CELEX: 51992PC0441
Language: en
Date: 1992-10-27
Title: Proposal for a COUNCIL DIRECTIVE SUPPLEMENTING THE COMMON SYSTEM OF VALUE ADDED TAX AND AMENDING DIRECTIVE 77/388/EEC - SPECIAL SCHEME FOR GOLD

COMMISSION OF THE EUROPEAN COMMUNITIES
                                                C0M(92) 441   final
      mz
                                                Brussels, 2 7  October 1992
                                     Proposal for a
                                   COUNCIL DIRECTIVE
                                 SUPPLEMENTING
                   THE COMMON SYSTEM OF VALUE ADDED TAX
                      AND AMENDING DIRECTIVE 77/388/EEC
                         - SPECIAL SCHEME FOR GOLD -
                             (presented by the Commission)
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 ---pagebreak---                                                                        ^o- -
                        EXPLANATORY MEMORANDUM
                            I. INTRODUCTION
Under the sixth VAT Directive, all transactions relating to gold
carried out by taxable persons are in principle taxable (except those
referred to in Articles 14(1)(j) and 15(11)). However, on the basis
of Article 28(3) (b) and point 26 of Annex F, Member States may, for a
transitional period, maintain existing exemptions relating to gold
other than for industrial use.
In its initial proposal for an eighteenth VAT Directive, the
Commission had envisaged abolishing the said derogation with effect
from 1 January 1986. In the face of objections from Parliament, the
Commission conceded that, in view of the specific nature of this
economic sector, the question of VAT on gold would have to be
examined in more detail and that an ad hoc proposal would have to be
presented.
The eighteenth Council Directive adopted on 18 July 1989 requires the
Commission to present proposals on the abolition of the remaining
derogations in Annexes E and F (including, consequently, the one
relating to gold other than for industrial use), in view of the
distortions of competition which exist or might arise as the internal
market is completed. Most of these remaining derogations are dealt
with in a proposal for a new Directive presented by the Commission to
the Council on 22 July 1992.      In the case of gold, however, the
Commiseion undertook, given the complexity of the subject, to propose
an ad hoc 'Hr*>ctive.
A coherent proposal on gold is made all the more necessary by the
existing differences between Member States which result not only from
the said transitional derogation for so-called investment gold but
also from the wide variety of tax schemes applicable to gold in
general, for example under the simplification measures referred to in
Article 27.
Significant differences can be noted between the Member States'
respective laws and special features of taxation in some Member
States:
-   Some Member States which tax gold are at a disadvantage vis-à-vis
    others which exempt it. There is a tendency to stock gold in the
    latter, while the former in addition find themselves unable to
    track transactions in securities representing that gold.
-   Significant differences in the levels of taxation between
    Member States have given rise to situations in which letter-box
    companies are formed for the purposes of importing gold from low-
    tax or tax-free countries and then reselling it with VAT and
    disappearing before paying over the tax to the Exchequer. Some
    Member States have already been authorized, under Article 27, to
    take measures aimed at limiting this fraud.
 ---pagebreak---                                 - 2 -
In order to, as far as possible, rule out distortions of competition
and fraud, the Commission proposes specific rules through the
insertion into the Sixth Directive of an Article 26a. An Article 28o
has also been inserted- to take account of the transitional
arrangements established by Directive 91/680/EEC on the abolition of
fiscal frontiers. At the same time, point 26 of Annex F to the Sixth
Directive is deleted.
                             II. ARTICLE 1
                      (INSERTION OF ARTICLE 26a)
                               A. SCOPE
The scope covers only supplies and the provision of services.
Importation is not included as a chargeable event because the normal
rules will apply in that case, including the provision in the second
subparagraph of Article 23 of the Sixth Directive allowing an option.
Intermediaries
The services of intermediaries, i.e. persons acting on behalf and for
the account of others, should be made subject to the same
arrangements as laid down for the supplies of goods to which they
relate.    This is because, given the special scheme set up, in
particular the exemption of investment gold, sales and the services
relating to those sales are to be placed on an equal footing so as to
avoid affecting transactions in the gold itself.
Book gold
This is gold represented by securities (gold certificates) or
deposited in accounts (gold accounts). In both cases, the holder is
entitled to a quantity of gold stocked at a financial institution.
Certificates may confer a right of ownership or claim, be registered
or made out to the bearer, and relate to identified or fungible gold.
In the case of an ownership certificate, the issue and any transfers
of the security amount strictly speaking to a supply of goods at the
place where the gold is situated; by contrast, in the absence of any
other provisions (see point D.2. below), physical delivery of the
gold in exchange for the certificate cannot be considered to
constitute a supply of goods because the gold has already been
transferred when the certificate was itself transferred.
In the case of a certificate of claim, the issue and any subsequent
transfers constitute a supply of services (quite distinct from those
of intermediaries).
 ---pagebreak---                                - 3 -
Whatever the nature of these certificates, all these transactions
fall within the scope of the Directive being proposed as the supply
of either goods or services.
