Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Directive on the common system of value added tax (Recast)’COM(2004) 246 final - 2004/0079 (CNS)
Date: 2004-09-15
Institutions: European Economic and Social Committee
Subjects: VAT, accession to the European Union, derogation from EU law, restriction on competition, small and medium-sized enterprises, tax exemption, tax harmonisation

23.3.2005

EN

Official Journal of the European Union

C 74/21

Opinion of the European Economic and Social Committee on the ‘Proposal for a Council Directive
on the common system of value added tax (Recast)’

COM(2004) 246 final - 2004/0079 (CNS)

(2005/C 74/05)

On 30 April 2004, the Council decided to consult the European Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the abovementioned 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 13 July 2004. The rapporteur
was Mr Burani.

its 411th plenary session (meeting of 15 September 2004) the European Economic and Social

At
Committee adopted the following opinion by 147 votes to six with 10 abstentions.

1. Introduction

The proposal in question (1) differs from the usual work
1.1
of codifying Community legislation. The Commission noted
that the provisions on VAT – originally laid down in the
Sixth Council Directive 77/388/EEC and subsequently amended
on a number of occasions – needed thorough revision. Over
the years, the material had been revised, corrected and supple-
mented a number of times, which had inevitably led to repeti-
tion, unclear provisions and duplication. The text needed to be
amended in such a way as to make it clearer and more compre-
hensible, without altering the meaning or scope of the provi-
sions: this is much more than a mere codification opera-
tion.

in the same way, other amendments have
1.2 Moreover,
been introduced to bring the text into line with the principles
endorsed by the European Parliament, the Council and the
Commission for the production of high-quality legislation.
The new text is being referred to the Council and the European
Parliament for approval: although the amendments are essen-
tially cosmetic, this is not a codification operation but complex
recasting, in which the acts are amended, codified and brought
together within a single legislative text, in accordance with the
2001 Interinstitutional Agreement (2).

The

resulting

proposal

1.3
from the Commission's
impressive work supersedes the Sixth VAT Directive: each
individual article has been revised to make it clearer and more
concise, with the result that there are now 402 articles instead
of 53. The text also has a table of contents now, which makes
it much easier and quicker to consult:
this is certainly a
welcome improvement.

sion's good work and congratulating it on the result: operators
and administrations will obviously benefit
from the faster
consultation and less ambiguous interpretation now possible.
The rapporteur naturally accepts the Commission's statement
that the scope of the new text is in line with the texts
currently in force: a thorough check would be impossible
and, in any case, such a check has already been carried out by
national experts and operators, who were duly consulted.

2.2
Nevertheless, closer scrutiny of the proposal prompts
some basic comments on VAT policy and, more generally, on a
fiscal policy whose expressed goal
is to harmonise the
conditions under which the single market operates. In this
regard, the proposal states (in the fifth recital) that ‘A VAT
system achieves
simplicity and of
the highest degree of
neutrality when the tax is levied in as general a manner as
possible …. It is therefore in the interests of the common
market and of Member States to adopt a common system ….’.

2.3
However, in the following two recitals, the Commission
introduces an initial note of caution: ‘It is necessary to proceed
by stages, since the harmonisation of turnover taxes leads
to alterations in tax structure’. It then states that, even if the
rates and exemptions are not ‘fully’ harmonised, the ultimate
purpose of
(harmonised) VAT is to provide neutrality in
competition‘within each Member State’.

2. The EESC's comments

2.1
Since this is ultimately a recast and not a new directive,
the EESC could confine itself to taking note of the Commis-

(1) COM(2004) 246 final – 2004/0079 (CNS)
(2) OJ C 77 of 28.3.2002

The Committee notes that these points are taken from
2.4
the original text of the Sixth Directive:
if, after almost 40
years, it is felt that there is a need to repeat them, then it must
also be acknowledged that little or no progress has been made
in that time. As regards harmonisation, the EU seem to be
marking time, and there are other signs, mentioned in the
following paragraphs, which do not give cause for optimism.

