WRITTEN QUESTION E-0631/96 by Jaime Valdivielso de Cué (PPE) to the Commission (15 March 1996)

Subject: Future VAT regime and deficit in the application of the existing transitional regime

The creation of the single market in the EU, effective as from 1 January 1993, introduced a new regime for VAT in respect of trade between the Member States.

This regime was intended to be transitional, with the tax payable at the point of use. The legislation required the Commission to submit proposals for a permanent regime by the end of 1994, with a view to its introduction at the beginning of 1997. However, the Commission has still not published any such proposal. As things stand, there is no chance of fulfilling the timetable for adoption of the permanent regime sketched out in the sixth VAT directive: it cannot now come into force before 1998 at the earliest. When does the Commission intend to submit a final proposal?

The transitional regime is characterized by a substantial deficit, in spite of harmonization; those Member States which are net exporters and suppliers of goods in the Union are at a serious disadvantage vis-à-vis those which are not. Exporters are owed the sums paid in VAT by their tax administrations. This situation is aggravated as the tax administrations are obtaining a certain amount of revenue from VAT, thanks to the international activity of the enterprises of their own countries.

One of the proclaimed virtues of VAT is its neutrality: this aspect should be extended and made a reality. It is essential to eliminate the effective distortion and deficit caused by the present transitional regime to those Member States and territories which make the greatest contribution to the internationalization and interrelatedness of the EU economy, by endowing the legislation governing taxation with the requisite mechanisms.

What plans, if any, does the Commission have regarding VAT, and what mechanisms has it in mind to prevent distortion of this kind?

Answer given by Mr Monti on behalf of the Commission (29 May 1996)

The very principle of the transition to a definitive system of taxation is formally set out in Article 28L of the Sixth VAT Directive, ((Council Directive 77/388/EEC (OJ L 145, 13.6.1977), as amended by Council Directive 91/680/EEC (OJ L 376, 31.12.1991). )) which expressly states that 'the transitional arrangements shall be replaced by a definitive system for the taxation of trade between Member States based in principle on the taxation in the Member State of origin of the goods or services supplied'.

In its report on the operation of the transitional arrangements for charging VAT in intra-Community trade, ((COM(94) 515 final. )) the Commission clearly demonstrated the constraints and limits of the current system, to which it fully intends to provide an answer in its proposals on the definitive VAT arrangements.

It very rapidly became clear that those proposals could not be limited simply to a revision of the taxation rules introduced for the transitional period and that in-depth work had to be carried out on the very principles underlying the operation of the common VAT system as a whole.

That work has been of such a scale that the Commission was unable to present its proposals by 31 December 1994 as initially required by Article 28L. It was necessary to explore all possible channels in order to be able, on a fully informed basis, to identify the one most likely to lead to a VAT system that was suited to the needs of the internal market.

Under these circumstances, the Commission intends shortly to present a document setting out the broad lines of the system it proposes to put forward and its programme of work for introducing the definitive arrangements.