Gold accounts, on the other hand, are evidenced by a deposit contract
(supply of a service). This contract may be preceded by a supply of
gold in cases where the depositor does not hand over the gold himself
but buys it at the bank which opens the account. Transfers of that
gold or a part of it to other gold accounts must be regarded as
supplies of goods.     Withdrawal of the gold does not in itself
constitute a chargeable event since the gold has either already been
supplied by the bank or has been handed over by the holder of the
account.   Supplies of gold from a gold account are not explicitly
mentioned because they are covered by the first indent, which deals
with supplies in general.
The futures market and options
Futures contracts embody an obligation to sell or buy a given
(predetermined) quantity of gold at a specified date and at a
variable price.    An option is the right to buy or sell a given
quantity of gold at a set price at a fixed date. These obligations
or rights constitute the supply of services up to the time when
delivery takes place.
                            B. DEFINITIONS
These definitions are intended to delimit the scope of the two tax
schemes described in sections C and D.      The notions of gold for
industrial use or other than for industrial use contained in Annex F
to the Sixth Directive, have been abandoned. This is because it is
considered that the VAT arrangements should not be based on the use
made of the metal (and hence on the buyer's intention).       The new
concept of investment gold (which serves as a basis for exemption) is
intended to take in transactions which, being in nature financial
investments, do not give rise to actual consumption of the metal
either at the final stage or at the stage of industrial use.
Moreover, the notion of monetary gold, which, like that of industrial
gold, is also used in some national laws, remains confined to gold
sold to the Central Banks, in respect of which the Sixth Directive
already provides for exemption with deduction (Articles 14(1)(j) and
15(11)). The latter exemption, which concerns both supplies within
the territory of the country and imports, is justified by the fact
that, in accordance with Directive 88/361/EEC on capital movements,
monetary gold is regarded as forming part of central banks' financial
capital. All the other types of gold, defined in this proposal for a
Directive as investment gold and gold other than investment gold, are
to be regarded as goods.
(a) Gold in general
    Gold is defined by reference to its purity so as to limit the
    scope of the proposal.
 ---pagebreak---                                - 4 -
    Furthermore, the proposal explicitly excludes certain pieces of
    gold and objects in general. This is because the value of non-
    quoted pieces or pieces which do not contain a sufficient
    quantity of gold, like-that of other objects, is determined more
    by factors other than the intrinsic value of the metal (artistic,
    numismatic value, etc.). All these objects are subject to the
    normal arrangements or to the special scheme of Article 32.
    - In the case of pieces which do fall within the scope of the
      proposal, the requirement that they be quoted shows that goods
      are involved whose value changes almost in parallel with the
      price of gold.
    - Other objects may be defined by the Member States themselves.
      This does not seem to give rise to any serious problems in
      relations between Member States.     Differences in rates are
      admissible, within certain limits, even for one and the same
      good, and are not always due to differences between
      Member States in how the good is classified.
(b) Investment gold
    Starting from the definition of gold in general, as given under
    (a), the definition of investment gold calls for the simultaneous
    fulfilment of two conditions: the absence of physical delivery
    ensures that the scheme is confined to transactions which have
    the unquestionably character of a financial investment        and
    investment gold is characterized by the fact that the seller has
    the status of a licensed professional. This is necessary for the
    purposes of control given the proposed exemption for this type of
    gold. It goes without saying that the scheme for investment gold
    will not apply where the sale is by a non-licensed taxable
    person, even where there is no physical delivery.
    Over and above these objective criteria, Member States may
    determine certain characteristics which investment gold must
    have, e.g. its form (ingots, bars, etc.) and the requirement that
    it be stamped.
    The notion of physical delivery may be defined by Member States
    themselves.    However, care must be taken to ensure that the
    deposit of gold with a third party or indeed the seller is not
    used as a pretext for claiming that no physical delivery has
    taken place. This risk should be avoided especially where the
    gold remains deposited with the seller.     If this is the case,
    physical delivery will occur when the buyer is free to take
    possession of the gold at any time without making the
    sel1er/depository responsible for the delivery itself (this is
    the case, for example, where gold is deposited by a buyer using a
    safe belonging to the seller without the seller having a right to
    inspect its contents).
 ---pagebreak---                                - 5 -
(c) Gold other than investment gold
    Where one or other of the conditions and characteristics is not
    met, gold is no longer investment gold, although, provided it
    satisfies the definition given at (a), it does remain within the
    scope of the proposal.     However, it comes under a different
    scheme from that applicable to investment gold.
               C. SCHEME APPLICABLE TO INVESTMENT GOLD
Investment gold is to be exempted with a right to deduct input tax.
Generalized taxation of gold does not seem appropriate where gold is
dealt in for purely financial reasons. This is particularly true for
transactions which do not give rise to physical delivery: if VAT were
charged on top of the selling price, even if it is deductible, the
gold market would be likely to be disturbed.        Among such purely
financial transactions, those carried out using securities are
playing (or are destined to play) an increasingly large role on the
European gold market.    Given the speed at which these securities
circulate, it would be extremely difficult, if not impossible, to tax
the underlying gold, particularly when it is situated in a
Member State other than the one in which the successive transfers of
the security take place. It is true that a similar problem may arise
for other goods; however, the small number of transactions makes all
the difference in the latter case.
