VAT (KDV)

The following pages contain a compilation of legislative and non-legislative documents of major political and strategic relevance to value added tax in the European Union as well as references to public VAT consultations and articles written by Commission staff:

·       Legislation recently adopted

·       Legislation proposed

·       Communications

·       Table of derogations

·       Reports published

·       Public consultations

·       Miscellaneous articles 

* VAT: more uniform application of common EU rules

The Council on 17 October 2005 adopted a Regulation that ensures more uniform application of the common VAT rules in the EU. The Regulation gives legal force to a number of agreed approaches to elements of VAT law in such areas as "electronically supplied services", the place of supply of different types of services, and the scope of exemptions from VAT, thus providing transparency and legal certainty both for traders and for national administrations. Differences in the practical application by the Member States of the common VAT rules constitute obstacles for firms wishing to take advantage of the Internal Market.

The Regulation, agreed by unanimity, will help to ensure that all Member States apply some common VAT rules laid down in the Sixth VAT Directive (77/388/EEC) more consistently. Although the Directive provides the general framework for an EU-wide system of VAT, it does not contain rules for the application of the system.

The Regulation covers VAT law relevant to, amongst other things, the place of taxation of various types of services; the exemption of specific goods and services from VAT; the amount to be considered the "taxable amount" for VAT purposes; the definition of electronically supplied services; and accounting details for the special VAT arrangements for non-EU suppliers of electronic services.

Until now, consistency in the VAT treatment of a limited number of specific cases has been reached through guidelines drawn up by experts from Member States working with the Commission in the advisory "VAT Committee". These guidelines have no legal status and are not, therefore, binding on tax administrations. As a result of this Regulation some of the guidelines are now legally binding.

The Regulation will enter into force on 1 July 2006, although one Article, concerning the definition of the "taxable amount" will enter into force earlier, on 1 January 2006. The Regulation is based on a Commission proposal of October 2004 (press release IP/04/1302).

The text of the implementing Regulation for the Sixth VAT Directive is here . See the press release of the Council.

  * VAT Legislation proposed

This page contains legislative VAT proposals tabled by the European Commission over the past years.
You will find a complete list of proposals for new VAT legislation in EUR-Lex.

2006

COM (2005) 704 Proposal for a COUNCIL DECISION Authorising Lithuania to apply a measure derogating from Article 21 of the Sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 17/01/2006

2005

COM (2005) 697 Proposal for a Council Decision authorising the Kingdom of Spain to apply a measure derogating from Article 11(A)(1) and Article 28e of the Sixth Council Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes 23/12/2005

COM (2005) 635 Proposal for a COUNCIL DECISION amending Decisions 98/161/EC, 2004/228/EC and 2004/295/EC as regards the extension of measures to prevent evasion of value added tax in the waste sector (derogations for Spain, Italy and the Netherlands) 7/12/2005

COM (2005) 581 Proposal for a Council Decision authorising the Republic of Lithuania to apply a measure derogating from Article 11(A) (1) and Article 28e of the Sixth Council Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes 22/11/2005

COM (2005) 392 Proposal for a COUNCIL DECISION authorising Germany to conclude an agreement with Switzerland that includes provisions derogating from Articles 2 and 3 of the Sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 26/08/2005

COM (2005) 376 Proposal for a COUNCIL DECISION authorising Latvia to extend the application of a measure derogating from Article 21 of the Sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 18/08/2005

COM (2005) 364 Proposal for a COUNCIL DECISION authorising Germany to conclude an agreement with Switzerland that includes provisions derogating from Articles 2 and 3 of the Sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 5/08/2005

COM (2005) 334 Amended proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC as regards the place of supply of services 20/07/2005

COM (2005) 285 Proposal for a COUNCIL DECISION authorising the Kingdom of the Netherlands to apply a measure derogating from Article 11 of the Sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 29/06/2005

COM (2005) 136 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC on the common system of value added tax, with regard to the length of time during which the minimum standard rate is to be applied 14/04/2005

COM (2005) 109 Proposal for a COUNCIL DECISION Authorising the Federal Republic of Germany and the Kingdom of the Netherlands to apply a measure derogating from article 3 of the Sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 4/04/2005

COM (2005) 89 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC as regards certain measures to simplify the procedure for charging value added tax and to assist in countering tax evasion and avoidance, and repealing certain Decisions granting derogations 16/03/2005

COM (2005) 4 Proposal for a COUNCIL DECISION authorising the Republic of Cyprus to apply a measure derogating from Article 11 of the Sixth Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 19/01/2005

2004

COM (2004) 856 Proposal for a COUNCIL DECISION authorising Denmark to apply a measure derogating from Article 14 (1) (d) of the Sixth Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 6/01/2005

COM (2004) 854 Proposal for a COUNCIL DECISION amending Decision 2000/256/EC authorising the Kingdom of the Netherlands to apply a measure derogating from Article 11 of the sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 6/01/2005

COM (2004) 728 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC with a view to simplifying value added tax obligations 29/10/2004

COM (2004) 692 Proposal for a COUNCIL DECISION amending Council Decision 2000/746/EC authorising the French Republic to apply a measure derogating from Article 11 of the sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 22/10/2004

COM (2004) 682 Proposal for a COUNCIL DECISION amending Article 3 of Decision 98/198/EC authorising the United Kingdom to extend application of a measure derogating from Articles 6 and 17 of the sixth VAT Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes 20/10/2004

COM (2004) 662 Proposal for a COUNCIL DECISION amending Decision 2001/865/EC authorising the Kingdom of Spain to apply a measure derogating from Article 11 of the sixth Council Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 13/10/2004

COM (2004) 641 Proposal for a COUNCIL REGULATION laying down implementing measures for Directive 77/388/EEC on the common system of value added tax 8/10/2004

COM (2004) 579 Proposal for a COUNCIL DECISION authorising Germany to apply a measure derogating from Article 17 of the Sixth Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes 2/09/2004

COM (2004) 561 Proposal for a COUNCIL DECISION authorising Austria to apply a measure derogating from Article 17 of the Sixth Council Directive (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes 17/08/2004

COM (2004) 436 Proposal for a Council Decision authorising Portugal to apply a measure derogating from Articles 21(1)(a) and 22 of the Sixth Directive of 17 May 1977 (77/388/EEC) on the harmonisation of the laws of the Member States relating to turnover taxes. 21/06/2004

COM (2004) 400 Proposal for a Council Decision authorising the United Kingdom to introduce a special measure derogating from Article 11 of the Sixth Directive 77/388/EEC on the harmonisation of the laws of the Member States relating to turnover taxes. 28/05/2004

COM (2004) 296 Proposal for a COUNCIL DECISION authorising the Czech Republic and Poland to apply a reduced rate of VAT on certain labour-intensive services in accordance with the procedure provided for in Article 28(6) and (7) of Directive 77/388/EEC. 21/04/2004

COM (2004) 295 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EC by reason of the accession of the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia. 21/04/2004

COM (2004) 246 Proposal for a COUNCIL DIRECTIVE on the common system of value added tax (Recast). 15/04/2004

COM (2003) 822 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC as regards the place of supply of services. 23/12/2003

COM (2003) 397 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC as regards reduced rates of value added tax. 23/07/2003

COM (2003) 234 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC as regards value added tax on services provided in the postal sector. 5/05/2003

COM (2002) 64 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC as regards the special scheme for travel agents 8/02/2002

COM (1998) 377 Proposal for a Council Regulation (EC) on verification measures, measures relating to the refund system and administrative cooperation measures necessary for the application of Directive 98/xxx/EC 17/06/2003

COM (1997) 325 Proposal for a COUNCIL DIRECTIVE amending Directive 77/388/EEC on the common system of Value Added Tax (the Value Added Tax Committee)

This page contains a selection of Commission communications of major political and strategic importance to VAT in the European Union.