C 74/22

EN

Official Journal of the European Union

23.3.2005

It should be pointed out, once again,

2.5
that the VAT
system introduced by the Sixth Directive, which is still in use,
is ‘transitional’, and there is no sign of any intention to change
over to a ‘definitiv’e system once and for all. This would seem
to be a clear indication of uncertainty as to the fairness of the
system, which the Committee commented on, making specific
proposals, in its opinion on the place of supply of services (1).

There are further points to be made regarding the
2.6
system of derogations, which – if really necessary – should
still be temporary if a single market is to be achieved. The
most recent derogations were granted to the ten new Member
States, some of them on a temporary basis, and others with no
expiry date. However, other derogations, granted to the
‘second wave’ of Member States (Austria, Greece, Finland,
Portugal, Spain and Sweden), are still in force. In this connec-
tion, it must be pointed out that only some of these appeared
in the directives amending the Sixth Directive, most of them
being ‘concealed’ in the Acts of Accession. One of the merits of
the new directive is that it has revealed all the derogations,
however they were granted.

2.7
There seems to be no plan to discuss the derogations –
including those granted a long time ago – with a view to abol-
ishing them. Not even the founding Member States seem
interested in raising the issue: originally,
too, were
granted derogations which they take care not to call into ques-
tion (at least for as long as the ‘transitional system’ remains),
not least the famous ‘zero rate’ originally granted to two coun-
tries. Far from being abolished,
the ‘zero rate’ has been
extended to a number of new States.

they,

In actual fact, not all the derogations are groundless:
2.8
some of the permanent derogations apply to overseas terri-
tories, islands and outermost regions which were showing signs
of underdevelopment at the time when the decisions were
taken. However, given the amount of time that has passed, it
would be appropriate to review all the exemptions granted to
these regions and ascertain whether the conditions which
originally justified them still remain today.

2.9
Other fairly major derogations concern small enter-
prises: 16 Member States (the new Member States and the
‘second wave’ States) are authorised to grant VAT exemptions
even where turnover exceeds the limits laid down by the Sixth

Brussels, 15 September 2004.

Directive. The Committee does not understand this: even if
exemptions can in some way be justified where the ten new
Member States are concerned, there is no reason why the
other States should continue to be able to grant such
exemptions 12 years on from their accession.

The Committee believes that VAT exemptions for such
2.10
enterprises could amount
to distortion of competition,
although the overall impact may well be limited. The Member
States and the Commission should look into this matter in
greater depth.

3. Conclusions

The Committee

3.1
the Commission on
congratulates
accomplishing a huge task carefully, accurately and, most
importantly, transparently. Without
transparency it would
have been difficult to see how much the rules – which apply
to all as a general principle – are undermined by derogations,
exemptions and ‘differentiation’. Clearly, not all cases of
departure from a principle are groundless, but there would
seem to be a need for the Member States to get down to work
and renegotiate those derogations which are no longer neces-
sary, if possible abolishing them.

The Committee cannot see evidence of any such inten-
3.2
tion:
the larger Member States has already
indeed, one of
expressed general reservations, which could even jeopardise
endorsement of the Commission's proposal. Given past history,
the outlook does not
seem good: a 1996 Commission
communication containing a work programme and a proposal
for harmonising taxes is gathering dust in the Council and has
and the 2000 Communication
never been discussed,
presenting a new VAT strategy does not, in practice, appear to
have met with much success.

3.3
The EESC's intention in issuing this opinion is not to
it is fully aware that
criticise Member States' VAT policies;
there are still many internal economic and political factors
influencing their decisions. The Committee calls for the issue as
a whole to be reviewed in the near future so that a definitive
system can be put in place and one of the greatest remaining
barriers to the achievement of a single market based on
Community rules can be reduced or even removed.

The President

of the European Economic and Social Committee

Roger BRIESCH

(1) OJ C 117 of 30.4.2004