Opinion of the Economic and Social Committee on the 'Proposal for a Council Directive amending Directive 77/388/EEC as regards the determination of the person liable for payment of value added tax'
Date: 1999-02-24
Institutions: European Economic and Social Committee
Subjects: ESC opinion, VAT, single market, taxpayer

C 116/14

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Official Journal of the European Communities

28.4.1999

Opinion of the Economic and Social Committee on the ‘Proposal for a Council Directive
amending Directive 77/388/EEC as regards the determination of the person liable for payment of
value added tax’

(1999/C 116/04)

On 22 December 1998 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 and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 8 February 1999.
The rapporteur was Mr Walker.

At its 361th plenary session (meeting of 24 February 1999), the Economic and Social Committee adopted
the following opinion by 64 votes to six, with six abstentions.

1.

Introduction

1.1.
The present system of VAT is so designed that the tax
receipt is directly collected by the Member State on whose
territory the consumption of the goods or services sold is
deemed to have taken place. In order to ensure this direct
allocation of the tax, complex rules have been laid down to
determine the place where a supply of goods or of services is
deemed to be consumed and where it must, consequently, be
taxed.

1.2.
As a result of the machinery set up by this system,
traders engaged in intra-Community economic activities are
often faced with tax obligations in several Member States
with regard to identification, the submission of returns and
payment. These obligations are usually perceived as a barrier
to the free movement of goods and services which is a
fundamental principle of the Single Market.

According to the principle set out in Article 21 of the
1.3.
Sixth VAT Directive,
taxable
transactions in any given country is himself the person liable
to pay tax to the authorities in that country.

the trader who carries out

1.3.1.
Two important exceptions modify this general prin-
ciple in relation to intra-Community trading; in the case of
triangular transactions(1), the person liable for payment of the
tax must be the person for whom the supply of goods is
intended and in the case of certain types of supplies of services
(the services of accountants, consultancy bureaux, lawyers, the
supply of services in the intra-Community transport of goods
etc.), the person liable for payment of the tax is the recipient
of the service.

1.3.1.1.
Apart from these exceptions, the universal prin-
ciple is that the person liable for payment of the tax is the
person who carries out the taxable transactions, whether or
not he is established within the territory of the country.

1.4.
However, where the trader is not established in the
Member State where he carries out taxable transactions, Article
21 gives Member States the option of requiring payment of
the tax from someone else. A tax representative or the person
for whom the supply of goods or services is intended may be
designated for this purpose.

1.4.1.
This option is designed to satisfy two concerns:
firstly, it enables non-established taxable persons who may not
be familiar with the law, the language or the administrative
structure and procedures of the country concerned to delegate
to a third party or to the person for whom the supply of goods
or services is intended the obligations arising out of VAT
legislation; secondly, it enables the Member State concerned to
obtain guarantees that these obligations will actually be met.

1.5.
Article 21 also permits Member States to provide that
someone other than the person liable for payment of the tax
is held jointly and severally liable for payment of the tax.

1.6.
The main features of the present legislation as regards
the determination of the person liable for payment of the tax
are, therefore, (a) its extreme complexity and (b) the wide
differences in its actual application, because of the many
options the Member States are allowed.

1.7.
The first source of difficulty relates to identification of
the person liable for payment of the tax for each transaction,
since this will depend both on the type of transaction carried
out and the Member State in which it is transacted.

(1) A triangular transaction exists where enterprise A established in
Member State A sells goods to enterprise B established in Member
State B which itself sells them to enterprise C established in
Member State C: the goods are then directly transported from
Member State A to Member State C. In this case and on certain
conditions, enterprise B is exempted from registering for VAT in
Member State C, and enterprise C is then designated as the person
liable for payment for the tax.

The second source of difficulty concerns the wide
1.7.1.
variety of obligations incumbent on the tax representative,
where the Member State requires one to be appointed. In some
Member States, he has to be approved by the administration
and is also sometimes required to pay a surety. Even the
concept of tax representative is understood very differently
from one Member State to another, so that the specific
obligations it implies are different.

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1.7.2.
Lastly, the financial cost for a trader in appointing a
tax representative is not insignificant. A representative will
only consent to assume the taxable person’s obligations and
liabilities in return for remuneration.

2.2.1.

However, there are exceptions to this general rule :

a)

the person, referred to in Article 28c (E) (3), for whom a
triangular payment is destined;

1.8.
Although these difficulties are not new, they represent,
in the context of the Single Market, a major obstacle to the
expansion of intra-Community trade and they bear particularly
heavily on small and medium-sized enterprises. Moreover,
since the abolition of border checks, the incidence of Member
States requiring the appointment of tax representatives has
increased.

b)

the customer for services covered by Article 9 (2) (e);

c)

the customer,
identified for VAT purposes within the
territory of the country, for whom a service referred to in
Article 28b (C), (D), (E) and (F) is performed.