COM (2003) 614 Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee: Review and update of VAT strategy priorities. Press Release IP/03/1447. 20/10/2003

COM (2000) 348 Communication from the Commission to the Council and the European Parliament. A Strategy to improve the operation of the VAT System within the context of the Internal Market Press Release IP/00/615. 7/06/2000

On the basis of Article 27 of the Sixth Directive, Member States may be authorised to derogate from the common VAT rules to simplify the procedure for charging the tax or to prevent certain types of tax evasion or avoidance. Such derogations have been authorised under the following different procedures:

·       Council Decisions authorised by the Council under the procedure provided for in Article 27(2) and Article 27(3);

·       Council Decisions tacitly approved under the former Article 27(4);

·       Special measures that were applied by the Member States before 1st January 1977 and that were notified to the Commission before 1st January 1978 , under Article 27 (5).

The Commission is aware, for reasons of transparency and legal certainty, of the importance of making business in particular and European citizens in general, aware of the VAT derogations currently applied throughout the EU. The list reflecting the present state of play concerning the derogations applicable is available here .

On 16 March 2005 the European Commission presented a proposal for a Council Directive (COM(2005) 89) that would give all Member States the option of applying special rules to simplify the application of Value Added Tax (VAT) or to counter tax avoidance and evasion.

At present Member States are able to apply such special rules but only by individually requesting authorisations from the Council which have to be periodically renewed. As some of those special rules have proved successful, particularly in the fight against tax avoidance and evasion, the Commission wishes to allow all Member States to apply them without having to seek individual authorisations.

A wider use of effective measures against tax avoidance and evasion would protect compliant businesses from the competitive advantages gained by tax avoiders and evaders.  A single agreed alternative rule should also mean greater transparency and consistency of Member States' rules.

The consultation launched by the European Commission  on the VAT One-Stop-Shop project (IP/04/654) has been closed on 1 st August 2004. The summary report is available here .

According to the present rules indeed, the place of supply of an operation determines the Member State where tax obligations (declaration, payment) have to be fulfilled.

A taxable person having activities in several Member States may therefore be confronted with tax obligations in several countries.

The Commission considers that a one-stop-shop could, in many cases, simplify tax obligations of Community traders having cross-border activities.

The aim of the consultation document was to explain the different aspects of a one-stop-shop mechanism and to collect feedback from interested parties, in view of making a legislative proposal before the end of 2004.

* Miscellaneous articles

On this page you may find articles on current VAT topics.

Future changes to the 6th VAT Directive  1/06/2004	Article on future changes of the sixth VAT Directive planned by the European Commission (written by Mr Stephen Bill, Head of the VAT and other turnover taxes unit).
The VAT strategy 1/05/2004	A pragmatic approach on the VAT strategy (written by Mr Stephen Bill, Head of the VAT and other turnover taxes unit).

The Value Added Tax, or VAT, in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought and sold for use or consumption in the Community. Thus, goods which are sold for export or services which are sold to customers abroad are normally not subject to VAT. Conversely imports are taxed to keep the system fair for EU producers so that they can compete on equal terms on the European market with suppliers situated outside the Union .

Value added tax is

·       a general tax that applies, in principle, to all commercial activities involving the production and distribution of goods and the provision of services.

·       a consumption tax because it is borne ultimately by the final consumer. It is not a charge on businesses.

·       charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.

·       collected fractionally, via a system of partial payments whereby taxable persons (i.e., VAT-registered businesses) deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities. This mechanism ensures that the tax is neutral regardless of how many transactions are involved.

·       paid to the revenue authorities by the seller of the goods, who is the "taxable person", but it is actually paid by the buyer to the seller as part of the price. It is thus an indirect tax.

What is a taxable person?
For VAT purposes, a taxable person is any individual, partnership, company or whatever which supplies taxable goods and services in the course of business.

However, if the annual turnover of this person is less than a certain limit (the threshold), which differs according to the Member State , the person does not have to charge VAT on their sales.

How is it charged?

The VAT due on any sale is a percentage of the sale price but from this the taxable person is entitled to deduct all the tax already paid at the preceding stage. Therefore, double taxation is avoided and tax is paid only on the value added at each stage of production and distribution. In this way, as the final price of the product is equal to the sum of the values added at each preceding stage, the final VAT paid is made up of the sum of the VAT paid at each stage.

Registered VAT traders are given a number and have to show the VAT charged to customers on invoices. In this way, the customer, if he is a registered trader, knows how much he can deduct in turn and the consumer knows how much tax he has paid on the final product. In this way the correct VAT is paid in stages and to a degree the system is self-policing. The system operates as follows:

A mine sells iron ore to a smelter. The sale is worth €1000 and, if the VAT rate is 20%, the mine charges its customers €1200. It should pay €200 to the treasury, but as it has bought €240 worth of tools in the same accounting period, including €40 VAT, it is only required to pay €160 (€200 less €40) to the treasury. The treasury also receives the €40 and now gets €160 making €200 - which is the correct amount of VAT due on the sale of the iron ore.

·       Supply: €1000

·       VAT on supply: €200

·       VAT on purchases: €40

·       Net VAT to be paid: €160

The smelter has paid €200 VAT to the mine and, say, another €20 VAT on other purchases, such as furniture, stationery, etc. So when the smelter sells €2000 worth of steel it charges €2400 including €400 VAT. The smelter deducts the €220 already paid on his inputs and pays €180 to the treasury. The treasury receives this €180 from the smelter plus €160 from the mine, plus €40 paid by the supplier of tools to the mine, plus €20 paid by the furniture/stationary supplier to the smelter.

·       Supply: €2.000

·       VAT on supply: €400

·       VAT on purchases: €220

·       Net VAT to be paid: €180

€180 (paid by the smelter) + €160 (paid by the mine) + €40 (paid by the supplier to the mine) + €20 (paid by the supplier to the smelter) = €400 or the correct amount of VAT on a sale worth €2000.

VAT coverage and VAT rates

Given that EU law only requires that the standard VAT rate must be at least 15% and the reduced rate at least 5% (only for supplies of goods and services referred to in an exhaustive list), actual rates applied vary between Member States and between certain types of products. In addition, certain Member States have retained separate rules in specific areas.

The most reliable source of information on current VAT rates for a specified product in a particular Member State is that country’s VAT authority. Nevertheless, it is possible to get an overview of the different rates applied from the VAT rates in the European Union information document.

VAT on imports and exports

For the purpose of exports between the Community and non-member countries, no VAT is charged on the transaction and the VAT already paid on the inputs of the good for export is deducted - this is an exemption with the right to deduct the input VAT, sometimes called ‘zero-rating’. There is thus no residual VAT contained in the export price.

However, as far as imports are concerned, VAT must be paid at the moment the goods are imported so they are immediately placed on the same footing as equivalent goods produced in the Community. Taxable people registered for VAT will be allowed to deduct this VAT in their next VAT return.

VAT on goods moving between Member States

No frontier controls exist between Member States and therefore VAT on goods traded between EU Member States is not collected at the internal frontier between tax jurisdictions.

Goods supplied between taxable persons (or VAT registered traders) are exempted with a right to deduct the input VAT (zero-rated) on despatch if they are sent to another Member States to a person who can give his VAT number in another Member State. This is known as an “intra-Community supply”. The VAT number can be checked using the VAT Information Exchange System (VIES).

The VAT due on the transaction is payable on acquisition of the goods by the taxable customer in the Member State where the goods arrive. This is known as “intra-Community acquisition”. The customer accounts for any VAT due in his normal VAT return at the rate in force in the country of destination.

How do the Member States apply VAT?

The detailed application of VAT varies according to the administrative customs and practices of each Member State within the framework set out by Community legislation.

Why do all Member States use VAT?

