The Multi Annual Strategic Plan (MASP) aims to harmonise and automate the exchanges of Customs & Excise within the European Union.  The aim of the MASP program is to implement an electronic customs in the EU by replacing the customs procedures on paper by electronic procedures.  In this project, each member state is responsible for the correct local implementation of the MASP.  The Belgian Authorities have, in this perspective, built a dedicated site providing information relating to the local development in Belgium: MASP.be. This site fonctions as communication channel about the project to all concerned parties and will be regularly updated.  C4T will keep you updated with summaries of the given presentations. 

The European Commission has presented a proposal to change the Value Added Tax (VAT) rules that apply when certain services are supplied to private consumers. The changes are intended to eliminate distortions of competition between EU businesses, and between EU and non-EU businesses, that supply services at a distance to private consumers. They should also ease the VAT burden for businesses by streamlining the current rules as between services provided to traders and those provided to private consumers. The changes would build on the amendments that the Commission proposed in December 2003 to the rules governing the supply of services where the customer is a trader.

“The economic potential of telecom services, broadcasting, and e-services makes it imperative to ensure that the VAT revenues from such services accrue to the Member State where those services are consumed” commented László Kovács, European Commissioner for Taxation. “This proposal is designed both to ensure that Member States are better able to collect VAT on services consumed by their residents and to make the application of VAT to services simpler and fairer for traders.”

Back ground:

The current main rule is that, when a trader supplies a service to a private consumer, the trader is responsible for applying the VAT at the rate of the country where he has his place of establishment. However, with the increasing supply of services across borders, this rule no longer always ensures that the tax accrues to the Member State of consumption. It can also cause problems of distortions of competition. Companies have an incentive to locate their activities in Member States with low VAT rates in order to be able to charge that rate to their customers. Suppliers of digital products from outside the EU are required to charge VAT on sales to private consumers at the rate applicable in the Member State where the customer is resident but this rule does not currently apply where the non-EU suppliers establish themselves within the EU. Nor does it apply to EU or non-EU suppliers of other services capable of being supplied at a distance (such as distance teaching).

In addition, since, on the basis of a Commission proposal, the Council has almost reached agreement on changes to the rules governing the supply of services where the customer is a trader, there would be practical difficulties for businesses if there were no corresponding changes to the rules governing the place of supply of services to private consumers.

The proposal would for these reasons introduce the following exceptions to the main rule on the place of taxation of services to private consumers:

For certain services capable of being supplied at a distance, including e-services and distance teaching, the place of taxation would become the place where the customer is established.

Restaurant and catering services would become taxable at the place where the service is physically carried out, except for those services supplied on board of a means of transport, which would be taxable at the place of departure of the transport service.

The short term hiring of means of transport would become taxable at the place where the means of transport is actually put at the disposal of the customer.

Long term leasing would become taxable at the place where the customer is established.

All services rendered by intermediaries would become taxable at the place where the main transaction in which they intervene takes place.

The proposed changes would mean that traders supplying these services to private customers in other Member States would have VAT compliance obligations in those other Member States. However, these obligations would be greatly simplified if the Council adopts the Commission’s proposal of 29 October 2004 for a One-Stop-Shop and other measures to simplify VAT obligations.

The European Commission’s Directorate General for Taxation and Customs Union has issued the summary report on the outcome of an on-line consultation concerning the place of supply of services to non-taxable persons that it launched on 3 February 2005.

A total of 71 external contributions were received in response to the consultation. Of that total, 47 came from national and European federations or associations, 22 came from business and two came from individuals.

While the majority of respondents supports the direction of the Commission’s work to date on this matter, which is to maintain the current general rule (taxation where the supplier is established) and to modify the place of taxation only for certain services, the consultation has identified a number of issues warranting further consideration, which the Commission will take into account during its ongoing and future planning.

The goal of the consultation was to describe the problem areas the Commission has identified in Article 9 of the Sixth VAT Directive (Directive 77/388/EEC of 17 May 1977) when dealing with services supplied to non-taxable persons (B2C supplies). The consultation document also provided an overview of possible modifications to the rules in order to overcome these problems. The Commission was seeking reactions and input on the proposed modification, in order to be in a better position to consider how best to progress with the possible review of these rules.

On March 15-16 in Rome, Italy, the International Tax Dialogue - a joint initiative of the IMF, the OECD, the World Bank with the UN as an active observer - convened the first global tax conference to examine the experiences of countries that have Value Added Taxes (VAT). VAT is a general consumption tax assessed on the value added to goods and services as they pass through the supply chain. The conference was opened by Italian Minister of Economy and Finance, Domenico Siniscalco, and drew participants from about 100 countries, as well as representatives from international and regional tax organisations.

