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News Review from the EU

Kitty Miv, Editor
23 February, 2022

In this week's column, we will be focusing on the various tax initiatives being undertaken by the European Union, starting with a proposed extension, beyond June 2022, of the possibility for member states to react to VAT fraud encountered in their territory by speedily introducing a VAT reverse charge. The proposal is in response to a delay to the implementation of the new definitive VAT regime for the EU.

Under provisions contained in existing EU law, member states have the option of applying a reverse charge mechanism for listed supplies and in the case of "sudden and massive fraud", under the Quick Reaction Mechanism (QRM). Prior to the introduction of the QRM, a member state that wanted to counteract VAT fraud through measures not provided for under EU VAT legislation would have to formally request a derogation to do so.

The QRM mechanism has been extended since its introduction, most recently until June 30, 2022, which would have coincided with the initially foreseen date on which the VAT definitive system would enter into force.

The EU's plans for a definitive VAT regime were set out in October 2017. The plan aims to reduce fraud, estimated to cost member states EUR50bn per year, by EUR40bn, in particular by centering tax rules around the destination principle – that supplies should be taxed where they are consumed or effectively enjoyed, under that territory's domestic rules.

However, the Commission has now said "the state of play of the ongoing negotiations in the Council indicates that it will not be possible for the definitive VAT system to enter into force on July 1, 2022."

Also on the topic of VAT, the EC has revealed it is considering a value-added tax waiver for defense equipment purchased as part of the EU's Common Security and Defence Policy (CSDP).

The CSDP is the framework for cooperation between EU member states on peace-keeping and international security matters, fostering collaboration and the pooling of civil and military assets.

In a newly released communication to the European Parliament, the Council, the European Economic and Social Committee, and the Committee of the Regions, the Commission has said it will "explore enabling a possible Value Added Tax (VAT) waiver to support the joint procurement and joint ownership of defence capabilities that are developed in a collaborative way within the EU."

"These capabilities will be available for use by Member States for missions and operations in the framework of CSDP or within the context of UN, NATO and national activities," it said.

And last but not least this week, with tax transparency having been very much in the news, it was reported that EU lawmakers are calling for an end to citizenship by investment schemes and tighter rules on investment-linked residence permits.

The Committee on Civil Liberties, Justice and Home Affairs approved a draft legislative initiative report with 61 votes for, 3 against, and 5 abstentions. It sets out an array of measures to address perceived problems linked to citizenship and residence by investment schemes, with the EU lawmakers calling for a ban on so-called "golden passports" and for strict EU rules for so-called "golden visas".

The report calls for the introduction of a 50 percent tax on any investments received under the schemes by member states, which would go towards the EU budget.

The draft report asks for common EU rules to harmonize standards and strengthen the fight against money laundering, corruption, and tax evasion linked to such schemes. It additionally proposed a "notification and consultation" scheme to allow other member states to object to an application being approved.

MEPs will debate and vote on the report in the next plenary session, scheduled to be held between March 7 and 10.

Until next week!


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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