These all remain persons liable for payment of the tax.

1.9.
This is why the Commission, in a working document
dated 14 May 1997, indicated VAT obligations as an area to
be examined in the second phase of the SLIM (Simpler
Legislation for the Internal Market) initiative. The Commission
felt that there was a need to give early consideration to
simplification measures which would reduce the burden on
Business in the short term.

1.9.1.
The results of the work carried out are contained in
the Commission report on the SLIM project, approved by the
Council (Internal Market) on 27 November 1997, which, inter
alia, recommends that the rules applicable to tax representation
should be modified.

2. The Commission’s proposals

2.1.
The present proposal for a Directive supports the idea
that there should be only one person liable for payment per
type of transaction, irrespective of the Member State in which
that transaction is carried out.

2.1.1.
It is stated as a general principle that the taxable
person who carries out the taxable transaction must be the
person liable for payment of the tax, whether or not that
taxable person is established within the territory of the Member
State in which the transaction takes place.

2.1.2.
The Commission sees the main advantage of this as
being the simplicity of a more harmonized Community
legislation, which all traders should be able to understand, so
that there will no longer be any doubts as to the determination
of the person liable to pay the tax. It is also seen by the
Commission as constituting a major step forward in reducing
the burdens on Business and, in particular, on SMEs.

2.2.
The recipient of the goods or the purchaser of the
service could no longer be designated as the person liable for
the payment of the tax; this meets the concern, consistently
expressed by the Commission, that the ‘reverse charge’ system,
which runs counter to the principle of fractionated payments,
should not be developed.

2.2.2.
In addition, Member States would still have the
option of designating a person other than the person liable for
payment of the tax as jointly and severally liable for payment
of the tax. The only change is a statement to the effect that this
option must not give rise to provisions which create a
disadvantage specifically for non-established taxable persons.

2.3.
The existence of a legal framework laid down by
Directives 76/308/EEC and 77/799/EEC, organizing mutual
assistance between the Member States, removes the justifi-
cation for the existence of provisions transferring all the
obligations of the non-established taxable person to a third-
party tax representative. The Commission acknowledges that
Member States still make little use of these assistance arrange-
ments. This is why it recently presented a proposal(1) designed
to improve considerably the way in which they function.
This should make it easier to recover the tax owed by a
non-established taxable person.

It will still be possible for the Member States to
2.3.1.
require the designation of a tax representative in a limited
number of duly authorized cases.
In the cases of non-
established taxable persons who are nationals of countries
with which the Member State has no agreement providing for
mutual assistance procedures similar to those which exist
within the Community and which are laid down by Directives
76/308/EEC and 77/779/EEC, Member States may continue to
require that a tax representative be designated as the person
liable for payment of the tax instead of the non-established
taxable person. This possibility would not, however be regard-
ed as being justified where that taxable person was engaged
only in activities exempt under Articles 13 and 15 of the Sixth
Directive, i.e. where no actual recovery of a tax debt was
involved.

2.4.
The principle that the non-established taxable person
must be the person liable for payment of the tax would not
prevent that person (or an established taxable person) from
appointing an agent to act on his behalf in complying with the
obligations laid down by Article 22 of the Sixth Directive if he
is unable to do so himself because of linguistic, administrative
or organizational barriers. For the sake of transparency, he
must inform the administration of the agent’s name and the
taxable person would be responsible for the agent’s actions
vis-à-vis the administration.

(1) COM(1998) 364 final, 25.6.1998.

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3. General comments

In opinion after opinion, the ESC has consistently
3.1.
stated its support for the SLIM initiative. It reiterates that
position again and therefore welcomes this Commission
proposal as being entirely in line with the objectives of the
SLIM project.

3.2.
The Committee has also frequently expressed its con-
cern that, because of the differences in the way in which VAT
is applied and administered in the various Member States, the
single market is effectively segmented into fifteen different tax
areas.
that
It has, on numerous occasions, pointed out
differences in procedures and the interpretation and appli-
cation of the common VAT rules between the Member States
create more difficulties for Business and constitute a greater
barrier to intra-Community trade than variations in the VAT
rates.

For this reason, the Committee welcomes any pro-
3.2.1.
posal, such as the present one, which is designed to bring
about an improvement, however small, in this situation.

Such measures reduce the compliance costs for busi-
3.3.
ness and, by introducing a higher degree of uniformity, create
a climate of greater certainty for traders and Member State
administrations alike; they therefore contribute to the develop-
ment of the Single Market.

3.4.
The ESC accepts the proposition that the taxable
person who carries out a taxable transaction should logically
assume the liability for payment of the tax. It considers that
ideally, there should be as few exceptions as possible to this
general rule.

4. Specific Comments

Under the proposed Directive, the recipient of the
4.1.
goods or the purchaser of the service(s) could no longer be
designated as the person liable for payment of the tax, except
in certain specified circumstances.

