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Germany Puts Brakes On E-Commerce VAT Proposals,
by Ulrika Lomas, Tax-News.com, Brussels
Monday, June 12, 2006
German insistence that the European Union changes its tax legislation to crack down
on widespread value added tax fraud has put the brakes on e-commerce VAT reforms
which would prevent firms from taking advantage of low rates of VAT in locations
such as Madeira and Luxembourg.
At the latest meeting of European Union finance ministers (Ecofin), German
Finance Minister Peer Steinbrueck told fellow ministers that Germany would not
support the e-commerce VAT measure unless it was given permission by the European
Commission to introduce 'reverse charging' to reduce missing trader fraud, which
Berlin claims costs the government as much as EUR18 billion annually in VAT
revenues.
The EU's Commissioner for Taxation, Laszlo Kovacs, last week presented a paper
which proposed a number of ways in which new legislation could reduce missing
trader fraud, which some estimates have claimed costs EU member states a total
of EUR60 billion in lost revenues annually.
One of these options was a reverse charging system whereby VAT would be paid
at the point of consumption which, it is intended, would prevent fraudulent
traders from being able to import goods and sell them on without paying the
appropriate amount of VAT to the relevant tax authority.
However, not all member states are in favour of this proposal and some favour a
less radical solution, such as better surveillance and monitoring systems within
the current VAT framework.
Germany's hardline stance on the issue means that a separate proposal to charge
VAT on electronically delivered services on the basis of where the customer
is situated rather than the jurisdiction in which the vendor is based has been
stalled.
At present, many companies are taking advantage of the fact that VAT rates
differ widely across the EU by registering their businesses in jurisdictions
where VAT rates are low, particularly in Luxembourg and the Portuguese island
of Madeira, which have the lowest permitted rate of VAT in the EU, at 15%.
Karl-Heinz Grasser, Finance Minister of Austria, which currently holds the
six-month rotating EU presidency, announced yesterday that this system will
now continue until December 31.
According to Grasser, he has the support of about 20 members for the new proposal,
but he noted that opposition from Germany, Luxembourg and Portugal remains strong.
"I am convinced that the package is a good one," he stated.
"May be the time is not right for a decision today. It is better to be
ambitious for the package than to have a bad compromise on the table,"
he added.
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