Finally, it should be noted that exempting purely financial
transactions reduces the risk of gold escaping to third countries and
makes it easier to keep gold in the legal circuit.
       D. SCHEME APPLICABLE TO GOLD OTHER THAN INVESTMENT GOLD
1. The normal scheme
    As soon as the metal fails to satisfy one or other of the
    conditions or no longer has one or other of the characteristics
    required for it to be classified as investment gold, it
    automatically falls within the category of gold other than
    investment gold. Since no exemption is provided for in that case
    (apart from those of Articles 14(1)(j) and 15(11)), the normal
    scheme applies. However, this scheme is accompanied by a number
    of special provisions, as described below.
    The requirement that the taxable purchaser holds an invoice
    showing his identification number is justified by the need to
    avoid that the taxable purchaser deducts the VAT on his purchase
    of gold and then fraudulently requests a refund under the
    arrangements described in section 4 below.
 ---pagebreak---                                - 6 -
   Application of the scheme requiring taxation obviously means that
   gold situated in a Member State must be taxed even if the parties
   to the contract are not situated there. This is a problem common
   to all goods, and Article 21 of the Sixth Directive lays down
   specific measures to cover the situation.
2. Physical delivery classed as a supply of goods
    It is vital that the physical delivery following a supply
    exempted under the rules for investment gold be treated as a
    supply of goods. This is in order to prevent the gold from being
   used for industrial or private consumption without payment of
   VAT.
    Since there is no ou id pro guo at the actual time when physical
    delivery takes place, it is proposed that reference be made to
    the current market price. This enables all buyers of gold other
    than   investment  gold to be placed on ' the same footing,
    irrespective of when the supply takes place.
3.  The deductible proportion
    Treating physical delivery as a supply of goods artificially
    increases the turnover in respect of which input tax is
    deductible. The new chargeable event has been created solely for
    reasons to do with the taxation technique.    It cannot therefore
    be dissociated from the previous supply which, because it did not
    give rise to physical delivery, was exempted with the right to
    deduct input tax.    In order to prevent the right of deduction
    from being abused, it is proposed that when physical delivery
    takes place the turnover to be given in the numerator and
    denominator of the deductible proportion for such delivery be
    made up solely of the difference between the value of the
    exempted supply of goods and the (current) value of the physical
    delivery (positive or negative difference).
4 to 8. Supplies of gold which have been taxed without a right of
          deduction
    One problem that has been raised is that there would be residual
    tax and double taxation when gold on which a non-deductible tax
    was charged is reintroduced into the economic circuit.
    This drawback is clearly not specific to gold since it generally
    occurs irrespective of the nature of the goods. This is the very
    justification of the special scheme proposed by the Commission
    for second-hand goods, works of art, antiques and collector's
    items.
    On a theoretical level, several solutions might be considered.
    It would     seem useful   to compare   them   and  assess  their
    limitations.
 ---pagebreak---                             - 7 -
The system of generalized refund
The basic idea behind this system is that a scheme which sets out
to tax the margin, while being likely to solve the problem of
double taxation in most cases, does not seem very appropriate in
the case of gold. A closer look at economic reality shows that,
apart from a few rare cases, the number of transactions in
second-hand goods other than gold covered by the margin scheme
when they are introduced into the economic circuit for the second
time is very limited.
By contrast, gold, as an object of investment, can be the subject
of an unlimited number of transactions. It must be recognized
that any system of taxing the margin minimizes but does not
completely eliminate the effects of residual tax: it will
continue to grow the longer the economic cycle simply because tax
on the margin is incorporated into the price and cannot be
deducted by the subsequent buyer. The particularly high value of
gold and the large number of successive transactions to which it
may be subject would amplify this phenomenon.
Moreover, without special measures the margin system would tend
to perpetuate itself. This is because once gold has been sold by
a person who does not have the right of deduction, all successive
sales of that gold by taxable persons would systematically be
subject to the margin scheme.
Some have also pointed to the risk of arriving at a situation in
which the remunerative price of the seller would exceed the price
on the stock exchange (inclusive of tax) and would therefore be
impracticable.
Fears have also been expressed that there might be scope for
fraud since the taxable reseller would have an interest in
artificially increasing the price for his purchases from private
individuals in order to reduce the taxable margin.
Thus, the suggestion has been made by some that residual tax be
eliminated quite generally by refunding it when the gold is
resold to any seller who did not have the right of deduction
 (because he is either a non-taxable or an exempted taxable
person).
The idea of a refund, which might be made either by the State or
by the taxable buyer, is very attractive at first glance because
of its neutrality. It would leave no residual tax whatever the
length of the economic cycle or the status of the persons
 (taxable or non-taxable) in the chain.
 ---pagebreak---                             - 8 -
However, the system of generalized refund has several drawbacks.
(1) Assuming the refund is made by the State, if, for example, a
    private individual-having bought the gold with payment of VAT
    sells it to another private individual, the latter will
    receive it without VAT.
