EU Finance Ministers Discuss Savings Tax, VAT

by Ulrika Lomas, Tax-News.com, Brussels

10 June 2009

European Union Finance Minister discussed a number of tax matters during their meeting on June 9, including proposals to tighten the Savings Tax Directive, value-added tax reforms and international tax transparency.

The main item on the agenda however was the preparation of the EU summit, to be held on 18-19 June 2009 in Brussels. The ECOFIN Council paid special attention to the reform of the European supervisory framework on the basis of recommendations made by the de Larosière group and the Commission Communication of 27 May. In its conclusions, the Council endorsed the establishment of the European Systemic Risk Board (ESRB) – an independent body intended to exercise macro-prudential supervision over all financial sectors. At the micro-level, the Council gave the green light to the creation of the European System of Financial Supervisors (ESFS), to strengthening and more profound harmonisation of supervisory practices in the EU and to the transformation of existing supervisory bodies to European supervisory authorities (ESA) endowed with legal personality.

During the meeting of the Council of Finance Ministers (Ecofin), the European Union Presidency (until the end of June, the Czech Republic) reported on the progress made on the Commission's proposal to review the Savings Tax Directive in order to widen the scope of the legislation. Ministers welcomed the Commission proposal on acceleration of the work on legislative proposals relating to the savings taxation Directive.

In November 2008, the Commission proposed to widen the Directive, so as to better ensure the taxation of interest payments which are channelled through “intermediate tax-exempted structures” such as trusts and foundations. The Commission also proposed to extend the scope of the Directive to income equivalent to interest obtained through investments in some innovative financial products as well as in certain life insurances products.

Meanwhile, in the area of VAT, Ministers adopted amendments to the Directive on a common system of value added tax (VAT) regarding tax evasion related to imported goods, and a technical amendment of the same directive, with respect to import and the place of taxation of gas and electricity and tax deduction systems during use of property for business and non-business purposes

“Importation of goods is exempt from VAT if followed by a supply or transfer of those goods to a trader in another member state,” the Commission’s statement said. “Inadequate implementation of this exemption in national law has lead to difficulty in following-up the physical movement of the imported goods. Experience shows the increasing use of this particular exemption in missing trader fraud schemes.”

The Presidency also reported on the progress made on the Commission's proposal aiming at modernising and simplifying the current complex VAT legislation for financial services and insurance. These services are generally exempt from VAT but the exemption dates from 1977 and the Commission has conceded that legislation has “not kept abreast of developments since then.”

This exemption is not applied uniformly by the member states and the European Court of Justice has been asked to fill the legislative gap and clarify the correct interpretation on a frequent basis.

The Commission proposal seeks to address the VAT problems of the financial sector by allowing financial institutions to opt for taxation and by introducing of a “sector-specific cost-sharing exemption scheme.”

Ecofin is also attempting to reach a conclusion on the Commission’s recent communication on “good governance in the tax area” which has been given life by the global drive to increase tax transparency, led by the Organization of Economic Cooperation and Development and the Group of 20 nations. This communication identifies how exchange of information procedures can be improved and “fair tax competition” promoted as a means of ensuring a “level playing field” and combating cross border tax fraud.

Ministers agreed on the need to comply with the OECD standards for exchange of tax information upon request and to implement the standards within the EU as well as in relation to third countries. The Council has also acknowledged that the Commission will submit proposals for negotiation directives with selected third countries (San Marino, Andorra, Monaco, Switzerland) with respect to agreements that would include these standards. The Council also called upon the Commission to conclude negotiations with Lichtenstein on the anti-fraud agreement. The ECOFIN Council will address the issue of good governance again in the autumn.

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