At the time when the European Community was created, the original six Member States were using different forms of indirect taxation, most of which were cascade taxes. These were multi-stage taxes which were each levied on the actual value of output at each stage of the productive process, making it impossible to determine the real amount of tax actually included in the final price of a particular product. As a consequence, there was always a risk that Member States would deliberately or accidentally subsidise their exports by overestimating the taxes refundable on exportation.

It was evident that if there was ever going to be an efficient, single market in Europe, a neutral and transparent turnover tax system was required which ensured tax neutrality and allowed the exact amount of tax to be rebated at the point of export. As explained in VAT on imports and exports, VAT allows for the certainty that exports there are completely and transparently tax-free.

The history of VAT in the European Union until 1993

On 11 April 1967 the first two VAT Directives were adopted, establishing a general, multi-stage but non-cumulative turnover tax to replace all other turnover taxes in the Member States. However, the first two VAT Directives laid down only the general structures of the system and left it to the Member States to determine the coverage of VAT and the rate structure.

It was not until 17 May 1977 that the Sixth VAT Directive was adopted which established a uniform VAT coverage. This guarantees that the VAT contributed by each of the Member States to the Community's own resources can be calculated. It still however, allowed Member States many possible exceptions and derogations from the standard VAT coverage. Moreover, it did not set out the rates of VAT to be applied in Member States with the result that these differ widely even today. Currently, there is a standard rate of between 15% and 25% (the maximum is based on a political commitment) and Member States may apply 1 or 2 reduced rates of at least 5%. There are a number of temporary derogations, e.g. zero rates in the United Kingdom and Ireland . The VAT coverage also still differs from one Member State to another.

VAT and the Single Market - 1993 to now

The realisation of the single market in 1993 resulted in the abolition of controls at fiscal frontiers. To achieve this, the Commission proposed moving from the pre-1993 "destination based" system, where VAT is effectively charged at the rate of VAT applicable where the buyer is established, to an "origin based" system, with VAT being charged at the rate in force where the supplier is established. This would have effectively abolished fiscal frontiers within the EU.

This was, however, not acceptable to Member States as rates of VAT were too different and there was no adequate mechanism to redistribute VAT receipts to mirror actual consumption.

Therefore, until the conditions were right the Community adopted the Transitional VAT System which maintains different fiscal systems but without frontier controls. The intention is still eventually to have a common system of VAT where VAT is charged by the seller of goods - an origin based VAT system. The transitional system is an origin based system for sales to private persons who can go and buy tax paid anywhere they like in the Union and take the goods home without having to pay VAT again. There are some exceptions to this general rule however (e.g. the purchase of new means of transport and distance selling). For transactions between taxable persons it is still a destination based VAT system.

- Exemptions

What is a VAT exemption?

As the term suggests, supplies falling under a category exempt from VAT are sold to the buyer, normally a final consumer, without any VAT being applied to that sale.

However, as the supply is exempt from VAT, deduction of the VAT paid on the inputs is not possible. For example, postal services are at present exempt from VAT. So if you send a parcel using the Post Office you are not charged VAT, but the Post Office has paid VAT on its inputs: the vans it uses, the post boxes it buys, and all the other things. It cannot reclaim or deduct this VAT. So a part of the value of the stamps you bought to send the parcel represents paying this "hidden" VAT.

What is a zero-rated good?

On the other hand there are certain exemptions whereby the supplier is allowed to deduct his input VAT. These exemptions are used for the exports of goods from the Community to third countries and also for intra-Community supplies of goods despatched from one Member State to a taxable person (or registered trader) in another. Sometimes these exemptions are called zero-rate supplies as the result is that there is no residual VAT in the final price.

In addition, some Member States are still allowed to apply zero-rates of VAT to certain groups of goods. For example, in the UK books are sold domestically with a zero rate of VAT. This means that the final price charged to the consumer does not include VAT but it also means that the VAT paid on the inputs which make up the good are deducted, so there is no residual VAT in the final price.

Exceptions to the normal rules for consumers

In order to preserve Member States' VAT receipts in the country of consumption, rather than of sale, the transitional VAT System also has several special schemes applying to sales to consumers in another Member State . These include:

·       Sales of new means of transport

·       Distance selling

·       Supplies to non-taxable persons and exempt taxable persons (eg small shopkeepers) :

If purchases exceed a certain threshold (minimum €10.000) the buyer is liable to pay VAT themselves in their own country. As long as these purchasers remain under that threshold they can buy the goods VAT included in another Member State , but once they exceed that threshold they will have to get registered for VAT in their Member State and pay the VAT upon their purchases in their own Member State . These persons can also opt to pay the VAT immediately in their own Member State .

- VAT rates

The main VAT legislation (the Sixth VAT Directive) which was adopted in 1977 included special rules for applying VAT to travel agents and tour operators.

The objective of the special rules for travel agents and tour operators is to prevent the complications that the application of the normal VAT rules would cause where such packages comprise services provided outside the Member State concerned. When a travel agent purchases services such as hotel accommodation and transport from third parties in other countries and puts them together in a travel package to sell in his own name and on his own account to a traveller he would, under normal VAT rules, have to pay VAT on every supply of services made to him and register in each Member State from which he purchased services.

But under the special 'margin' scheme all transactions performed by the travel agent in respect of a single travel package are treated as a single supply of services for VAT purposes, taxable in his own Member State . He has no right to deduct VAT on supplies made to him, but on the other hand he is only taxed on the profit margin realised on the supply of the travel package.

The special scheme also has the advantage that VAT revenues are allocated to the Member State where the final consumption of each individual service takes place – for example, VAT on the travel element would most likely go to the country where the travel operator is resident and where the profit is generated, while the VAT on the hotel accommodation is allocated to the country where the holiday takes place and so on

The special scheme only applies to packages for travel and lodging in the EU. Travel operators providing travel packages to places outside the EU are exempt from VAT.

Although this special scheme is obligatory, certain Member States (Denmark, Ireland and the Netherlands), that exempted the supplies of travel packages by travel agents at the time this Sixth VAT Directive was adopted, were allowed to maintain this exemption during a transitional period

An extension of the scope of the special scheme to cover supplies of travel packages sold to other taxable persons was proposed to eliminate problems of double taxation. These problems arise as, nowadays with increased specialisation in the travel business, travel operators no longer only deal directly with individual travellers but also sell packages to other operators.

At present the individual Member States apply the special VAT arrangements for travel agents in very divergent ways. In some circumstances this can create competitive disadvantages for some companies. Therefore it is proposed to abolish the existing derogations which have been given to the Member States, in order to achieve equal treatment within the EU.

Businesses often prefer to deal with individual suppliers, rather than use travel agents' packages, because they cannot deduct VAT incurred on travel packages, which they purchase under the special travel agents VAT scheme. To remove this competitive anomaly, it is proposed, when travel agents supply travel packages to taxable clients, that they may opt for the application of the normal VAT provisions.

Travel operators established outside the EU are outside the scope of the VAT scheme. Using the Internet, they can now easily sell travel packages to EU residents and this causes competitive problems for EU travel agents. To remedy this, it is proposed to tax in the EU all travel packages when they are used and enjoyed in the EU by EU residents. This implies that suppliers of travel packages established in third countries might become liable for VAT in the country where their customers are established.

The original proposal (COM(2002) 64) - Press notice (IP/02/264) - Memorandum (MEMO/02/30)

When the European Parliament was considering the Commission proposal they suggested that travel agents established outside the EU be allowed to deal with only one EU VAT administration rather than having to deal with a number of them. This principle has already been accepted in the context of the VAT on the supply of services on the internet. The Commission has decided to amend its proposal accordingly.

The amending proposal (COM(2003) 78)

Directive 98/80/EC states that gold coins which:

- are of a purity equal to or greater than 900 thousandths,

- are minted after 1800,

- are or have been legal tender in the country of origin, and

- are normally sold at a price which does not exceed the open market value of the gold contained in the coins by more than 80 %.