(2) Assuming the refund is made by the buyer, a private
    individual selling gold to another private individual would
    be able to recover the VAT he has paid only by increasing his
    selling price accordingly. This would start another cycle of
    residual tax.   To avoid this, the first private individual
    would have to transfer his right to a refund to the buyer
    (who is also a private individual).     If we imagine a whole
    chain of transactions between private individuals, it is
    apparent how difficult it would be to track this right to a
    refund over time. It is easy to see the risks of fraud which
    would arise if a private individual were to claim a refund on
    the basis of an invoice, even a relatively recent one, and
    the State were unable to carry out any checks on such an
    invoice because, for example, the prescribed time-limit would
    have expired.
    Moreover, a refund is possible only if the private individual
    has received and kept an invoice issued in accordance with
    certain conditions: this might       leave gold    already  in
    circulation outside the system.
The system of limited refund
To avoid the drawbacks linked to the transfer of invoices, one
solution would be to grant a refund to a private seller only
where he sells the gold to a taxed taxable person and where he
has bought that gold from another taxed taxable person (taxable
person -> private individual -> taxable person).
This system, which would eliminate successive transfers of
invoices,   still  presents   the  other   disadvantages   of  the
generalized refund system, in particular the difficulty of
monitoring the right to a refund over time (problem of carrying
out checks), and the risk that gold already in circulation will
be left outside the system.
As for the method of refund (by the State or by the taxable
buyer), the consequences of each procedure have to be examined in
both of the following situations.
 ---pagebreak---                                - 9 -
   (a) Under the definitive scheme :
     (aa) If the choice between the two methods (State or buyer) is
          left to Member"States, the person entitled to a refund
          might find that he is not in fact refunded. This would be
          the case, for example, where a private individual buys
          gold in a State which has opted for refund by the buyer
          and resells it in a State which has opted for refund by
          the public authorities.
     (ab) A scheme which requires that the refund be made by the
          State privileges purchases from non-taxable persons over
          those from taxable persons.    This is because, since the
          non-taxable person is refunded by the State, the buyer
          does not have to prefinance the VAT as he would if he was
          buying from a taxable person.
     (ac) If, in order to avoid the problem referred to in the
          previous indent, a compulsory system of refund by the
          taxable buyer is introduced, other complications arise.
          For example, if a private individual sells to a taxable
          person, that person would be required to produce the
          purchase   invoice  of the private     individual  because
          otherwise the State would have no means of deciding
          whether a refund was justified (given that the private
          individual is not in principle subject to checks).      In
          this context, there is the additional problem that if the
          private individual produces a foreign invoice issued when
          gold was purchased in a Member State other than his own,
          the taxable buyer must convert the amount in question into
          the currency of the transaction.
   (b) Under the transitional scheme
     (ba) If Member States are left to choose between the two
          methods (State or buyer), the consequences are the same as
          referred to at point (aa) above;
     (bb) If a compulsory system of refund by the State is
          introduced, the disadvantage described at point (ab) does
          not occur. In the case of sales between taxable persons,
          the buyer does not have to prefinance the VAT either under
          the intra-Community system or (according to the approach
          indicated in the section on Article 2 - Article 28o) under
          the domestic system; the same goes for purchases from a
          private individual     (who is refunded by the State).
          However, there are problems with checks. In order to make
          sure that the refund is justified, the State must be able
          to impose certain obligations, such as a declaration of
          purchase by a taxable buyer.    It must be recognized that
          the State granting the refund might find it difficult in
          some cases to verify the validity of such a declaration,
          particularly where it is made by a      buyer from another
          Member State.    Moreover, where a sale made by a non-
          taxable person (or a taxable person with no right of
          deduction) is cancelled, the sum refunded by the State to
          the seller should logically be recovered, provided of
3)
 ---pagebreak---                            - 10 -
       course that the State is aware of the cancellation. It
       must be left to Member States to find solutions to these
       problems, relying on mutual assistance.
       On the other hand, the Member State of the buyer will need
       to monitor the purchases of the latter so that it can
       check subsequent supplies. In any case, it is impossible
       from the outset to avoid all risk of undue refund.      It
       should be remembered that this risk already exists in
       other areas, such as that governed by the Eighth
       Directive.
  (be) The objections outlined at point (bb) would mean that all
       obligations, including that of making the refund, would
       have to be transferred to the taxable buyer; this would be
       unacceptable because purchases from private individuals
       would be placed on a less favourable footing (because of
       the need to prefinance VAT) than purchases from taxable
       persons (where this need does not arise owing to the so-
       called reverse-charge mechanism described below in section
       III-l).
The mixed system (limited refund plus margin)
Most of the disadvantages of the limited refund system are due to
the difficulty of checking the right to a refund that is not
limited in time. Hence the need to fix a limit beyond which a
refund will no longer be admitted. Each Member State should be
able to fix this limit by reference to the time-limit it has
established for the purposes of checks, for example.
Provided such a measure is introduced, the system of limited
refund seems to be an appropriate solution to the problem of
residual tax, while avoiding most of the above-mentioned
problems.
