submitted to the EESC's scrutiny relates to the second objective.

1.4

Several other initiatives of the Commission have enabled progress to be made towards achieving these objectives. Thus, with regard to simplification, the Council adopted Directive 2000/65/EC of 17 October 2000, which removed, with effect from 1 January 2003, the right of Member States to impose the appointment of a fiscal representative on intra-Community businesses carrying out transactions in a Member State other than that in which they were established.

1.5

Similar ideas worthy of a brief mention are allowing all taxable persons to carry out their obligations by electronic means, the harmonisation of the content of invoices and the acceptance of an electronic invoice, and the directive concerning e-commerce.

2.1.1

Article 9 of the Sixth Directive defines the place of VAT taxation of supply of services. The special nature of this article is that it sets out a general principle, which is being applied less and less (Article 9-1), and that it provides for exceptions that now affect an increasing number of transactions (Articles 9-2 and 9-3).

2.2.1

The current situation of the regime of the place of taxation of the supply of services, which is defined by an unusual principle (taxation in the country in which the supplier is established), and by various exceptions (taxation in the country in which the service is carried out or taxation in the country in which the purchaser is established) is due to the options that were taken up when the Sixth Directive was adopted.

2.2.2

During the preparatory work for drafting that text, the Commission stated that it was faced with the difficulty of harmonising the varied legislation of Member States, who had different rules regarding the place of taxation of supply of services, with some countries preferring the place of establishment of the supplier, others, the place where the purchaser of the service was located.

2.2.3

In adopting the Sixth Directive, which represented a big step in the completion of the Single Market, the Commission's intention was, of course, to create a unified definition of the place of taxation of supply of services in order to reduce, or indeed eliminate, the risks of double taxation or non-taxation of certain transactions. The choice made by the Commission in 1978, and agreed by all the Member States, was made on the basis of the various laws in force at the time and of the nature of the most commonly supplied services of the era.

2.3.1

The Committee shares the widely-held view that the current situation has two sets of consequences that may be prejudicial to the development of the Single Market:

2.3.1.1

The rules currently in force are extremely complex and go against the spirit of simplification on which VAT legislation should be based. They are a hindrance to the activities of businesses within the Union, particularly SMEs, and are in marked contrast to the Commission's stated aims of simplifying the tasks required of businesses and citizens.

2.3.1.2

The current rules lead to unfair situations of non-taxation or double taxation, which can result in putting businesses established outside the Union at an advantage, and businesses established within the Union at a disadvantage. The main reason for this lies in the fact that Article 9-2(e) applies only to a specific, limited list of exceptions, and that adding to this list would entail the long and laborious process of amending the directive.

2.3.2

The application of Article 9-2(e) allows for the taxation of services in the country of the customer, even if the supplier is established outside the European Union and, conversely, to exempt from tax those services rendered by suppliers established within the territory of the Union to purchasers established outside the EU. This mechanism ensures the neutrality of the tax and equality between EU-based suppliers of these services and businesses established outside the Union.

2.3.3

However, the above-mentioned rule is not mandatory: if a Member State decides not to apply it, particularly because the services in question are not included in the above-mentioned list, services ‘exported’ by our businesses are subjected to VAT (place of the supplier), and ‘imported’ services are not, which destroys the neutrality of the tax and puts businesses established within the European Union at an undue disadvantage.

2.4.1

In order to remedy this situation, the Commission has presented the proposed directive now under consideration. This:

2.4.1.1

According to the Commission, the application of this principle would allow the above-mentioned problems to be remedied, by making it a principle that services supplied between taxable persons must be taxed in the place of their actual consumption, which, generally speaking, is the place in which the customer is established.

2.4.1.2

As regards services supplied to non-taxable persons, the place of taxation continues to be the country in which the supplier is established.

2.4.2

Finally, as regards taxable persons who carry out both activities that are subject to VAT and activities that are not, the Commission proposes that they be considered, when they are the purchasers of a service, as taxable persons, except where the services they are buying are for their own consumption.

2.4.2.1

According to the Commission, this redrafting of Article 9 of the Sixth Directive allows most of the difficulties outlined above to be resolved.

2.4.3

Next, the proposed directive provides for a number of exceptions:

2.4.4

However, the new version of the article excludes from its scope scientific and educational activities, which puts them into the scope of the general principle. The aim of this, according to the Commission, is to simplify the obligations of businesses operating in scientific research and education, which are key sectors for economic development, and which are also unlikely to relocate within the Union solely because VAT rates are different.

3.1

The Committee is in agreement with the aims of the proposal and, on the whole, with the formulation of the new regulations. However, these still seem rather complicated and therefore give rise to the concerns and the requests for clarification that follow. On the other hand, it recognises that the matter is complex and that rules of a general nature cannot always address the various particular cases that arise in the day-to-day lives of businesses.

3.2.1

The Commission proposes to define the place of supply as ‘the place where the transport is effected, proportionate to the distances covered’. This is difficult to interpret: firstly, it is not clear what is ‘the place where the transport is effected’ (point of departure? destination?), especially in the case of air transport; and secondly, doubts arise about the need to calculate as many rates of VAT as there are countries covered by the journey (‘proportionate to the distances covered’). Establishing criteria for land transport is difficult enough, but air and sea transport are likely to face even more serious problems of interpretation and implementation. The EESC considers a new, clearer formulation to be necessary. Above all, the rules should be harmonised such that passenger transport is treated in the same way as the transport of goods (see Article 9e).