- are not, for the purpose of this Directive, considered to be sold for numismatic (coin and medal collection) interest.

The Commission shall publish a comprehensive list of these coins in the "C" series of the Official Journal of the European Communities before 1 December each year. Coins included in the published list shall be deemed to fulfill these criteria for the whole year for which the list is published.

The list of gold coins for the year 2006 was published in Official Journal C 300 of 30 November 2005.

- VAT on Labour Intensive Services

In 1999 the Council adopted Directive 1999/85/EC concerning VAT on labour-intensive services which allowed the application of a reduced VAT rate to certain specified labour-intensive services, but only for an experimental period of three years so as to test its impact, in terms of job creation and in combating the 'black' economy.

The list of categories to which Member States were authorised to apply the reduced rates were:

·       The repairing of:

        ·    bicycles

        ·    shoes and leather goods

        ·    clothing and household linen (including mending and alteration)

·       Renovation and repairing of private dwellings, excluding materials which form a significant part of the value of the supply

·       Window cleaning and cleaning in private households

·       Domestic care services (e.g. home help and care of the young, elderly, sick or disabled)

·       Hairdressing.

Nine Member States ( Belgium , Greece , Spain , France , Italy , Luxembourg , the Netherlands , Portugal and the United Kingdom ) requested authorisation to carry out this experiment and submitted applications concerning the sectors from the above list to which they wanted to apply the reduced VAT rate. These applications were the subject of Council Decision 2000/185/EC of 28th February 2000 .

On 3 December 2002, the Council adopted a Directive with the aim of extending for a further year the experimental reduced rates for labour-intensive services to ensure continuity and certainty for the sectors that currently benefit from the reduced rate in expectation of more general proposals concerning reduced rates of VAT.

Under the terms of the scheme the nine Member States have reported on their experiences to date.

On 2 June 2003, the European Commission submitted a report on the experimental application of a reduced rate of VAT to certain labour intensive services.

·       Council Directive 1999/85/EC
        Press release IP/99/1002

·       As prolonged by Council Directive 2002/92/EC
        Press release IP/02/1367

·       As applied by Council Decision 2000/185/EC

·       As prolonged by Council Decision 2002/954/EC

·       Reports from the Member States on the operation of the system

        ·    Belgium (Housing sector ; Small repairs - Annex 1 , 2 )

        ·    Luxembourg

        ·    Italy

        ·    United Kingdom - Isle of Man (Annex 1&2 , 3 , 4 , 5 , 6 )

        ·    France

        ·    Spain

        ·    Netherlands

        ·    Portugal

        ·    Greece

·       Report (COM(2003) 309) from the Commission to the Council and the European Parliament : Experimental application of a reduced rate of VAT to certain labour-intensive services.

·       Commission Services evaluation report : Experimental application of a reduced rate of VAT to certain labour-intensive services.

·       On 10 December 2003 , the European Commission decided to propose to allow nine Member States to continue to apply for an additional two years (i.e. until 31 December 2005 ) the reduced rates of Value Added Tax (VAT) they apply to specified labour-intensive services (see IP/03/1693).
The text of the proposal (COM(2003) 825)

·       On 10 February 2004 , the Council decided to extend reduced rates for labour intensive services up to 31 December 2005 (Annex K of the 6th VAT Directive).

·       On 21 April 2004 the European Commission proposed to allow acceding countries to apply, until 31 December 2005 , reduced rates to some labour intensive services. The Czech Republic and Poland have announced their wish to apply reduced rates on certain labour-intensive services.

·    The text of the proposal for a directive (COM(2004) 295 of 21/04/2004)

·    The text of the proposal for a decision (COM(2004) 296 of 21/04/2004)

- 2nd hand goods

The VAT arrangements applicable to 2 nd hand goods (including, for example, used cars and works of art) can be either the normal VAT arrangements or the special arrangements applicable to second-hand goods, works of art, collectors’ items and antiques (the “margin scheme”), as provided for in Article 26b of the 6th VAT Directive.

In principle, it is the normal VAT arrangements which apply to 2 nd hand goods. This means that the amount on which VAT is charged is the full consideration which the dealer has received from the customer less the amount of VAT relating to the consideration.

However, the margin scheme can be used by a taxable dealer in the following special circumstances:

·       Where the 2 nd hand goods were supplied to him by a non-taxable person, or

·       Where the 2 nd hand goods were supplied to him by a taxable person whose supplies are exempt from VAT because he engages in an exempt activity, or

·       Where the 2 nd hand goods were supplied to him by a taxable person whose supplies are exempt from VAT in accordance with the special scheme for small undertakings, or

·       Where the 2 nd hand goods were supplied by another taxable person applying the margin scheme in respect of the goods.

If the margin scheme is applied, the amount on which VAT is charged is the profit margin which is treated as a tax-inclusive amount. In each of the circumstances outlined above, the taxable dealer would, in the absence of the margin scheme, be obliged to charge VAT on the full consideration he would be entitled to receive from the customer and he would not be able to deduct any VAT.

 

Distance selling means that a supplier sells goods to non taxable customers established in another Member State and the supplier takes care of the transport of the goods to the customers. A typical example is mail order companies.

VAT of the Member State of destination or consumption is applied if sales in that Member State exceed a certain threshold. For the threshold applicable in each Member State , see the Commission's information document "VAT in the European Union". Even if the threshold is not exceeded, traders can still opt to identify for VAT in the Member State of the consumer and charge the VAT applicable in that country.

- VAT on electronic services

The new legislation

Council Directive 2002/38/EC on the VAT arrangements applicable to radio and television broadcasting services and certain electronically supplied services was adopted on 7 May 2002 and entered into effect on 1 July 2003 . As far as electronically supplied services are concerned, these measures are explained below.

Council Regulation (EC) 792/2002, temporarily amending Regulation (EEC) 218/92 on administrative co-operation in the field of indirect taxation (VAT) introduces additional measures necessary for the registering of foreign e-service traders for VAT purposes and for distributing the VAT receipts to the Member States where the services were actually used.

Under these new rules, EU suppliers are no longer obliged to levy VAT when selling on markets outside the EU, thereby removing a significant competitive handicap. Previously under tax rules drawn up before e-service existed, EU suppliers had to charge VAT when supplying digital products even in countries outside the EU.

The changes eliminate an existing competitive distortion by subjecting non-EU suppliers to the same VAT rules as EU suppliers when they are providing electronic services to EU customers, something which EU businesses had been actively seeking for some time.

 

The VAT rules for non-EU suppliers selling to business customers in the Union (at least 90% of this market) remain unchanged, with the VAT paid by the importing company under self-assessment arrangements.

Frequently Asked Questions 

OECD principles

These measures mean that the EU became the first significant tax jurisdiction in the world to develop and implement a simplified framework for consumption taxes on e-services in accordance with the principles agreed within the framework of the Organisation for Economic Co-operation and Development (OECD). The Directive therefore complements the international process at the OECD. The OECD principles on the taxation of e-commerce were agreed at a 1998 conference in Ottawa . These principles establish that the rules for consumption taxes (such as VAT) should result in taxation in the jurisdiction where consumption takes place. The OECD also agreed that a simplified online registration scheme, as now adopted by the Council, is the only viable option today for applying taxes to e-commerce sales by non-resident traders.

Background documents

Text of Council Directive 2002/38/EC

Text of Council Regulation (EC) 792/2002

COM(1998) 374 final "E-commerce and indirect taxation". Communication by the Commission to the Council of Ministers, the European Parliament and the Economic and Social Committee

The proposal was submitted by the Commission on 7 June 2000 .