Limited refund would be granted:
(a) Where the claimant is a non-taxable person (or a taxable
    person having no right of deduction). A refund would not be
    granted to a taxable person who had been entitled to partial
 ---pagebreak---                            - 11 -
    deduction.    Otherwise many complications would arise.
    Moreover, it is precisely in order to avoid complications
    that Article 13(B)(c) of the Sixth Directive does not exempt
    goods which have been the subject of even minimal deduction,
    thus accepting a degree of double taxation.
(b) Where a non-taxable person (or a taxable person having no
    right of deduction) resells to a taxable person with a right
    of deduction (even partial) gold he has bought from a taxable
    person who invoiced VAT to him.      On resale, it will not
    matter whether the buyer has a right of total or partial
    deduction since he will be able to deduct the amount of the
    refund corresponding to his deductible proportion.
As for the method of refund, an assessment of the pros and cons
suggests that preference should be given, under the definitive
scheme, to refund by the taxable buyer and under the transitional
scheme to refund by the State.
It would seem that this system could work in the majority of
cases. However, a complementary solution should be sought in a
limited number of cases where this system cannot work.
These are as follows:
(a) cases in which a non-taxable reseller (or a taxable reseller
    having no right of deduction) has bought the gold from
    another non-taxable person (or a taxable person having no
    right of deduction); a refund is not possible in this case
    since the person concerned cannot present an invoice
    including VAT made out in his name;
These complications are due mainly to the difficulty of tracking
changes in the deductible proportion. If a refund were granted
to a taxable person having carried out a partial deduction (e.g.
10%), the refund would initially relate to 90%. If, at the end
of the year, the final proportion turned out to be greater than
10%, the taxable person would have to pay back the corresponding
tax which the State would already have refunded under the present
special scheme.    This correction might extend throughout the
adjustment period allowed for capital goods (a bank's gold
reserves might fall into that category).
On the question of resale, it should be noted that the need for
legal certainty suggested redefining the notion of "supply" (for
the purposes of applying the refund scheme) to cover cases of
supply carried out by non-taxable persons. This is because the
"traditional" definition of supply is linked to the taxable
status of the seller.
 ---pagebreak---                               - 12 -
   (b) cases in which a non-taxable reseller (or a taxable reseller
       having no right of deduction) does not present an invoice
       (e.g. because the invoice has been lost or the gold is in
       circulation);
   (c) cases in which the period of validity of the invoice, as
       determined by the Member State for refund purposes, has
       expired.
   In all cases in which refund becomes impossible, it is obvious
   that a non-taxable reseller will transfer his input tax to the
   buyer by incorporating it into the selling price.         In this
   situation, the latter would inevitably be subject to the normal
   VAT scheme (if he is taxable) when he sells the gold himself.
   This would start a new cycle of residual tax and double taxation.
   It is consequently proposed that when a taxable persons resells
   gold in respect of which his non-taxable * seller (or taxable
   seller without any right of deduction) has not claimed a refund,
   the margin scheme will apply (with a right of option for the
   normal scheme when the gold is supplied to another taxable person
   in order to ensure that the latter is able to make a total or
   partial deduction).
   These arrangements would not be difficult to apply because
   - under the definitive scheme (refund by the buyer), the buyer
     can easily assess whether the conditions have been met because
     he can make a refund only on the basis of the purchase invoice
     of the person selling him the gold;
   - under the transitional scheme (refund by the State), the seller
     must hold a declaration by the buyer in order to receive a
     refund.
                           III.  ARTICLE 2
            (INSERTION OF TITLE ZVIb AND OF ARTICLE 28o)
1. The reverse-charge mechanism
   A mechanism under which the taxable buyer is designated as liable
   for the tax (the reverse-charge mechanism) is frequently used as
   a means of combating fraud in certain economic sectors. Given
   the characteristics of the gold market, particularly as far as
   the risks of fraud are concerned, a case can be made for allowing
   such a mechanism to be introduced. It would make it possible for
   the State to keep track of the gold's movements more easily and
   be reasonably certain that the buyer declares his purchase since
   this would be a condition for deduction.
 ---pagebreak---                               - 13 -
   Moreover, it must be remembered that, under the transitional
   scheme, intra-Community transactions between taxable persons
   relating to gold other than investment gold are subject to tax in
   the Member State of destination, the person acquiring the gold
   being liable to pay it. As a taxable person, the latter may
   immediately deduct the tax without any need to pre finance it and
   within the limits of his right of deduction.         Under these
   circumstances, the domestic market might be placed in a less
   favourable position to the extent that taxable persons would do
   better to procure gold on the intra-Community market in order to
   avoid having to prefinance the tax. This risk, which obviously
   applies not only to gold, seems unacceptable in this area given
   the very high value of the metal. The reverse-charge mechanism
   would place domestic and intra-Community transactions on an equal
   footing, provided of course that no prefinancing is required.
   Member States are free to decide whether or not to introduce the
   mechanism on their territory and, if they do so, may determine
   its scope.
2. Application of the mixed system     fH-f+ed refund plus margini
   during the transitional period       ~~
   During the transitional period, the refund system envisaged for
   gold which is supplied after having been taxed without any right
   of deduction is that of refund by the State. The reasons for this
   have been explained above in the chapter entitled "The system of
   limited refund", point (bb).
   The reason for the second subparagraph is given in the same
   chapter (Member States choose the appropriate means to ensure
   that the refund is justified).
   The provision of the third subparagraph is intended to prevent
   the person acquiring the gold from having to verify that the
   refund is justified or to wait and see whether the refund to his
   seller is duly made before deciding which scheme to apply (the
   normal or margin schemes) to his own sales. He is thus relieved
   of responsibility as soon as he has presented his declaration of
   purchase.
 ---pagebreak---                                    M
                              PROPOSAL FOR A
                            COUNCIL DIRECTIVE
          SUPPLEMENTING THE COMMON SYSTEM OF VALUE ADDED TAX
                   AND AMENDING DIRECTIVE 77/388/EEC
                        - SPECIAL SCHEME FOR GOLD
THE COUNCIL OF THE EUROPEAN COMMUNITIES,
Having  regard   to the    Treaty   establishing   the European   Economic
Community, and in particular Article 99 thereof,
Having regard to the proposal from the Commission,
Having regard to the opinion of the European Parliament,
Having regard to the opinion of the Economic and Social Committee,
Whereas, under the Sixth Council Directive 77/388/EEC of 17 May 1977
on the harmonization of the laws of the Member States relating to
turnover taxes - Common system of value added tax: uniform basis of
            1                                              2
assessment,   as last amended by Directive 91/680/EEC,        transactions
concerning gold are in principle taxable although, on the basis of
the transitional    derogation    provided  for   in Article 28(3)(b)   in
conjunction   with   point   26   of  Annex F   to   the said   Directive,
Member States may continue to exempt transactions concerning gold
other than gold for industrial use;
Whereas    the    Eighteenth     Council    Directive    (89/465/EEC    of
               3
18 July 1989),    while abolishing certain other derogations allowed
1   OJ No L 145, 13.6.1977, p. 1.
2   OJ No L 376, 31.12.1991, p. 1,
3   OJ NO L 226, 3.8.1989, p. 21.
 ---pagebreak---                                 -ir-
under the same Article 28, maintained the one relating to gold other
than gold  for industrial use; whereas, in Article 3 of the said
Directive, the Council undertook to review the situation with regard
to the other derogations and, acting on a Commission proposal, to
decide whether these derogations should be abolished, having regard
to any distortions of competition which have resulted from their
having been applied or which might arise from measures to complete
the internal market; whereas the Commission, while providing for the
abolition of most of the remaining derogations in its new proposal
for a Directive of 22 July 1992, has preferred to draw up a specific
proposal concerning gold.
Whereas  application  by   some   Member States  of   the  transitional
derogation provided for in the case of gold other than gold for
industrial use is the cause of certain distortion of competition;
whereas these distortions also arise with regard to industrial gold
given the diversity   of tax    arrangements  applied   by the various
Member States;
Whereas a special scheme capable of reconciling the goal of taxation
with the need to combat fraud and avoid parallel markets should be
established within the context of the completion of the internal
market from   1 January  1993, whereas transactions of a financial
nature should be afforded special treatment under this special scheme
with a view to encouraging investment;
Whereas, given the nature and high price of gold, a mechanism should
be introduced which minimizes the amount of tax included in the price
where the seller has not been able to deduct it, in order to avoid
double taxation,
HAS ADOPTED THIS DIRECTIVE:
 ---pagebreak---                                    -\é-
                                  Article    1
The following Article 26a shall be added to Directive 77/388/EEC.
                                "Article 26a.
                         Special scheme for cold
                                  A. SCOPE
Member States    shall   apply    value     added   tax    to   the    following
transactions, in accordance with the provisions of this Article:
-   the   supply   of  gold  and    the    supply   of   related   services   by
    intermediaries;
    the  issue, transfer    and   negotiation of      securities    involving  a
    right of ownership or claim in respect of gold;
-   transactions concerning gold involving futures contracts or call
    or put options contracts, and the supply of related services by
    intermediaries.
                              B. DEFINITIONS
The  following   definitions    shall     apply  for   the  purposes    of  this
Article.
(a) "Gold"   means  gold  of   a  purity     equal  to   or  greater   than  900
    thousandths and pieces of gold of a purity equal to or greater
    than 900 thousandths and quoted           on one of the markets of       the
    Community.     Gold  objects    as defined     by  the  Member States    are
    excluded from this definition.
(b) "Investment gold" means gold as defined at point (a), whether or
    not represented by securities, provided the transaction does not
    give rise to the physical delivery of the goods and is carried
 ---pagebreak---                                -If-
    out by licensed professionals.   Member States shall determine the
    characteristics of the goods, in particular as regards their form
    and the certification of their degree of purity, the conditions
    for the licensing of professionals and the circumstances in which
    physical delivery   is deemed to have taken place.         Physical
    delivery shall in any case be deemed to have occurred where the
    gold is deposited on behalf of the buyer or for his account with
    a third party or with the seller in the event of the latter no
    longer being considered responsible for the gold in question.