4.1.1.
The Committee has no problem with this as a general
principle but notes the Commission’s concern that the ‘reverse
charge’ mechanism should not be developed and the import-
ance which the Commission attaches to ‘continuing to observe
the principle of fractionated payments’.

4.1.2.
In its Opinion ‘A common System of VAT a
programme for the Single Market’(1) the Committee stated that
‘The ESC believes that, even if a decision is eventually taken to
retain the fractionated payment system, alternatives should be
considered, especially as some of them may well improve the
cash flow of SMEs’. The Committee reiterates this position.

(1) OJ C 296, 29.9.1997, p. 51.

4.1.3.
Permitting transactions between registered traders to
be conducted free of VAT would be a greater measure of
simplification and would do more to reduce the compliance
burdens for Business than any other conceivable reform. The
Committee is aware that there would be significant problems
to be overcome in devising a system with adequate safeguards
and accepts the possibility that such difficulties might, in the
event, prove to be insuperable but it considers that this
should not be taken for granted and believes that all feasible
alternatives should be carefully examined before a final
decision is made.

4.1.4.
It is likely that many of the difficulties envisaged in
departing from the principle of fractionated payments would
be reduced, or even eliminated, by closer approximation of
in any case, be an
VAT rates. As an approximation will,
essential prerequisite of the new common system of VAT
based on taxation in the country of origin, it appears possible
that such an arrangement might be incorporated in the new
common system of VAT and the Committee urges the
Commission to explore this possibility fully at the appropriate
time.

The Committee accepts the necessity for the exceptions
4.2.
which the Commission has elected to retain to the general
principle that the recipient of the goods or purchaser of the
service(s) can not be the person liable for payment of the tax
and agrees with the Commission that, as these exceptions are
clearly defined and mandatory for the Member States, they
are unlikely to stand unduly in the way of harmonized
implementation of the legislation.

4.3.
The Committee is of the opinion that the vast majority
of traders who carry out taxable transactions in a country in
which they are not established will be forced to continue to
employ an agent to fulfil their obligations to the tax authorities
in that country, because of their lack of knowledge of the
language,
the law and the
administrative structure. This is particularly true of SMEs.

the procedures,

the customs,

4.3.1.
As the agent appointed will usually require to be a
national of the country in which the transactions have taken
place,
this will continue to involve traders in additional
expense and administrative overheads but the Committee
accepts that this should be less than they will incur at present
where there is a need to appoint a tax representative who
assumes the trader’s liabilities.

4.4.
The Committee welcomes the fact that Member States
will no longer be able to require the appointment of a
in limited and clearly-specified
tax representative, except
circumstances, but notes that they will still have the option to
designate a person other than the person liable for payment of
the tax as being jointly and severally liable for payment of the
tax. The only restriction on the exercise of this option is a
statement to the effect that it must not give rise to provisions
which create a disadvantage specifically for non-established
taxable persons.

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4.4.1.
The Committee questions the need to retain this
option and hopes that Member States will not take advantage
of it to negate the effects of this proposed Directive by
stipulating that where a trader appoints an agent, whether it
be a person or a firm, to act on his behalf in fulfilling his
obligations to the VAT authorities that agent shall be jointly
and severally liable with the trader for payment of the tax,
regardless of whether or not the trader is established in the
territory of that Member State.

4.4.2.
The Committee also feels that the scope granted to
Member States to designate a person other than the person
liable for payment of the tax as being jointly and severally
liable for payment of the tax is rather wide-ranging and should
be more clearly delineated.

4.5.
The Committee notes with approval that the proposed
directive is not intended to encroach on the freedom of the
Member States to determine the person liable for payment of
the tax on importation.

5. Conclusions

5.1.
ing a fundamental

The ESC welcomes the proposed Directive as constitut-
improvement on the existing position,

Brussels, 24 February 1999.

which will reduce the burdens imposed on Business by
compliance costs, facilitate the development of the Single
Market, create a climate of greater certainty for traders and
national administrations alike and pave the way for the
introduction of a new common system of VAT.

5.2.
It has some concern that these benefits might be
impaired or nullified if Member States exercised their option
to designate a person other than the person liable for payment
of the tax as being jointly and severally liable for payment of
the tax in such a way as to make this a general requirement
for all traders, both non-established and established, who
appointed an agent to act on their behalf in complying with
their statutory obligations. The Committee expresses the hope
that Member States will not act in this way.

5.3. Whilst it supports the present proposal as constituting
an improvement on the present situation the Committee
reiterates the position which it has adopted in numerous
previous opinions to the effect that modifications to the
existing transitional system cannot do more than tinker with
problems which can only be fully and finally resolved by the
introduction of a new definitive system of VAT : it expresses,
once again, its concern at the length of time which it is taking
to bring thus about and urges the Member States to adopt a
constructive and cooperative approach to the system of VAT
reform.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI