May 31, 2011
On May 31, 2011, Tax Executives Institute submitted the following comments to the European Commission on a Green Paper consultation titled "On the future of VAT: Towards a simpler, more robust and efficient VAT system." The comments were prepared by TEI's European Indirect Tax Committee, whose chair is Jean-Daniel Rouvinez of Tetra Pak International. Contributing substantially to the development of TEI's comments were Lynne Clare of Sony and Siegert Slagman of Philip Morris International, the 2011-2012 chair of the Committee. Jeffery P. Rasmussen, TEI Tax Counsel, serves as staff liaison to the European Indirect Tax Committee, and coordinated the preparation of the Institute's comments.
On 1 December 2010 the European Commission released a GREEN PAPER consultation titled On the future of VAT: Towards a simpler, more robust and efficient VAT system. (1) On behalf of Tax Executives Institute, I am pleased to respond to the consultation questions as well to provide the following summary of the Institute's high-level comments.
Tax Executives Institute (2)
Tax Executives Institute (TEI) was founded in 1944 to serve the professional needs of business tax professionals. Today the organization has 54 chapters in North America, Europe, and Asia. As the preeminent association of business tax professionals worldwide, TEI has a significant interest in promoting sound tax policy, as well the fair and efficient administration of the tax laws, at all levels of government. Our 7,000 members represent 3,000 of the largest companies in the United States, Canada, Europe and Asia.
In 1999, TEI chartered a chapter in Europe (recently extended to include Europe, the Middle East, and Africa in an EMEA chapter), which today encompasses a cross-section of European, Middle Eastern, and African multinational companies. TEI members are accountants, lawyers, and other corporate and business employees responsible for the tax affairs of their employers in an executive, administrative, or managerial capacity. The Institute espouses organizational values and goals that include integrity, effectiveness and efficiency, and dedication to improving the tax system for the benefit of tax payers and tax administrators alike.
The members of TEI generally work for large multinational businesses that operate in corporate groups with numerous VAT registration numbers in multiple countries and large volumes of transactions with third parties and related parties (intercompany transactions) managed by large Enterprise Resource Planning (ERP) information systems. The businesses generally (i) are audited by external accounting firms, (ii) possess strong internal controls in order to satisfy regulatory and legal requirements (such as the Sarbanes Oxley Act in the United States or the Senior Accounting Officer measure in the United Kingdom), and (iii) have a senior finance executive with oversight responsibility for financial, management, regulatory, and tax reporting. We believe the education, training, and experience of our members affords a balanced perspective on the issues raised by the consultation paper.
The European Commission's consultation document raises fundamental questions about the current and prospective application of the European Union (EU) VAT regime. The purpose is to "address options for removing the differences in treatment between domestic and intra-EU transactions and to design a simpler and business-friendly VAT system while allocating revenue to the Member State of consumption, reducing administrative burdens for businesses and limiting collection costs and the scope for fraud." (3)
TEI commends the European Commission for initiating the consultation and is pleased to provide comments to ensure that the VAT system reflects the manner in which business is conducted across the EU and globally. Indeed, the development of the EU's consumption tax policy and administration should not take place in a vacuum. It is important that the European Commission consider the consumption tax policy and administrative developments elsewhere, including, for example, the work of the Organisation for Economic Co-operation and Development (OECD) under the auspices of Working Party 9 and its technical advisory groups.
As a general comment, we believe the current VAT system in the EU is unsatisfactory, principally because of the lack of standard application of the rules across Member States. While initiatives to improve the current VAT system are welcome, the benefits of any proposal will be fully realised only to the extent they are implemented uniformly and consistently by the Member States.
The questions raised in the GREEN PAPER can be grouped around several themes. In some cases, they address issues where revisions of current rules or practices could be implemented rapidly to achieve significant improvements in tax compliance and administration, including the questions relating to the proper interpretation of the current rules. In other cases, the GREEN PAPER asks broader, more fundamental, questions about the structure of the tax--the answers to which will have far-reaching consequences. For example, answers to the questions relating to the place of taxation (i.e., origin vs. destination) will have significant consequences in terms of revenue, administration, and compliance. To provide stakeholders (and the Commission itself) with a sense of priorities, the action items flowing from the consultation should be grouped into categories, taking into consideration the magnitude of costs and benefits of the changes and the timeline for implementation:
* "Quick wins," i.e., initiatives that could be agreed upon and implemented in short order. Examples include prescribing legally enforceable guidelines for interpreting the rules consistently, sharing of best administrative practices by Member States, and a mandatory requirement to accord businesses a relief scheme for VAT on uncollectible bad debts.
* Medium-term actions, i.e., initiatives where consultations with all stakeholders will be necessary to identify, develop, and implement the best solutions. As an example, the Commission should consider revising the rules on cross-border supplies of goods.
* Long-term projects, i.e., initiatives that would entail fundamental changes to the VAT regime. An example would be providing an alternative means of collecting VAT.
We believe the three groups of activities can (and should) progress in parallel, albeit at different speeds. The larger policy questions will require significant consultation and debate, but they should not be left to the side. In other words, work should begin immediately on shaping the long-term future of VAT even though it may take several years of consultations to develop proposals for some areas. Moreover, some short- and medium-term revisions may have a significant effect on larger or long-term ambitions. For example, a successful rollout of the compliance and administrative models initiated in the United Kingdom and the Netherlands (including "horizontal monitoring" and "risk assessment") may affect how (or even whether) it is necessary or advisable--to change the way VAT is collected.
TEI also encourages the Commission to consider carefully the costs and benefits of changes, bearing in mind that major legislative and regulatory amendments require expensive and time-consuming revisions to information technology and recordkeeping systems for both businesses and the tax authorities. Hence, proposed changes should not go forward unless they offer clear and measurable benefits.
Finally, we encourage the Commission to work diligently to finalise the 2010 VAT Package, including revisiting the implementing regulations to ensure that revisions that were not addressed in the first set of regulations, which are effective from 1 July 2011, are finalised; that a vouchers proposal is adopted by the Commission and negotiated by the European Council; that the 2015 changes for e-commerce are dealt with efficiently and with better guidance than earlier tranches. In addition there would be merit in generally revisiting the rules on invoicing, especially electronic invoicing, to standardise them across the EU by reference to Member State best practices.
TEI would welcome the opportunity to meet with the Commission staff to discuss our general comments and specific responses to the questions that follow. The comments were prepared by TEI's European Indirect Tax Committee, whose 2011-2012 Chair is Siegert Slagman. If you have any questions about TEI's comments, please contact Mr. Slagman at +41 (58) 242 6513 (or Siegert. Slagman@pmi.com), or Jeffery P. Rasmussen of the Institute's legal staff at +1 202 638 5601 (or firstname.lastname@example.org).
TEI Responses to European Commission Green Paper
Do you think that the current VAT arrangements for intra-EU trade are suitable enough for the single market or are they an obstacle to maximizing its benefits?
Prefatorily, while there is one Directive, there are 27 sets of Member State legislation and the arrangements for intra-EU trade set forth in the VAT Directive are not applied by all in the same fashion. Indeed, including the European Commission's views, there are potentially 28 different interpretations of the same rules and principles. Without standardised rules, consistently interpreted and applied, it is extremely challenging for businesses to comply. (4) Consequently, the complex system of rates, exemptions, derogations, and options accorded to Member States and the myriad special rules for cross-border transactions present an obstacle to the proper functioning of the single market.
Examples where inconsistent application of the VAT regulations among Member States present challenges are, as follows:
* In chain transactions involving multiple companies located and operating in multiple Member States, the rules for determining which country's VAT regime should be...