(c) "Gold other than investment gold" means gold as defined at point
    (a) which does not meet one or other of the conditions or
    characteristics referred to at point (b).
               C. SCHEME APPLICABLE TO INVESTMENT GOLD
1. Member States shall exempt the transactions referred to under A
    and concerning investment gold.
2.  Member States shall grant every taxable person the right to the
    deduction or refund of the value       added  tax  referred  to in
    Article 17(2) in so far as the goods and services are used for
    the purposes of the transactions referred to in paragraph 1.
       D. SCHEME APPLICABLE TO GOLD OTHER THAN INVESTMENT GOLD
1.  Subject to the following provisions, the scheme applicable to the
    transactions referred to under A and concerning gold other than
    investment gold shall be the normal scheme.
    As far as supplies of gold referred to in the previous paragraph
    are concerned, the taxable purchaser must, in order to exercice
    his right of deduction, hold an invoice which shows, in addition
    to the   information required   under Article   22(3)(b), his VAT
    identification number.
2.  The physical delivery of gold shall be treated as a supply of
    goods where the last transaction concerning that gold has been
 ---pagebreak---                                   -If -
   exempted in accordance with the provisions under C above.              The
   taxable amount shall be the price of the gold resulting from the
   selling   rate   obtaining   on   the  most   representative    market  or
   markets in the Member State concerned at the time when the tax
   falls due, or from a rate determined by reference to that or
   those markets, in accordance with the procedure laid down by the
   Member State in question.        Such supply shall be deemed to have
   been   carried   out  by  the   taxable   person   who   carries  out  the
   physical delivery.
3. For the purposes of calculating the proportion deductible under
   Article 17,    the   amount  of    the  turnover   attributable    to  the
   delivery referred to in paragraph 2 shall be taken into account
   only within    the   limits of the difference       between   the  taxable
   amounts of the two transactions referred to in the first sentence
   of that same paragraph.
4. Member States shall grant to any non-taxable person             or to any
   taxable person not having had any right of deduction a refund of
   the value added tax charged on his purchase of gold,              provided
   that the gold is supplied by that same person to a taxable person
   having a right of deduction and established            in the   Community,
   hereinafter referred to as the taxable purchaser.
   For the purposes of the previous subparagraph, supply shall be
   considered to constitute the transfer          for consideration of the
   right to dispose of the gold as owner.
5. The refund    provided   for  in paragraph     4  shall   be made   by the
   taxable purchaser in accordance with the following conditions:
    (a) the taxable purchaser shall draw up, on behalf of the person
        carrying out the supply, an invoice or other document serving
        as   an   invoice    in   accordance    with    the   provisions   of
        Article 22(3);
    (b) the taxable purchaser shall procure and retain the original
        copy of the invoice or other document serving as the invoice,
        drawn up in accordance with Article 22(3), on which the tax
 ---pagebreak---                                    - % -
       to be refunded       shall be     indicated.    Member States shall
       determine the time-limit beyond which the refund shall no
        longer be permitted.
6. In  the    situation   provided    for   in  paragraph   5,  the    taxable
   purchaser shall be authorized, in accordance with the provisions
   of Article 17 and in line with the procedures laid down by the
   Member States, to deduct the amount he has refunded               from the
   value added tax for which he is liable.
7. Where no refund is made, the taxable amount for the subsequent
   supply    carried   out   by   the   taxable   purchaser   shall    be  the
   difference between the selling price exclusive of value added tax
   and the purchase price including tax.
   However, Member States may, in order to simplify collection of
   the   tax    and  subject    to   the   consultation   provided     for  in
   Article 29, adopt as the taxable amount the difference over each
   tax period between the total amount of supplies exclusive of tax
   and the total amount of purchases including tax.           Application of
   this provisions may not lead to distortions of competition.
   The tax attributable to the supplies referred to in the previous
   subparagraphs may not be separately indicated on the invoice or
   other document serving as the invoice.         In any case, this tax may
   not be deducted at the subsequent stage.
   The taxable purchaser, as referred to in this paragraph, may, for
   each   of   his  supplies    to taxable     persons  having   a right    of
   deduction, opt for the normal value added tax scheme.
8. Where   the normal     scheme    and the    special  scheme   are   applied
   jointly, the taxable purchaser shall keep his accounts in such a
   way as to enter separately the transactions subject to each of
   these schemes, according to the procedures laid down by each
   Member State."
 ---pagebreak---                                     - XP-
                                   Article    2
The   following   Title    XVTJb   and     Article 280    shall    be  added   to
Directive 77/388/EEC.
                                  "TITLE XVlb
                       Transitional scheme for gold
                                 Article     280
Without   prejudice   to   other    Community      provisions,    the   following
provisions shall apply during the transitional period referred to in
Article 281.
