TEI submits letter suggesting EU VAT rate change protocol.

• Position: Tax Executives Institute, value-added tax

On December 15, 2014, TEI submitted a letter to the European Commission discussing the significant challenges businesses face when implementing VAT rate changes. The letter also recommends the creation of a common protocol for VAT rate changes in the EU that would include minimum advance notice, common transitional rules, and alignment between effective dates and established VAT reporting periods. The letter was prepared under the aegis of TEI's European Indirect Tax Committee, whose chair is Jean-Francois Turgeon of Caterpillar SARL. Materially contributing to the development of TEI's comments fellow committee member Jeroen Tinholt. Daniel B. De Jong, TEI Tax Counsel, coordinated the preparation of TEI's letter.

Over the past decade, Member States have changed their VAT rates over 20 times--often with little notice. Implementing these frequent changes presents significant and costly challenges for businesses with operations in the Single Market. Those challenges are magnified when Member States do not provide timely notice of the rate changes or publication of the necessary transitional rules. The lack of any required notice period for VAT rate changes and the use of disparate transitional rules by Member States increases compliance costs for businesses and threatens the principle of neutrality, which is critical to a properly functioning international VAT system. TEI urges the Commission to develop a common protocol for VAT rate changes by Member States that would include, among other guidelines: minimum advance notice, common transitional rules, and alignment between effective dates and established VAT reporting periods.

Tax Executives Institute (TEI) was founded in 1944 to serve the needs of business tax professionals. Today, the organization has 56 chapters in Europe, North and South America, and Asia. As the preeminent association of in-house tax professionals worldwide, TEI has a significant interest in promoting tax policy, as well as the fair and efficient administration of the tax laws, at all levels of government. Our nearly 7,000 members represent over 3,000 of the largest companies in the world.

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 taxpayers and tax administrators alike.

Many TEI members work for large multinational businesses that operate in corporate groups with numerous VAT registration numbers in multiple countries. These businesses generate large volumes of transactions with third parties and related parties (intercompany transactions) that are 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. The education, training, and experience of our members enable them to bring a balanced perspective on the issues raised in this letter.

1. The Complex VAT Rate Change Implementation Process

   Implementing VAT rate changes (1) is a costly, complex, and cross-functional exercise for businesses operating in the EU. Each time a Member State makes a change to its VAT rate, businesses operating in that Member State must analyze the change, implement and test...