Yet another VAT report has been adopted by the European Parliament in Strasbourg. What does this report consist of and how does it tie in with the other work on VAT that has been done so far?

The report that was adopted in plenary this week concerned the extension of a part of the transitional VAT system. Specifically, that which concerns the obligation for member states to implement a minimum VAT rate of 15%. Despite it being well established that the current VAT system is not well suited to the Internal Market it has not been possible to establish a permanent system due to the political deadlock that is present between member states.

The current, transitional VAT system is complex – creating unnecessary burdens on the business sector and hindering the efficiency of cross-border transactions. Importantly, it also makes the system vulnerable to specific forms of fraud such as Missing Trader Intra-Community fraud, which in its most serious form is known as carousel fraud.

Carousel fraud was discussed at length in a previous report that dealt with the introduction of the reverse-charge mechanism. This mechanism theoretically precluded the possibility of this fraud taking place by changing the moment in time at which VAT is paid to the treasuries of member states. There are certain products that are more susceptible to carousel fraud. Typically these are those goods that are high in value but easily transportable, such as computer chips and mobile phones. The report that I had drafted also emphasised the vulnerability of the Emissions Trading Scheme (ETS) to carousel fraud and prioritised the use of this mechanism in this regard.

All recent amendments to the VAT Directive have acknowledged the need to reduce burdens on the business sector, especially with regard to SMEs, which are vital to the economies of EU member states. Another report concerning the VAT rules on invoicing called for the placing of electronic invoices on an equal footing with paper invoices. It was also recommended that any new obligations on the business sector be proportionate to the benefit that would be achieved and that any unjustifiably burdensome obligations – such as a requirement to have invoices translated into the language of the other party – be completely removed from the proposal.

The report that has just been adopted notes that the prolongation of the transitional system was necessary in order to ensure certainty for the business sector and supports the Commission proposal to extend the minimum standardisation rate of 15% to 2015.

It is, however, noted that the current system exhibits a number of shortcomings that are inclusive of an inherent vulnerability to fraud, additional burdens on the business sector and unnecessary complexity.

The report therefore calls for a thorough and broad consultation and calls on the Commission to launch a green paper as soon as possible. From the support that the report has received it is clear that the EP is eager to see these proposals being issued in time to prevent yet another extension of the transitional system. It is for this reason that the report calls on the Commission to issue concrete legislative proposals by 2013 and to have these proposals in force by 2015. While it is understandable that the consultation needs to run its course, the process must be carried out efficiently and expediently.

The truth is that finding a VAT system on which member states in Council will be able to agree is no easy task. The current deadlock has proved to be insurmountable so far. Nevertheless it is incredibly crucial that a solution is found so as to enable us to have an efficient and properly functioning Internal Market that will enhance businesses and hence strengthen European economies.