Opinion of the Economic and Social Committee on the 'Proposal for a Council Directive amending Directive 77/388/EEC on the common system of Value Added Tax (the Value Added Tax Committee)` (98/C 19/17)

On 11 July 1997, the Council decided to consult the Economic and Social Committee, under Article 99 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Economic, Financial and Monetary Questions, which was responsible for the preparatory work, adopted its opinion on 14 October 1997. The rapporteur working without a study group was Mr Walker.

At its 349th plenary session of 29 and 30 October 1997 (meeting of 29 October 1997) the Economic and Social Committee adopted the following opinion by 108 votes to six and nine abstentions.

1. Introduction

1.1. The main purpose of this proposal is to introduce measures aimed at ensuring the Community-wide uniform application of the common system of Value Added Tax. A secondary aim is to up-date the exemptions from VAT conferred under Article 15 (10).

1.2. Changing the legal status of the VAT Committee

1.2.1. For the common VAT system to meet the requirements of a true Single Market, it is essential that neutrality of taxation be ensured and the remaining obstacles to the free movement of goods and services between Member States are eliminated.

1.2.1.1. In this respect, experience so far, particularly with the operation of the transitional arrangements for the taxation of transactions between the Member States, has shown that differences between Member States in the incidence of the tax and in administrative procedures impair the neutrality of the VAT system and represent major obstacles for businesses wanting to take advantage of the Single Market. This results in part from existing differences in interpretation and application of the common VAT rules between Member States.

1.2.1.2. At present, no implementing powers are conferred on the Commission to make detailed rules, other than as a proposal to Council. Consequently, differences in application of the common VAT system have evolved between Member States, which conflict with the concept of a Single Market.

1.2.1.3. To comply with the requirements of the Single Market, appropriate measures have to be taken to ensure the uniform application of the common VAT mechanism provided for in the Sixth Directive.

1.2.2. When the Sixth Directive was adopted, such measures were not taken. The VAT Committee was established with the purpose of facilitating the uniform application of the provisions of the Directive and enabling closer cooperation between the Member States and the Commission but, in pursuing this objective, the Committee was given very limited means.

1.2.2.1. In this advisory capacity, the Committee, composed of representatives of the Member States and chaired by the Commission, is required to adopt guidelines on questions raised by Member States or the Commission and to examine points on which the Committee must be consulted according to the Directive.

1.2.2.2. Frequently, questions are raised in the Committee on issues relating to the distinction between or classification of goods and services. When such decisions are taken they can have repercussions on where and under what conditions the transaction in question should be taxed.

1.2.3. The guidelines which are adopted by the VAT Committee should result in the provisions of the Directive being applied uniformly throughout the Community but, even where the Committee agrees unanimously on a common interpretation, such decisions are not necessarily adhered to by all Member States.

1.2.3.1. Member States are not obliged to implement guidelines adopted by the VAT Committee because they have no legal status and are not published. Furthermore, the existing guidelines do not constitute any part of the accession agreements for the new Member States.

1.2.3.2. In practice, it is often found that not all Member States adhere to a given guideline. A Member State may decide of its own accord to deviate from the common interpretation but deviations may also result from court decisions which disallow practices that have been based upon common interpretations. Moreover, the Committee's guidelines, having no legal standing, cannot be relied upon by the parties involved in a court case.

1.2.4. Thus, the objective of guidelines, which is to ensure the uniform application of the common VAT system, is frustrated, with the result that, not only traders, but also Member States are left without legal certainty and, for cross-border transactions, exposed to the risk of double taxation or non-taxation.

1.2.5. At present, such matters may be resolved through Community legislation to be adopted by Council. However, this is a very time-consuming procedure and is particularly unsuited to dealing with, for example, issues arising from rapid technological and economic developments.

1.3. Scope of the exemption granted under Article 15 (10)

1.3.1. Article 15 (10) provides for exemptions of supplies of goods and services to diplomatic and consular missions, to international organizations and to NATO forces, but only when these forces participate in the common defence effort.