Today around 135 countries utilise Value Added Taxes (VAT) whilst a number of countries - notably the US – operate sales taxes, usually single-stage taxes at retail. In almost all countries these taxes are either the largest or second largest source of tax revenues.

The two-day discussion examined the policy and administrative challenges of using VAT systems in a rapidly changing economic and business environment. The issues discussed included the tax treatment of financial services, the operation of VAT in Small Island Economies, the application of VAT to the public sector and electronic commerce as well as compliance and audit issues, and the growing incidence of tax fraud.

In his opening speech, the Italian Minister of Economy and Finance, Mr Domenico Siniscalco, has underlined that the Conference offers an important opportunity to analyse the pros and cons of VAT, a tax that is now largely applied at global level and a considerable source of tax yield. Although some problems are specific to the different national contexts in which VAT is applied, there are certain issues that are common to all countries. For example, as Mr Siniscalco has noted, the coverage of the taxable base, which is necessary to ensure effectiveness and neutrality of the tax, clashes with problems in its application to the public sector, the financial sector, as well as to specific sectors, such as agriculture. The risks in applying differential rates are market distortions and increase in both administrative and compliance costs which would be borne, respectively, by administrations and traders. Mr Siniscalco has added that the increasing international VAT fraud and evasion calls for prompt and effective measures on part of the States and, above all, for closer cooperation that, at the international level, is currently based on instruments and systems for exchanging information that are still inappropriate and insufficient.

Mr. Danny Leipziger, Vice President of the World Bank’s Poverty Reduction and Economic Management Network, stressed that “In just 50 years, value added taxes have become a major source of revenue in many countries. The VAT constitutes a large portion of the total government revenues generated by developed and developing countries alike. Tax performance directly affects countries’ ability to meet the Millennium Development Goals (MDGs), as well as public perceptions of the effectiveness of government. It is, therefore, a key policy area for all concerned with revenue mobilization.”

Mrs Teresa Ter-Minassian, Director of the International Monetary Fund’s Fiscal Affairs Department, stressed the importance of the VAT for emerging market and developing countries. “The VAT has proved itself a powerful tool in modernizing and strengthening domestic tax systems, enabling these countries to better meet the challenges of financing poverty reduction and further trade liberalization. But details matter, and practice has varied widely. By bringing together for the first time the world’s leading experts and practioners in the art of the VAT, this conference is a unique opportunity for the sharing of experience on this key aspect of the world’s tax system.”

Mr. Donald Johnston, the Secretary-General of the OECD, chaired the high level opening panel. He commented that the spread of new information technologies and closer global economic integration significantly increases the risks of double taxation (or double non-taxation) arising from the interaction of different VAT systems around the world. VAT issues now had to be addressed at the international level. He added: “Perhaps the time has come to have a Model VAT Convention, just as we have Model Income Tax Convention”. He also noted that “VAT systems in many OECD countries are being systematically attacked by tax fraudsters; hence, we need better international co-operation to tackle such behaviour”.

EU Commissioner László Kovács, noting the European Commission’s satisfaction at being able to support this important international event, stressed that “the Commission will continue to pursue its objectives for VAT reform which include the simplification and modernisation of the EU’s VAT system. The system must not create obstacles for business and, within the EU, the process of tax reform must take full account of the policy objectives of the Lisbon Agenda. The economic environment within which tax systems operate has changed immeasurably in recent years and failure to recognise this will leave business with undue compliance burdens. Inefficiency within the system also adds to the operating costs of administrations and is a distraction from the need to combat systematic tax fraud. Cooperation between tax administrations is an essential component in tackling this common concern.”

The European Commission has launched an open consultation for views from the public on possible improvements to the EU Value Added Tax (VAT) rules that apply when services are supplied to private consumers. The Commission will, on the basis of the reactions, decide whether to present a proposal to modify the current rules. The current basic rule in such cases is that the VAT rate that applies is that of the place of establishment of the service provider. However, with the increasing provision of services across borders, this rule no longer always ensures that the tax accrues to the Member State where consumption takes place. In addition, it can cause a competitive handicap for EU suppliers compared to non-EU suppliers. The paper that forms the basis of the consultation therefore seeks reactions to suggestions for possible modifications of the basic rule in the case of services provided at a distance. Similar changes have been made to the rules to cope with international trends in the supply of digital services and the Commission proposed changes to the rules governing the supply of services where the customer is a trader in December 2003.