The people of Europe have spoken, and, as everyone and his dog has been predicting for months, the European Union’s project of ‘ever closer union’ among EU member states is in turmoil.

A smorgasbord of anti-EU parties have been elected to the European Parliament; Greece alone has returned both communists and fascists. It is bitterly ironic that the EU itself seems to be fostering the kind of extremism it was designed to abolish.

As I wrote in November, the Eurosceptic parties have little in common, aside from a hatred of Brussels, so it is questionable how effectively they will work together positively to reform any of the EU’s institutions; but we can certainly expect federalizing legislation coming out of the Commission to get a very rough ride. It could be gridlock.

What of VAT? Where do the Commission’s plans for a Standard VAT Return in Europe stand today? How will other potential reforms be affected by the election results?

I was at the International VAT Association conference in Madrid shortly before the elections, and heard some very interesting things from Commission officials and tax authority representatives.

Taking the Standard Return first: member states are currently negotiating the details of what would be included on the return (the vexed question of how many boxes there should be), and also debating the frequency of filing.

It seems, after the first round of horse-trading, that there will now be no attempt to synchronize filing deadlines across the EU. And – also against the spirit of the project – the proposed number of boxes for the new return is rising rapidly; the word is that the minimum number of boxes for the new return will be forty. What’s more, it could well go up: one tax authority representative that I heard expected there to be additional boxes for particular regions in his country! If all member states go down that road, there could be hundreds of boxes!

It is bitterly ironic that the EU itself seems to be fostering the kind of extremism it was designed to abolish.

The timing of implementation has also changed dramatically: the proposal passed by the European parliament makes January 1st 2017 the date of introduction; but it seems that the current, unofficial, target date is much nearer 2020. The technical issue is, unsurprisingly, the updating of IT systems.

I got the impression from what I heard that the Commission (without in any way ignoring the Standard Return) might now focus on other, more easily achievable reforms. The 2015 MOSS for Electronic Services is, as we suspected (see our piece in Accountancy) strategically crucial for the Commission, as it will set a precedent for member states collecting VAT on one another’s behalf. The Commission is crossing its fingers that implementation goes without a hitch, because it sees this as the prototype for future coordination, particularly in regard to internet retail distance selling. The Commission is drawing up plans to follow the Electronic services MOSS with a new MOSS for internet retailers selling across the EU, allowing them to file everywhere in the EU through just one VAT registration.

I asked officials whether there were serious objections to the Standard Return and new MOSS from member states, and was frankly expecting to hear them curse the UK for its backwardness, or possibly France. To my great surprise, the leading objector to both projects turns out to be Germany. Extraordinarily, Germany is contesting the Commission’s legal right to develop the standard return at all. It is also, according to my source, dismissive of the Distance Sales MOSS. Perhaps unsurprisingly, Germany is skeptical about the possibility of other member states – Greece, for example – collecting and passing on its tax revenue.

It goes without saying that unless a compromise with Germany is found, Europe’s VAT standardization project is in deep trouble.

And it may be anyway. When I asked a Commission official what would happen if Eurosceptic parties were elected across Europe, and whether it would be easy to continue with the VAT projects if they were, the answer was a wrinkle of the nose, and a slightly despondent shake of the head.

By |May 29th, 2014|