The Press releases and Memoranda issued at various stages:

·       At the time of the proposal made in June 2000: IP/00/583 - MEMO/00/31

·       At the time of political approval: MEMO/02/22

·       At the time the proposal was adopted: IP/02/673

- Traders

 - VAT and business

VAT legislation creates a sophisticated legal framework for conducting business in the Internal Market. In order to comply with this framework taxable persons have to be informed about the rules applicable.

The following pages aim to facilitate your life as entrepreneur or trader by providing information on

The country-specific documents on this page contain basic information on the application of VAT in the Member States for the use by administrations, business, information networks, etc.

For each country you will find the available language versions and a reference to the date of the last update. The 3 Annexes are available in English only and are not part of the core document. You can find them hereunder.

Please note that the information documents on this page are updated at regular intervals. New language versions of country tables will be added as soon as they become available.

Thresholds - Annex I

VAT Identification Number - Annex II

Abbreviations - Annex III

 

Austria                                  Updated January 2004

Austria Updated July 2002

Belgium Updated January 2004

Belgium Updated July 2002

Cyprus Updated January 2004

Cyprus Updated October 2003

Czech Republic Updated January 2004

Czech Republic Updated October 2003

Denmark Updated January 2004

Denmark Updated July 2002

Estonia Updated January 2004

Estonia Updated October 2003

Finland Updated January 2004

Finland Updated July 2002

France Updated January 2004

France Updated July 2002

Germany Updated August 2005

Germany Updated January 2004

Germany Updated July 2002

Greece Updated July 2002

Hungary Updated January 2004

Ireland Updated July 2002

Italy Updated July 2000

Latvia Updated October 2003

Lithuania Updated October 2003

Luxembourg Updated January 2004

Luxembourg Updated July 2002

Malta Updated October 2003

Netherlands                           Updated July 2002

Netherlands Updated July 2000

Poland Updated January 2004

Portugal Updated January 2004

Portugal Updated July 2002

Slovakia Updated January 2004

Slovakia Updated October 2003

Slovenia Updated January 2004

Slovenia Updated October 2003

Spain Updated July 2002

Sweden Updated January 2004

Sweden Updated July 2002

United Kingdom Updated January 2004

United Kingdom Updated July 2002

The following is a list of the general obligations facing traders:

·       Advise the tax administration on commencement and cessation of business

·       Submit periodic VAT declarations

·       Keep sufficiently detailed records to be examined by the tax administration

·       Pay the amount of the VAT due on each declaration

·       Submit recapitulative statements where exempt intra-Community supplies are made 

- VAT Invoicing Rules

·       The new Directive

·       Background

·       Electronic invoicing

·       Information about transposition into national Law

·       Background documents

The Council has adopted, on 20 December 2001, a Directive (2001/115/EC) on VAT Invoicing. This Directive, which amends the 6th VAT Directive, has to be implemented into national Law before the 1 st January 2004. For details on how to apply the new rules in practice consult the list of Frequently Asked Questions (FAQ) for traders.

This measure will be of significant practical benefit to firms operating within the Internal Market because it will ensure that they have only to deal with a single, simplified set of rules on invoicing valid throughout the EU instead of fifteen different sets of legislation. At the same time, the Directive will require Member States to recognise the validity of electronic invoices and allow cross-border electronic invoicing and electronic storage. The result will be a significant reduction of firms' administrative costs, in particular for medium-sized and small firms and an important boost to electronic commerce, currently hampered by obsolete invoicing rules. The simplified rules should also facilitate tax authorities' efforts to fight fraud.

The Commission proposal was presented in November 2000, as part of the new VAT strategy launched by the Commission in June 2000 to bring about pragmatic improvements in the operation of the VAT system. The VAT strategy has been updated in October 2003.

The new Directive establishes

·       a list of ten mandatory general items of information that must be included on every invoice, plus four additional items that may be required in specific circumstances,

·       simplified arrangements for small companies and small-value invoices,

·       the requirement for Member States' tax authorities to recognise the validity of electronic invoices without any notification or authorisation system, on condition that the authenticity of origin and integrity of data are guaranteed through the use of electronic signatures or Electronic Data Interchange (EDI). Electronic signatures allow someone receiving data over electronic networks to determine the origin of the data and to check that it has not been altered. EDI is a system of secure electronic information transmission used by businesses,

·       the possibility in certain circumstances of outsourcing invoicing operations to a third party or to the customer (i.e. self-billing),

·       free choice of the place and method of storage of invoices and the acceptance of electronic storage, including on-line storage in a Member State other than the Member State in which the firm in question is located.

Background

The proposal was prompted by complaints to the Commission from traders. Invoices are an essential part of the VAT system since they constitute the evidence on the basis of which the purchaser can deduct VAT that has been charged to him.

Each Member State had different rules concerning the obligatory information to be included on invoices and the form the invoices should take in order for VAT authorities to recognise their validity. With the establishment of the Internal Market firms were increasingly carrying out taxable operations in Member States where they are not established, and were finding that those operations were subject to several sets of VAT legislation. Moreover, many firms operating on an EU-wide scale had started centralising their invoicing operations, entrusting to a single branch the task of issuing invoices on behalf of all other branches established in different Member States. This centralisation of invoicing operations, which can have a clear economic rationale, was made difficult by the existence of fifteen different sets of invoicing rules.

Electronic invoicing

Electronic invoicing, which can cut invoicing costs significantly, is now developing rapidly, notably as a result of the growth of electronic commerce. But in some Member States, electronic invoicing was previously prohibited or had to be accompanied by parallel transmission of paper invoices. In others it was permitted subject to varying conditions. Firms established in several Member States required therefore special authorisations in certain countries to apply cross-border invoicing arrangements and had to use a technology specific to each Member State for the creation, transmission and storage of the electronic invoices. They also had to cope with recording different items of information for each country, storing information for a different period in each country and sometimes even making simultaneous electronic and paper transmissions of data.

Information about transposition into national Law

The Directive needs to be implemented into national Law by Member States before the 1 st January 2004 (as well as by the 10 Acceding Countries before accession).

Information about national rules will be put on the Commission information document called "VAT in the European Union and the Accession countries" as soon as possible. 

Background documents

·       Short list of most frequent questions (MEMO/04/15)

·       Council Directive 2001/115/EC of 20 December 2001 amending Directive 77/388/EEC with a view to simplifying, modernising and harmonising the conditions laid down for invoicing in respect of value added tax

·       Commission Recommendation of 19 October 1994 relating to the legal aspects of electronic data interchange (EDI)

·       Communication from the Commission to the Council and the European Parliament: A Strategy to improve the operation of the VAT System within the context of the Internal Market. The strategy paper has been updated in October 2003.

- VIES (VAT Information Exchange System) enquiries

·       Background, what is VIES and how it works

·       This web application

·       Disclaimer

·       The database

Background, what is VIES and how it works

With the introduction of the single market on 1 January 1993 , fiscal customs based controls at internal frontiers were abolished and a new VAT control system was put in place for intra-Community trade. The most significant benefit was the reduction of the administrative burden on companies; with the elimination of some 60 million customs documents per annum. 

Under the new VAT system intra-Community supplies of goods are exempt from VAT in the Member State of despatch when they are made to a taxable person in another Member State who will account for the VAT on arrival. Therefore any taxable person making such supplies must be able to check quickly and easily that their customers in another Member State are taxable persons and do hold a valid VAT identification number. For that purpose, inter alia, each tax administration maintains an electronic database containing the VAT registration data of its traders. Such information includes the VAT identification number, the date of issue, the trader's name, the trader's address and, where applicable, the date of cessation of validity of a VAT number. 

A computerised VAT Information Exchange System (V.I.E.S.) was set up to allow for the flow of the data held across the internal frontiers which: 

·       enables companies to obtain rapidly confirmation of the VAT numbers of their trading partners 

·       Enables VAT administrations to monitor and control the flow of intra-Community trade to detect all kinds of irregularities 

The unit responsible for the control of intra-Community trade in each Member State , the Central Liaison Office (CLO), has a direct access through VIES to the VAT registration database of the other Member States.

National Access Mechanism

Traders, making an enquiry as to whether a particular VAT number is valid or whether it is correctly associated with a specified trader name and/or address, gain access to the VAT registration verification system through their national CLO, which will give one of the following replies: 

·       Yes, valid VAT number 

·       No, invalid VAT number 

·       Yes, the VAT number is associated with a given name/address

·       No, the VAT number is not associated with a given name/address

(N.B. For security and data protection reasons, the national administrations will not supply the name and address in relation to a valid number). 

The methods used in the Member States to deal with trader enquiries differ significantly. Some have implemented on-line systems to automate traders' access to the information while others have administrative units that answer traders' inquiries made by phone, mail or fax 

This web application

The European Commission maintains this website to enhance access by taxable persons making intra-Community supplies to verification of their customers' VAT identification numbers. Our goal is to supply instantaneous and accurate information. A real time response is obtained for any user querying an EU VAT number in a specified EU country. To aid the user in navigating the site it gives some warning or help messages in all eleven EU languages. This web site is open to anyone and gives a similiar service to the national systems, providing a "yes" or "no" answer to the user for the first two questions only. 

These national web sites offer similar services: Germany (for German Taxable persons only), Italy and Spain (to check Spanish numbers only).

Disclaimer

·       is obtained from Member States' databases over which the Commission services have no control and for which the Commission assumes no responsibility; it is the responsibility of the Member States to keep their databases complete, accurate and up to date;

·       is not professional or legal advice (if you need specific advice, you should always consult a suitably qualified professional);

·       does not in itself give a right to exempt intra-Community supplies from Value Added Tax;

·       does not change any obligations imposed on taxable persons in relation to intra-Community supplies.

This disclaimer is not intended to limit the liability of the Commission in contravention of any requirements laid down in applicable national law nor to exclude its liability for matters which may not be excluded under that law

- VAT on electronic services

The new legislation

Council Directive 2002/38/EC on the VAT arrangements applicable to radio and television broadcasting services and certain electronically supplied services was adopted on 7 May 2002 and entered into effect on 1 July 2003 . As far as electronically supplied services are concerned, these measures are explained below.

Council Regulation (EC) 792/2002, temporarily amending Regulation (EEC) 218/92 on administrative co-operation in the field of indirect taxation (VAT) introduces additional measures necessary for the registering of foreign e-service traders for VAT purposes and for distributing the VAT receipts to the Member States where the services were actually used.

Under these new rules, EU suppliers are no longer obliged to levy VAT when selling on markets outside the EU, thereby removing a significant competitive handicap. Previously under tax rules drawn up before e-service existed, EU suppliers had to charge VAT when supplying digital products even in countries outside the EU.

The changes eliminate an existing competitive distortion by subjecting non-EU suppliers to the same VAT rules as EU suppliers when they are providing electronic services to EU customers, something which EU businesses had been actively seeking for some time.

The VAT rules for non-EU suppliers selling to business customers in the Union (at least 90% of this market) remain unchanged, with the VAT paid by the importing company under self-assessment arrangements.

Frequently Asked Questions 

OECD principles

These measures mean that the EU became the first significant tax jurisdiction in the world to develop and implement a simplified framework for consumption taxes on e-services in accordance with the principles agreed within the framework of the Organisation for Economic Co-operation and Development (OECD). The Directive therefore complements the international process at the OECD. The OECD principles on the taxation of e-commerce were agreed at a 1998 conference in Ottawa . These principles establish that the rules for consumption taxes (such as VAT) should result in taxation in the jurisdiction where consumption takes place. The OECD also agreed that a simplified online registration scheme, as now adopted by the Council, is the only viable option today for applying taxes to e-commerce sales by non-resident traders.

Background documents

Text of Council Directive 2002/38/EC

Text of Council Regulation (EC) 792/2002

COM(1998) 374 final "E-commerce and indirect taxation". Communication by the Commission to the Council of Ministers, the European Parliament and the Economic and Social Committee

The proposal was submitted by the Commission on 7 June 2000 .

The Press releases and Memoranda issued at various stages:

·       At the time of the proposal made in June 2000: IP/00/583 - MEMO/00/31

·       At the time of political approval: MEMO/02/22

·       At the time the proposal was adopted: IP/02/673

- Right to deduct input VAT and VAT refunds

A taxable person is allowed to deduct the VAT he paid on his purchases insofar as the goods or services are used for his business activities. However, there is no right to deduct input VAT if he

·       uses them for an exempt activity or

·       is not obliged to charge VAT on his outputs (e.g. schools, banks, insurance companies, small businesses under the registration threshold etc).

A taxable person whose input VAT exceeds his output VAT is entitled to a refund of the excess from his national treasury. However, Member States may decide to carry forward the excess to the next taxable period and offset it against tax due in that period.

Taxable persons who incur VAT in connection with their business activities in a Member State in which they do not make supplies of goods or services are entitled to deduct the VAT charged in that Member State. This "deduction" is by means of a refund of VAT from the Member State in which the VAT was paid.  A list of addresses in the Member States to which claims for refunds under the 8th VAT Directive (79/1072/EEC) should be made and the list of minimum amounts refundable, can be found here .

Some Member States apply limitations to this right to deduct input VAT (e.g. restaurant costs, entertainment activities, cars, fuel etc.). See the Commission's information document "VAT in the European Community".

VAT rates applicable VAT rates applicable in the EU Member States. 1/07/2005

VAT obligations in the European Union This study performed for the European Commission deals with the simplification and modernisation of VAT obligations in 15 Member States of the European Union. 14/06/2002

·       Background, what is VIES and how it works

·       This web application

·       Disclaimer

·       The database

Background, what is VIES and how it works

With the introduction of the single market on 1 January 1993 , fiscal customs based controls at internal frontiers were abolished and a new VAT control system was put in place for intra-Community trade. The most significant benefit was the reduction of the administrative burden on companies; with the elimination of some 60 million customs documents per annum. 

Under the new VAT system intra-Community supplies of goods are exempt from VAT in the Member State of despatch when they are made to a taxable person in another Member State who will account for the VAT on arrival. Therefore any taxable person making such supplies must be able to check quickly and easily that their customers in another Member State are taxable persons and do hold a valid VAT identification number. For that purpose, inter alia, each tax administration maintains an electronic database containing the VAT registration data of its traders. Such information includes the VAT identification number, the date of issue, the trader's name, the trader's address and, where applicable, the date of cessation of validity of a VAT number. 

A computerised VAT Information Exchange System (V.I.E.S.) was set up to allow for the flow of the data held across the internal frontiers which: 

·       enables companies to obtain rapidly confirmation of the VAT numbers of their trading partners 

·       Enables VAT administrations to monitor and control the flow of intra-Community trade to detect all kinds of irregularities 

The unit responsible for the control of intra-Community trade in each Member State , the Central Liaison Office (CLO), has a direct access through VIES to the VAT registration database of the other Member States.

National Access Mechanism

Traders, making an enquiry as to whether a particular VAT number is valid or whether it is correctly associated with a specified trader name and/or address, gain access to the VAT registration verification system through their national CLO, which will give one of the following replies: 

·       Yes, valid VAT number 

·       No, invalid VAT number 

·       Yes, the VAT number is associated with a given name/address

·       No, the VAT number is not associated with a given name/address

(N.B. For security and data protection reasons, the national administrations will not supply the name and address in relation to a valid number). 