1.3.2. With the exemption being applicable throughout the Community, adoption of measures adjusting the scope should be limited to cases where a common interest in granting the exemption can be established. This would, for example, apply to NATO activities which fall outside the common defence effort, as in the case where forces of NATO countries and forces of other states participate in activities under the Partnership for Peace Programme.

1.3.3. The exemption is subject to limitations laid down by the Member States hosting the entitled body. In the case of supplies between Member States, right of exemption is established by means of a document.

1.3.4. The exemption is 'with refund`, meaning that the supplier is still entitled to recover the associated input tax and so the exempted goods or services are completely relieved of VAT.

2. The Commission's proposals

2.1. Changing the legal status of the VAT Committee

2.1.1. In order to address the difficulties encountered by traders due to the lack of uniform application and to provide Member States with sufficient legal certainty, the Commission proposes that the VAT Committee be changed from an advisory committee to a committee acting in the framework of the so-called 'regulatory committee` procedure, which, on the basis of drafts submitted by the Commission, delivers its opinions by qualified majority voting.

2.1.1.1. The establishment of the Committee and its working procedure is proposed according to the provisions of Article 2 III, variant (a), of the Council Decision of 13 July 1987 () laying down the procedures for the exercise of implementing powers conferred on the Commission.

2.1.1.2. Where the Committee, acting under the Qualified Majority Voting (QMV) procedure, approved the Commission's proposal, it would become law. The Committee Chairman (i.e. the Commission) could set a deadline for this decision to be taken. Where the Committee rejected the proposal, or failed to deliver an opinion, the Commission could refer it to the Council of Ministers for a decision. The proposal would become law if it were approved by the Council, acting under QMV rules, or if the Council failed to act within three months of the proposal being submitted to it by the Commission. Where the Council rejected the proposal by a qualified majority vote, it would fall.

2.1.2. According to the present proposal, the Commission, assisted by the Committee, would decide on a common application of provisions in the Sixth Directive, particularly where the absence of uniform application could lead to double taxation or non-taxation. Where the Sixth Directive does not regulate an area, or where Member States are left with the option of applying the common VAT system differently, the Commission, assisted by the VAT Committee, would not be in a position to take implementing measures.

2.1.3. Questions of VAT rates, including transitional rates, are explicitly excluded from the scope of the proposed procedure.

2.1.4. In addition to the proposed powers in the framework of the 'regulatory committee` procedure, the VAT Committee would continue to perform its functions as an advisory committee, i.e. examining points on which the Committee, according to the Directive, must be consulted and deciding on questions raised by the chairman or by a member.

2.2. Scope of the exemption granted under Article 15 (10)

2.2.1. The Commission feels that recent political developments have changed the role of NATO and that there have also been changes in international relations which have altered partnerships in international cooperation. It considers that these developments have not been reflected in modifications to the scope of the VAT exemptions granted to such organizations.

2.2.2. To rectify what it sees as a shortcoming, the Commission, assisted by the VAT Committee acting under the regulatory committee procedure, feels that it should be empowered to adopt the necessary adjustments to Article 15 (10) of the Sixth VAT Directive under which exemption is granted to diplomatic and consular missions, international organizations and NATO forces.

2.2.2.1. Within the scope of Article 15 (10), the Commission would have the power to decide to what bodies and in what circumstances exemption should be given. It would also have the right to decide the details, form and contents of the VAT exemption certificate which serves as a supporting document to suppliers making exempted supplies of goods and services to the above-mentioned entitled organizations. In establishing the form and contents of this document, the Commission should be assisted by the VAT Committee, as is done by the Excise Committee in the excise area.

2.2.2.2. With the adoption of the Second Simplification Directive (), the Council has already, in a statement to the minutes, authorized the Committee to establish such a certificate. However, it is felt that a specific delegation of powers to the Commission, assisted by the VAT Committee, would ensure the proper legal status and publication of that certificate.

3. General Comments

3.1. Changing the legal status of the VAT Committee

3.1.1. In its Opinion on 'A common system of VAT - a programme for the Single Market` () the ESC stated that, 'Trade and industry in the EU is hampered by the lack of a common system and by the uneven interpretation and application of the existing VAT Directives by Member States`. It went on to say, 'a central body for the public discussion of common interpretations is required in order that solutions for practical difficulties may be examined at a lower level than the European Court of Justice`.