3.2.2

The Commission states that nothing in this field has been changed relative to the current situation. However, the EESC points out that the rules to be applied are, as already stated, extremely complicated. Furthermore, they may in practice give rise to different interpretations in individual cases, which will cause doubts over interpretation and create more work for taxpayers and the authorities. The whole sector is one where greater clarity and simplicity are necessary. The EESC suggests that the rules should be radically revised in terms of their wording and, if necessary, their substance.

3.3.1

The Commission proposes that these be taxed in the country of the supplier, subject to all three of the following conditions being fulfilled:

3.3.2

With respect to the third condition, if ‘individual’ means a natural person who belongs to an organisation subject to VAT, the rule seems to make sense; however, if this is the case, the EESC would suggest that, in order to reduce the burdens on businesses, it would be useful to repeal the Eighth VAT Directive and introduce a cross-border right of deduction.

3.3.3

This category of exception does not include hire and long-term (more than thirty days) lease transactions. These transactions would therefore be taxed in the country of the customer, contrary to what is currently the case. A consequence of this would be to prevent certain customers from taking advantage of the rights of deduction in the supplier's country when these are more favourable than those in the country in which they are established.

3.3.3.1

However, the EESC notes that large transactions such as the leasing of aircraft and ships are included in this category; the benefits to businesses of moving takings from one country to another could be significant enough to encourage relocations.

3.4.1

Article 9e defines the place of supply of these services as the place of departure. The Committee would like clarification as to how this article, which clearly concerns transport carried out for the account of private persons, is consistent with the way in which passenger transport is treated, which does not distinguish between taxable and non-taxable persons and defines the place of taxation as being ‘the place where transport takes place, having regard to the distances covered’.

3.4.2

The second paragraph of this article says that Member States need not apply the tax to that part of the transport that is made over waters which do not form part of the territory of the EU. This exemption may well be logical, but the EESC firmly opposes the granting to Member States of powers (in other articles as well as this one) to grant exceptions or not. In an area such as taxation, where harmonisation is a long way from being achieved, the freedom to choose carries the risk of worsening the existing differences in the way taxpayers are treated.

3.4.3

As regards the application of the rule, the criticisms and suggestions made in paragraph 3.2.2 above also apply.

3.5.1.

This article provides that the place of supply for services supplied by persons established outside the Community shall be the place where the non-taxable person is established. The Commission has made it clear that non-EU suppliers must register for VAT in the country of the customer, collect any VAT that is due and remit it to the country of the customer. This rule would apply until July 2006. Apart from the obvious consideration that the above period is extremely limited, and that nothing is said about what decisions will subsequently be taken, the EESC would point out that such a rule might be observed by large suppliers of electronic services, but is likely to be largely evaded by small or occasional suppliers of services to individuals.

3.6.1

The other exceptions relate to non-taxable persons, whom the text is obliged to take into account, as it amends the whole of Article 9. The current rules are maintained and require no comment. The Committee would point out that whilst it may be desirable at a later stage to harmonise the principles of taxation between taxable persons and non-taxable persons, steps must be taken to ensure that such a change would not increase the administrative burden on suppliers or consumers. This development should enable a universal roll-out of one-stop shops of the type that now exists for services supplied electronically.

4.1

As a general comment, the EESC notes that, with regard to taxable persons, the proposed directive enables the principles governing the place of taxation of goods and those governing the supply of services to be brought closer together. This development will simplify traders' obligations and, in certain cases, put EU businesses on an equal footing with those outside the EU, as is already the case for the rules on import and export of goods. The Committee can only agree with this approach.

4.1.1

In this context, the EESC calls for an accurate reflection of the different types of services provided, with a distinction being made between universal services of general interest and private services.

4.2

The proposed directive needs clarifying in a number of places; the number of exceptions to exceptions also needs to be reduced to a minimum, as these risk further complicating a subject that is already quite complex in and of itself. Ultimately, the new rules are a long way from achieving the Commission's general aim of simplifying matters. The text should also be revised so as to remove as far as possible Member States' room for interpretation of the provisions and the tax authorities' margin of decision-making autonomy.

4.3

The new rules have reduced to a minimum the cases in which suppliers are obliged to register for VAT in the customer's country, and they therefore favour the reverse-charge mechanism, i.e. payment by the taxable person, giving rise to the right of deduction for taxable activities.

4.3.1

The reverse-charge mechanism raises the problem of checks. In order to allow for these, the Commission also proposes to extend to services the VIES (VAT Information Exchange System), which has been in existence for goods since 1993. However, it is well known – and the Commission itself admits – that this system does not work satisfactorily, despite having been in operation for over ten years. The Commission maintains that adding in the system data relating to services to those relating to goods ‘would not impose a significant burden on administrations’. The EESC does not agree with this point of view. Not only would there be an additional burden, but it is also doubtful that the 2008 deadline for putting this system into operation will be met, given the difficulties that the existing system already faces.

4.4

In conclusion, the EESC would like to make two final comments. The first is that VAT is the most widely-evaded tax in Europe, and that such evasion a) encourages large-scale fraud, which in turn feeds organised crime, and b) requires Member States to expend significant resources to combat such evasion. The cost of collecting this tax is not known, but it is certainly very high. We must add to our conclusions that this state of affairs arises not from the rules, but from the system itself. It is surely time that the experts thought up alternative systems that would ensure a level of revenue at least equal to the current one but would be less costly to society as a whole and more efficient from the point of view of collection. The EESC believes that the time has come for the Commission and the Member States to set up a think tank of experts, economists, and tax specialists in order to seek an innovative and bold solution.

4.4.1

The second comment is a socio-economic one: the application of VAT, with all its faults outlined above, creates inequalities in treatment within the internal market of citizens/ consumers, which are diametrically opposite to the much-talked-about policy of cohesion, and furthermore has quite a number of exceptions to the rule. This is another reason for reviewing VAT.