The methods used in the Member States to deal with trader enquiries differ significantly. Some have implemented on-line systems to automate traders' access to the information while others have administrative units that answer traders' inquiries made by phone, mail or fax 

This web application

The European Commission maintains this website to enhance access by taxable persons making intra-Community supplies to verification of their customers' VAT identification numbers. Our goal is to supply instantaneous and accurate information. A real time response is obtained for any user querying an EU VAT number in a specified EU country. To aid the user in navigating the site it gives some warning or help messages in all eleven EU languages. This web site is open to anyone and gives a similiar service to the national systems, providing a "yes" or "no" answer to the user for the first two questions only. 

These national web sites offer similar services: Germany (for German Taxable persons only), Italy and Spain (to check Spanish numbers only).

Disclaimer

The Commission accepts no responsibility or liability whatsoever with regard to the information obtained using this site. This information: 

·       is obtained from Member States' databases over which the Commission services have no control and for which the Commission assumes no responsibility; it is the responsibility of the Member States to keep their databases complete, accurate and up to date;

·       is not professional or legal advice (if you need specific advice, you should always consult a suitably qualified professional);

·       does not in itself give a right to exempt intra-Community supplies from Value Added Tax;

·       does not change any obligations imposed on taxable persons in relation to intra-Community supplies.

This disclaimer is not intended to limit the liability of the Commission in contravention of any requirements laid down in applicable national law nor to exclude its liability for matters which may not be excluded under that law.

- Starting a business

Before starting a business, you should always seek advice from the tax administration and/or a professional advisor. If you want to start business in another Member State, please contact the tax department responsible for helping foreign traders. The contact details can be found in the Commission's information document "VAT in the European Union".

Sales business to business and general sales to consumers

For more details, you should consult your own country's tax authorities.

- VAT and consumers

VAT is not only an issue for businesses. The following pages are thus aimed at providing useful information to you as citizen and consumer on

·       VAT rates in the Member States;

·       Buying goods in other Member States;

·       Buying motor vehicles;

·       Mail order & distance purchasing; and

·       The taxation of eCommerce. 

 - VAT rates

VAT rates applicable VAT rates applicable in the EU Member States. 1/07/2005

VAT obligations in the European Union This study performed for the European Commission deals with the simplification and modernisation of VAT obligations in 15 Member States of the European Union. 14/06/2002

- Buying goods in other Member States

When a private person goes to another Member State to buy goods and transports them back himself (or arranges for this to be done) then he buys at the rate of tax at the point of sale and the result is taxation at 'origin'.

There are some exceptions to this general rule.

·       Purchases of new means of transport

·       Distance purchases

Certain non-taxable persons are limited regarding the amount of goods they can buy in another Member State . Non-taxable legal persons, (e.g. Hospitals, Universities, Government departments) must identify for VAT and make intra-Community acquisitions as if they were taxable persons where their purchase of goods in other Member States exceeds a certain threshold.

Individuals living outside the EU, and making purchases while visiting the EU, should inquire about VAT refund procedures at the time of purchase. Member State refund procedures differ, but chances are that forms will need to be filled out when the goods are bought.

- Buying new motor vehicles

If you purchase a new car, boat, etc from another Member State and bring it back for use in your own Member State , you do not pay VAT in the country of sale. Instead, VAT must be paid on return to your own Member State , at the rate of VAT applied there.

A motor vehicle is new if it

·       has travelled less than 6.000km or

·       is less than 6 months old.

This means that a car, for example which is 2 years old, but has only travelled for 4.000km is still a "new" car for VAT purposes. Similarly, a 4-month old car which has travelled 60.000km is still “new” for VAT purposes. 

- Mail order and distance purchasing

Goods

The rules applicable to mail order and distance purchasing are identical whether goods are ordered by telephone, from a catalogue or via the internet.

The general rule for supplies of goods to private individuals in the single market is the "origin" principle. This means that private individuals pay VAT in the Member State of purchase, and do not have additional VAT to pay on return to their own Member State .

However, for "distance selling" (where the supplier and the customer are located in different Member States , and the goods are dispatched to the customer), there are a number of different possibilities, all related to the level of trade of the supplier, which determines whether the "origin" or "destination" principles apply.

The general rule is that it is the VAT rate of the supplier which applies ("origin" principle). However, if the level of sales in any one Member State exceed a certain threshold (either €35.000 or €100.000 depending on the Member State), then the supplier must register for VAT and charge VAT at the rate applicable in that Member State ("destination" principle).

This means that distance sellers must charge the VAT rate applicable in the Member State of the customer where the supplies to all customers in that Member State exceed the relevant threshold.

Goods supplied from outside the European Union are subject to VAT on importation.

Services

Digital services purchased over the internet are liable to VAT. The rate of VAT applicable will depend on the status of the vendor. If the vendor is established in the European Union, he will charge the rate of VAT applicable in his Member State of establishment. If the vendor is not established in the European Union, he will charge VAT at the rate applicable in the Member State of consumption of the service.

Telecom services when provided by a telecommunications operator established in the EU to private consumers will be subject to VAT at the rate of the Member State where the supplier is established. If the same telecom service is supplied by a supplier established in a non-European Union country, the VAT charged will be the VAT of the Member State where the private person uses the telecom service. 

- VAT on electronic services

The new legislation

Council Directive 2002/38/EC on the VAT arrangements applicable to radio and television broadcasting services and certain electronically supplied services was adopted on 7 May 2002 and entered into effect on 1 July 2003 . As far as electronically supplied services are concerned, these measures are explained below.

Council Regulation (EC) 792/2002, temporarily amending Regulation (EEC) 218/92 on administrative co-operation in the field of indirect taxation (VAT) introduces additional measures necessary for the registering of foreign e-service traders for VAT purposes and for distributing the VAT receipts to the Member States where the services were actually used.

Under these new rules, EU suppliers are no longer obliged to levy VAT when selling on markets outside the EU, thereby removing a significant competitive handicap. Previously under tax rules drawn up before e-service existed, EU suppliers had to charge VAT when supplying digital products even in countries outside the EU.

The changes eliminate an existing competitive distortion by subjecting non-EU suppliers to the same VAT rules as EU suppliers when they are providing electronic services to EU customers, something which EU businesses had been actively seeking for some time.
The VAT rules for non-EU suppliers selling to business customers in the Union (at least 90% of this market) remain unchanged, with the VAT paid by the importing company under self-assessment arrangements.

Frequently Asked Questions 

OECD principles

These measures mean that the EU became the first significant tax jurisdiction in the world to develop and implement a simplified framework for consumption taxes on e-services in accordance with the principles agreed within the framework of the Organisation for Economic Co-operation and Development (OECD). The Directive therefore complements the international process at the OECD. The OECD principles on the taxation of e-commerce were agreed at a 1998 conference in Ottawa . These principles establish that the rules for consumption taxes (such as VAT) should result in taxation in the jurisdiction where consumption takes place. The OECD also agreed that a simplified online registration scheme, as now adopted by the Council, is the only viable option today for applying taxes to e-commerce sales by non-resident traders.

Background documents

Text of Council Directive 2002/38/EC

Text of Council Regulation (EC) 792/2002

COM(1998) 374 final "E-commerce and indirect taxation". Communication by the Commission to the Council of Ministers, the European Parliament and the Economic and Social Committee

Working Party no. 1 Harmonisation of Turnover Taxes, 1999

The proposal was submitted by the Commission on 7 June 2000 .

The Press releases and Memoranda issued at various stages:

·       At the time of the proposal made in June 2000: IP/00/583 - MEMO/00/31

·       At the time of political approval: MEMO/02/22

·       At the time the proposal was adopted: IP/02/673

- Control and anti-fraud

VAT fraud is high on the European Union's political agenda: though the exact amount of money involved is difficult to quantify, some Member States have estimated their losses at up to 10% of net VAT receipts.

Please find more information about VAT fraud and the EU's response on the following pages:

·       New administrative cooperation regulation;

·       VAT fraud reports. 

