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EU Throws Weight Around On Compliance, Trade

Kitty Miv, Editor
10 February, 2020

Against a background of inter-party sniping in the United States surrounding President Trump's State of the Union speech (itself taking place during both an impeachment trial and his campaign to secure the Republican presidential nomination for 2020), improbably, it is the EU which has dominated the news cycle this week, and not just on the Brexit front, although Boris has given putting the UK cat amongst the EU pigeons his very best shot, as we'll discuss a little later.

At the end of January (just ahead of the January 31st withdrawal deadline, which came and passed not with a bang (or a Big Ben bong, come to that...) but with a whimper, the European Parliament stated that it was seeking an "ambitious" post-Brexit relationship with the United Kingdom.

The European Parliament's Brexit coordinator has said that the EU should be ambitious in its aims for its post-Brexit relationship with the UK.

Speaking ahead of two votes on the UK's withdrawal from the European Union, Guy Verhofstadt suggested that, ideally, the EU "should be able to go beyond a free trade agreement with the UK."

He explained: "Not only 'zero tariffs' and 'zero quotas' but also 'zero dumping'; that means that our European social and environmental standards will be fully respected in our future trade relationship."

Verhofstadt added: "If we can achieve this, there is hopefully sufficient trust between the EU and the UK to move towards a real association agreement with more than just an economic pillar, but also cooperation on police matters, defence, intelligence exchange and foreign affairs."

Also at the end of the month, it emerged that the European Commission had issued formal notices to numerous European Union member states with regards to lapses in the implementation of various EU anti-tax avoidance directives.

According to the EC, member states which were given formal notices regarding the implementation of the Directive on the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (DAC 6) were Belgium, Cyprus, the Czech Republic, Estonia, Greece, Spain, France, Italy, Luxembourg, Latvia, Poland, Portugal, Romania, Sweden, and the United Kingdom.

The Commission went on to report that the following member states have been given formal notices with regards to the implementation of the first Anti-Tax Avoidance Directive, which lays down rules against tax avoidance practices that directly affect the functioning of the internal market: Germany, Greece, Spain, Latvia, Portugal, and Romania.

Additionally, seven member states were issued with formal notices regarding the transposition of the second Anti-Tax Avoidance Directive, which deals with hybrid mismatches arrangements with third countries. These countries were: Cyprus, Germany, Greece, Spain, Latvia, Poland, and Romania.

Furthermore, Belgium was issued with a formal notice concerning the implementation of the Directive on tax dispute resolution mechanisms in the EU.

The picture was barely better on the VAT front, with infringement proceedings launched against 14 member states for failing to implement the so-called value-added tax quick fixes.

The VAT quick fixes were included in Council Directive (EU) 2018/1910 of December 4, 2018. They are intended to simplify VAT compliance for businesses and strengthen and harmonize existing EU rules ahead of the introduction of more comprehensive reforms to EU VAT law scheduled for 2021.

The four short-term measures provide:

  • That the VAT identification number of the customer, allocated by a member state other than that in which dispatch or transport of the goods began, should constitute an additional substantive condition for the application of the exemption in respect of an intra-Community supply of goods.
  • For more uniform rules when determining the VAT treatment of chain transactions, including triangular transactions, clarifying in particular which party should benefit from zero-rated treatment;
  • New VAT rules for call-off stock arrangements, to reduce the compliance burden for taxpayers and tax administrations and provide for a more uniform application of the rules in the EU;
  • For the introduction of a common framework for the documentary evidence required to claim a VAT exemption for intra-EU supplies.

According to the Commission's list of infringement decisions, the member states which have been issued with letters of formal notice for deficiencies in implementing EU directives on VAT compliance are: Belgium, Cyprus, the Czech Republic, Denmark, Greece, Spain, France, Italy, Luxembourg, Poland, Portugal, Romania, Slovenia, and the United Kingdom.

If the UK's Prime Minister Johnson has his way, though, then the European Union's legal opinion on the UK's compliance – or otherwise – with European rules in this area may be moot, and possibly sooner rather than later, as he has attempted this week to sidestep various commitments made prior to the signature of the withdrawal agreement between the EU and the UK.

However, seemingly ignoring the British sabre-rattling, the European Commission took the first step toward negotiating a new relationship with the UK by issuing a recommendation to the European Council that trade talks should commence.

Under the agreed transition period, EU law will continue to apply to the UK until at least December 31, 2020. The transition period can be extended if a decision is made on this issue by July 1, 2020.

The Commission's recommendation to the Council is based on the existing Council guidelines and conclusions, and on the aforementioned Political Declaration agreed between the EU and the UK in October 2019. It includes a proposal for negotiating directives, defining the scope and terms of the future partnership the EU envisages with the UK.

These directives cover all areas of interest for the negotiations, including trade and economic cooperation, law enforcement and judicial cooperation, foreign policy, security and defence, participation and Union programs, and other thematic areas of cooperation.

According to the Commission communication, "the envisaged partnership should include an ambitious, wide-ranging, and balanced economic partnership," which "should be comprehensive, encompassing a free trade agreement as well as wider sectoral cooperation where it is in the Union interest."

The document added that the partnership "should aim at establishing a free trade area ensuring no tariffs, fees [or] charges... provided that a level playing field is ensured through robust commitments."

The Council now needs to adopt the draft negotiating directives, which will formally authorize the Commission to open the negotiations.

Until next week!

Tags: Euro

About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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