Following on from my blog last month, I heard recently the talk on ‘new Commissioner, new Strategy?’ by the European Commission’s Head of VAT, Donato Raponi.
I was expecting a petty robust restatement of current plans – especially around the Standard Return. But things turned out rather differently. Before coming to that, it needs to be mentioned that Raponi has not yet held discussions with M. Moscovici (the new Commissioner for Economic and Financial affairs, Taxation and Customs Union). Raponi did not, however, expect there to be any major strategic shift in VAT policy. But he did mention that Moscovici was a Socialist – and I inferred from the tone of his comments that he was concerned that VAT would not be Moscovici’s tax priority.
This is something I brought up in my last blog. VAT is a tax on consumers collected by businesses on behalf of Government – it is not a tax on businesses. VAT reforms, are, by and large, intended to increase the efficiency of the collection process, and cut costs for businesses (whether they achieve that aim is another matter, but we’ll let that pass for a moment). As a champion of the single market, Sr. Raponi clearly considers such reforms to be worthwhile in themselves; hence his promotion of the Standard Return.
M. Moscovici’s focus is very much on the other end of the tax spectrum: corporation tax. As I noted in my previous blog, his absolute priority is to defeat ‘aggressive tax planning’ and shut down ‘corporate tax havens’. VAT does not fit easily into the narrative of big business as tax villain; and this may explain why M. Moscovici did not even mention VAT in his submission to the European Parliament about his priorities for the new role.
So, Raponi may have good cause to be despondent; the new Commissioner is unlikely to be interested in his legacy. And that legacy (insofar as it is embodied in the Standard Return) is, in any case, under serious threat from Member States.
The original plan for the Standard Return was for a simple VAT return with twenty-six boxes (five compulsory, twenty-one at the discretion of the Member State) and a common format in each and every Member State. This would have been backed up by an explanatory web portal. The challenge was to find a way of standardizing a form so diverse in its national versions that it requested five hundred and eighty six pieces of information in Italy (Annual Return) and just nine pieces in the UK (VAT return). As Sr. Raponi repeatedly insisted, it was critical for the success of the project that the format was the same in each Member State, because this would (theoretically) make it possible for corporate tax staff to submit returns across the EU even if they were not familiar with the languages of the countries in which they were filing. At the time of its inception, the Standard Return was estimated to be able save (at maximum) 15B Euros of compliance costs annually across the EU. There has always been skepticism about that number, but it was agreed that a common format return was essential if any saving was to be possible.
So, where are we now? Member States have been negotiating the details of the Standard Return with the Commission for some time, and, according to Raponi, the current ‘compromise’ document is quite different to the original template. There are now sixty boxes on the return – it has more than doubled in size. Many of these would be optional for Member States, but there is no doubt that the information demanded is much greater than hoped for by the Commission. The Standard Return is currently six times the size of the UK VAT return!
That’s not great, but the larger problem is with the common format. Seven of the twenty-eight Member States are currently refusing to agree to a common format EU Standard VAT return; naysayers include Germany and the UK. For the Germans, the issue appears to be a matter of principle; they simply don’t believe in the right of outside jurisdictions to have a say in German tax collection. The Commission’s hope is that the latest iteration of the Standard Return is close enough to Germany’s own VAT return to be acceptable to the BZSt. But nobody looks confident.
Seven of the twenty-eight Member States are currently refusing to agree to a common format EU Standard VAT return…
The UK (and others) have a different problem – what they see as being the lack of proportionality of the proposal. Only 12% of business taxpayers (about three million companies) in Europe make cross-border transactions; but, if the legislation is introduced, all businesses charging VAT in Europe will have to file the new return, whether or not they work cross-border. It’s the burden on domestic-only companies that the UK doesn’t like – as you can see from the letter I received from HMRC about this matter a few months ago. The Commission has estimated the cost of implementing the Standard Return in Europe to be around 3 billion Euros. That would probably work out at a cost of around 500 million euros for the UK alone. And that’s very conservative: our calculations have the implementation coming out at anything up to 2 Billion euros for UK Plc. Political dynamite in the new UKIP friendly environment.
In short, you’d want to be absolutely certain that a major saving could be made before embarking on the standardization process. Raponi’s argument is that the 12% of business taxpayers mentioned above collect over 80% of total European VAT, and that it’s worth supporting them for that reason. But I wonder how attractive that will look to M. Moscovici – this would be a reform that benefits the despised big businesses. In any case, as Raponi admitted, without the common format, most of the projected savings evaporate, rendering the project pointless.
Raponi said, with some sadness, that he had been ‘very optimistic. Genuinely!’, but that it now looked difficult. He did not mention it, but he has only a year left in his current position. He is resolved to fight, though, and is engaging in a little brinkmanship with the recalcitrant Member states. The Commission will be prepared to accept the sixty boxes (through gritted teeth), but, if the common format is not adopted by Member States, the Commission will withdraw the proposal for a Standard Return – and not cooperate with plans for an EU VAT portal!
So, we could be seeing the end of plans for a Standard EU VAT return. But there is a major new (and controversial) reform in the works. In my next blog I will be writing about the potential one-stop-shop for VAT on distance sales.