- VAT and Administrative Cooperation

The Council of the European Union adopted a new Regulation on administrative cooperation in the field of Value Added Tax on
7 October 2003.

The aim of the Regulation is to improve administrative cooperation between Member States concerning VAT.

The following links provide information about the new Regulation.

·       What is administrative cooperation and why is it important?

·       Why is there a new Regulation?

·       What does the new Regulation provide for?

        ·    Clear and binding rules

        ·    Devolving cooperation to enhance effectiveness

        ·    Stepping up data exchange to improve the fight against fraud

·       What has not changed?

·       Taxing insurance premiums

·       Flanking measures

·       When do the Regulation and Directive take effect?

·       Need more information?

What is administrative cooperation and why is it important?

Administrative cooperation concerns the tax and customs administrations of EU Member States cooperating with one another to share information. Close cooperation between these bodies is vital to detect and reduce tax fraud.

In the field of VAT, this system of administrative cooperation has, until now, been based on Regulation Nr 218/92 and Council Directive 77/799/EEC. However, a new Regulation Nr 1798/2003 of 7 October 2003 now sets up a single legal framework merging the legal apparatus of Regulation Nr 218/92 and the provisions of Directive 77/799/EEC on VAT.

Why is there a new Regulation?

VAT fraud costs the Member States of the European Union millions of euros annually. In addition, it distorts competition for honest traders and undermines confidence in the European taxation systems. Very simply, the current system does not efficiently and effectively combat this problem.

The current system of VAT administrative cooperation, based on Regulation Nr 218/92 and Council Directive 77/799/EEC , no longer meets modern requirements arising from the ever closer integration of economies within the internal market. It is too general, too centralised and not sufficiently intensive to cope with the requirements of the current VAT.

What does the new Regulation provide for?

The new Regulation sets up a single legal framework merging the legal apparatus of Regulation Nr 218/92 and the provisions of Directive 77/799/EEC on VAT. The amendments as compared to the previous legal frame work are of three kinds:

Clear and binding rules

The new Regulation provides an arrangement specifying the rights and obligations of all interested parties and laying down procedures which govern administrative cooperation between Member States in the field of VAT. It lays down clear and binding rules for, inter alia:

·       facilitating information exchange

        ·    form requirements for both information requests and information provided;

        ·    time limits to provide the information;

        ·    possibilities for the use of information;

        ·    procedures and situations for refusing information requests;

        ·    procedures for handling information exchange with non Member States.
·       facilitating VAT investigations

        ·    requesting other Member States to conduct administrative enquiries;

        ·    presence of foreign officials during controls;

        ·    cross-border notification of decisions emanating from the tax authorities of another Member State ;

        ·    procedures for organising multilateral controls.

Devolving cooperation to enhance effectiveness

The new Regulation also provides for more direct contact between tax inspectors of different Member States, with a view to making cooperation faster and more effective while retaining the pivotal function of the central liaison offices. Direct communication between inspection staff or fraud units is the only effective way to speed up the exchange of information.

Stepping up data exchange to improve the fight against fraud

The new provisions aim to intensify the spontaneous exchange of information between administrations in order to combat fraud more effectively.

This Regulation provides for two types of spontaneous exchange:

·       structured automatic exchange and

·       automatic exchange.

The sole difference between these two types of exchange is that where the authority responsible for transmission is unable to collect the information to be exchanged on a regular basis, structured automatic exchange will take place. It will be impossible, for example, for a Member State to exchange information automatically where taxable persons in that Member State are under no obligation to communicate such information.

The Regulation specifies that Member States should, at the very least, exchange information in the following situations:

·       where taxation is deemed to take place in the Member State of destination (for example in cases of distance sales);

·       where there is a suspicion of a breach of VAT legislation in the other Member State (for example in cases of significant discrepancies between intra-Community supplies and acquisitions); and

·       cases which represent a risk for tax loss (due to fraud or avoidance) in the other Member State (for example, cases of carousel fraud).

However, the precise category of information and the way in which the exchange will be handled by each Member State will be decided via the Committee Procedure. The flexibility of the new system lies in the this Procedure, according to which it will be possible to conclude an agreement under which e.g. 10 Member States will exchange information automatically while the other five will do so in a structured automatic way.

What has not changed?

The following exchange of information has not been changed but is now incorporated in the new Regulation:

Exchange of information specific to intra-community transactions

Since 1 January 1993 , a computerised VAT Information Exchange System (V.I.E.S.) enables companies to rapidly obtain confirmation of the VAT numbers of their trading partners and enables VAT administrations to monitor and control the flow of intra-Community trade to detect all kinds of irregularities

Exchange of information specific to e-commerce

In addition, from 1 July 2003 onwards, the Regulation provides additional measures necessary for

·       registering foreign e-commerce traders for VAT purposes and

·       distributing VAT receipts to the Member States where the services were actually used.

For more information on VAT and e-commerce see here.

Taxing insurance premiums

The amendment of Directive 77/799/EEC (concerning mutual assistance in the field of direct taxation) means that Member States will now be able to exchange information concerning certain taxes imposed on insurance premiums. Henceforward tax administrations will be able to request information on transactions of insurance companies established in other Member States and to recover the taxes due on their territory.

Flanking measures

Another important instrument encouraging administrative cooperation in the field of VAT and mutual assistance on insurance taxes is the FISCALIS 2007 Decision.

FISCALIS 2007 provides for funding for e.g. multilateral controls and exchanges of tax officials between Member States.

1 January 2004

Need more information?

·       The text of the Regulation on administrative cooperation in the field of VAT

·       The text of the Directive regarding administrative cooperation for insurance premium taxation

·       The press release for the Regulation and Directive on administrative cooperation in the field of VAT

·       The European Commission's Proposal for a Regulation on administrative cooperation in the field of value added tax

·       The press release for the Commission's Proposal for a Regulation on administrative cooperation in the field of value added tax (IP/01/857)

·       VAT fraud FAQ (MEMO/01/230)

There have been some major improvements in co-operation in this area in recent years, with the adoption of strengthened EU legislation (see IP/03/1350), the redesign of national control arrangements as a result of information-sharing on best practices, and improvements in the level and quality of mutual assistance between tax administrations.

However, the Commission's report recommends that Member States take further steps to intensify administrative co-operation such as

·       improving the exchange of information,

·       increasing the human resources allocated to this work and

·       removing remaining legal barriers (e.g. legislation on secrecy) to the fight against VAT fraud.

The Commission notes that certain national authorities have recently suggested amending the VAT system itself in order to tackle the problem of VAT fraud but concludes that all the suggestions for change would have disadvantages that would outweigh their potential benefits.

 

The full version of the report from the Commission to the Council and the European Parliament on the use of administrative cooperation arrangements in the fight against VAT fraud can be found here: COM(2004) 260 of 16/04/2004.

COM(2004) 855 Report from the Commission to the Council and the European Parliament: Fifth report under article 12 of Regulation (EEC, Euratom) No 1553/89 on VAT collection and control procedures - see also annex 20/01/2005

COM (2000) 28 Report from the Commission to the Council and the European Parliament: Third Article 14 Report on the Application of Council Regulation (EEC) No 218/92 of 27 January 1992 on Administrative Cooperation in the Field of Indirect Taxation (VAT) and Fourth Report under Article 12 of Regulation (EEC, EURATOM) No 1553/89 on VAT Collection and Control Procedures. 28/01/2000

COM (1996) 681 Report from the Commission to the Council and the European Parliament - Application of Council Regulation (EEC) 218/92 of 27 January 1992 on administrative coopeation in the field of indirect taxation (VAT) - second article 14 report 8/01/1997

COM (1994) 262 Report from the Commission to the Council and the European Parliament - Application of Council Regulation (EEC) N° 218/92 of 27 January 1992 on administrative cooperation in the field of indirect taxation (VAT) 23/06/1994