3.1.1.1. The Committee, therefore, broadly welcomes this proposal as potentially constituting the creation of a forum in which this process can take place provided that there is an adequate mechanism for the participation of businesses, the social partners and other socio-economic interest groups at the policy-formulation stage.

3.1.2. In its Opinion, the ESC added that, 'in order to ensure transparency ... the workings of the VAT Committee should be made more open by inviting tax consultants to participate and by the publication of results`. It reiterates this position.

3.1.3. It also considers that transparency would be further enhanced if the Commission proposals which are to be put to the VAT Committee were made public sufficiently in advance of the date of the relevant committee meeting to enable interested parties to make representations to the members of the VAT Committee.

3.1.3.1. In this context, the ESC notes that the Commission is currently reviewing the role and the functioning of the Advisory Committee on Customs and Indirect Taxation, which is established as a forum for exchanges of information between the business community and the Commission on customs and tax matters. The ESC agrees with the Commission that this committee, which has met infrequently in recent years, could provide an appropriate framework for exchanges of views on a more regular basis, through which the VAT Committee could obtain useful input for its work from the business sector.

3.2. Scope of the exemption granted under Article 15 (10)

3.2.1. The Commission document fails to quote any examples of difficulties which have arisen or might arise from the status quo with regard to this Article and the ESC considers that it has not made a case for the proposed change. Moreover, the ESC feels that questions of eligibility for these exemptions, and their scope, should primarily be matters for political decision.

4. Conclusions

4.1. The ESC accepts the proposition that subsisting differences between the Member States in administrative procedures and regulations impair the neutrality of the tax and constitute a major obstacle to completion of the Single Market.

4.1.1. There are currently more than four hundred committees which operate in the way in which it is proposed that the VAT Committee should function in future. Given that there is a recognized need for achieving greater uniformity in the application and interpretation of the VAT Directives and for ensuring that the development of Community tax law does not take place in a piecemeal fashion, the ESC sees no compelling reason why the VAT Committee should not be reformed in line with the Commission's proposal.

4.1.1.1. Under the implementation procedure, the VAT Committee and the Council of Ministers would each act by QMV in accepting or rejecting the Commission's proposals. This would constitute a significant departure from established practice, since hitherto any decision involving taxation has required unanimity; in view of the fact that all matters relating to VAT rates have been specifically excluded from its remit and that they will remain, together with other fiscal matters, subject to unanimity, as will the approval of the current proposal itself, the ESC accepts the rationale for this change.

4.1.1.2. The ESC considers it essential that Commission proposals which are to be put to the VAT Committee should be published in advance. At present, changes to Community VAT legislation require a directive or regulation and their publication in draft form gives all interested parties an opportunity to comment. This public safeguard should also apply to proposals put to the VAT Committee.

4.1.1.3. The opinions which the VAT Committee delivers, whether acting in its regulatory or advisory capacity, should also be published in the Official Journal.

4.1.1.4. The ESC endorses the proposal to revitalize the Advisory Committee on Customs and Indirect Taxation in order to provide a forum where tax consultants, businesses, the social partners and other interested bodies can make an input to the VAT Committee.

4.2. The ESC does not agree that the Commission, assisted by the VAT Committee, should be given powers to make adjustments to the scope of exemptions granted under Article 15 (10) or to decide which organizations should be eligible for such exemptions but it sees no reason why matters relating to the details, form and contents of the exemption certificate should not be brought within the competence of the reformed VAT Committee.

Brussels, 29 October 1997.

The President of the Economic and Social Committee

Tom JENKINS

() Council Decision 87/373/EEC (OJ L 197, 18. 7. 1987, p. 33).

() Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to Value Added Tax - scope of certain exemptions and practical arrangements for implementing them (OJ L 102, 5. 5. 1995, p. 18).

() OJ C 296, 29. 9. 1997, p. 51.