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)'
Date: 1997-10-29
Institutions: European Economic and Social Committee
Subjects: VAT, application of EU law, approximation of laws, committee (EU), tax harmonisation

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Official Journal of the European Communities

21. 1. 98

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 uni-
form 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 Com-
mittee 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.

The guidelines which are adopted by the
1.2.3.
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.

In practice, it is often found that not all
1.2.3.2.
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.

Thus, the objective of guidelines, which is to
1.2.4.
ensure the uniform application of the common VAT

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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.

provisions of Article 2 III, variant (a), of the Council
Decision of 13 July 1987 (1) laying down the procedures
for the exercise of implementing powers conferred on
the Commission.

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 pro-
cedure 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 through-
out 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.

The exemption is ‘with refund’, meaning that
1.3.4.
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.

2.1.1.2. 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.

According to the present proposal, the Com-
2.1.2.
mission, 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 cooper-
ation. It considers that these developments have not
been reflected in modifications to the scope of the VAT
exemptions granted to such organizations.

The establishment of the Committee and its
2.1.1.1.
working procedure is proposed according to the

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

p. 33).

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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.

the Council has already,

2.2.2.2. With the adoption of the Second Simplifi-
cation Directive (1),
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

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.

In its Opinion, the ESC added that, ‘in order
3.1.2.
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.

3.1. 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’ (2) 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’.

3.2. Scope of the exemption granted under Article 15

(10)

The Commission document fails to quote any
3.2.1.
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.

The Committee, therefore, broadly welcomes
3.1.1.1.
this proposal as potentially constituting the creation of

4. Conclusions

(1) 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).

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

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.

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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
the VAT Directives and for ensuring that
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 Com-
mission’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 Com-
mission proposals which are to be put to the VAT

Brussels, 29 October 1997.

Committee should be published in advance. At present,
changes to Community VAT legislation require a direc-
tive 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.

The President

of the Economic and Social Committee

Tom JENKINS