1.  By   way  of   derogation     from    Article 21(1) (a),     as   amended   by
    Article 28g, where a supply is made to a taxable person having
    the right    of deduction, Member States may,             according   to the
    procedures and conditions they lay down, designate the purchaser
    as liable for the value added tax.               Where they take up this
    option, Member States shall take the measures necessary to ensure
    that the person designated as liable meets the obligations of
    submitting   a   return    and   paying     the  tax   in   accordance   with
    Article 22.
2.  By way of derogation from Article 26a(D)(5), the refund referred
    toin the said paragraph shall be made by the public authorities.
    This refund and any decisions relating to it shall be carried out
    in accordance with Article 7(4) of Directive 79/1072/EEC.                  In
    order to qualify      for the refund, a non-taxable person or a
    taxable person having no right of deduction shall                  submit an
    application accompanied by:
    - the original copy of the invoice, made out in accordance with
      Article 22(3), on which the tax to be refunded shall be stated;
      Member States shall determine the time-limit beyond which the
       refund shall no longer be permitted;
 ---pagebreak---                                 -H-
    - a declaration issued by the taxable purchaser certifying that
      the purchase has taken place.
    Member States shall take the measures necessary to ensure that
    tax refunded is recovered where it has been unduly refunded or
    where a supply was cancelled.
    For the purposes of the scheme applicable to a subsequent supply
    by the taxable purchaser, the refund shall be deemed to have been
    made as soon as the taxable purchaser has issued the declaration
    provided for in the second indent of the first subparagraph. "
                               Article   3
Point 26 of Annex F to Directive 77/388/EEC shall be deleted.
                               Article   4
1. Member States    shall   adapt    their    present   value   added   tax
    arrangements to this Directive.
    They   shall  bring   into   force     such   laws,   regulations   and
    administrative provisions as are necessary for their arrangements
    thus adapted to enter into force on 1 January 1993.
2.  Member States shall inform the Commission of the provisions which
    they adopt to apply this Directive.
3. Member States shall communicate to the Commission the texts of
    the provisions of national law which they adopt in the field
    governed by this Directive.
4.  When Member States adopt     such measures they       shall  include a
    reference to this Directive or shall accompany them by such a
    reference on the occasion of their official publication.            The
    manner in which such references shall be made shall be laid down
    by the Member States.
 ---pagebreak---                                -l%-
                              Article 5
This Directive is addressed to the Member States,
Done at Brussels,
                                        For the   Council
                                        The   President
 ---pagebreak---                                                                      li
                          Financial statement
Under the present proposal, investment gold will be exempt from VAT
with deduction of input tax. At the moment, some Member States tax
such gold while others exempt it under a derogation from the sixth VAT
Directive that permits exemption on a transitional basis for "gold
other   than  gold   for  industrial  use". Since    this  transitional
derogation results    in financial compensation being paid to the
Communities by the beneficiary Member States, general application of
the exemption will give rise to a fall in own resources owing to the
fact that compensation will no longer be payable.
As regards gold not classed as investment gold, the present proposal
provides for generalized taxation. For such gold, the scope of
taxation will need to be extended (boosting own resources) since
certain   transactions which   are exempt     at  the moment   in some
Member States as investment gold would, under the new scheme, have to
be taxed (e.g. sales of ingots or pure gold with physical delivery of
the metal).
 ---pagebreak---                                                                            M
                 Assessment of impact on SMEs and employment
The purpose of the present proposal for a Directive is twofold:
-   to abolish a transitional provision in Directive 77/388/EEC allowing
    some Member States to continue to exempt gold other than gold for
     industrial use-,
-   to lay down Community rules for a special VAT scheme applicable both
    to investment gold and to gold other than investment gold.
I. Administrative obligations on businesses arising from application of
    the present Directive
    Obligation to submit a tax declaration also in cases where a
    Member State exercises the option provided for in Article 22(9) of
    the sixth VAT Directive, namely, exemption from all obligations for
    businesses carrying out only exempt transactions.
 I I .      Advantages for businesses
          Arrangements for investment gold: a firm selling investment
          gold does not invoice VAT and can deduct VAT paid on its
          purchases; a firm buying investment gold does not prefinance
          VAT;
          Arrangements for gold other than Investment gold: taxation of
          all transactions involving such gold allows businesses to
          deduct    VAT   paid  on   their  purchases;  moreover,   for  a
          transitional    period, businesses buying such gold can be
          exempted from prefinancing VAT by the Member State concerned.
          Residual tax will be abolished by virtue of taxation and, in
          the case of gold which is reintroduced into the economic
          circuit after being taxed without any right to deduct input
          tax, will be significantly reduced.
 III.     Are there any drawbacks for businesses    in terms of additional
          costs?
     None
 IV.       Impact on employment
     None
 V. The two sides of industry have not been consulted.
 VI.      The present proposal is necessary in order to combat fraud and
           to avoid the distortions of competition that may result from
          divergences between Member States' laws.
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                                                                     ISSN 0254-1475
                                                              COM (92) 441 final
                                                      DOCUMENTS
EN                                                                              02
                                 Catalogue number : CB-CO-92-458-EN-C
                                                             ISBN 92-77-48366-0
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