It is said that politicians are either gamekeepers or gardeners,
maintaining the status quo or pursuing the path of reform. Since he
became European Commissioner for taxation, customs union, audit and
anti-fraud in 2010, Algirdas Semeta has definitely proved himself to be
the latter, embarking on an ambitious and politically fraught campaign
of wide-ranging reform from the common consolidated corporate tax base
(CCCTB) to the financial transaction tax (FTT).
Getting the EU's 27 member states to unanimously agree on anything is
a challenge, let alone when it comes to the contentious area of
indirect tax policy. But Semeta remains committed to far-reaching reform
and perhaps few policies are further reaching than the Commission's
plans for the future of VAT.
In December last year, Semeta presented a Communication on the future
of VAT, setting out the actions needed to create a simpler, more robust
and more efficient VAT system in the EU, and the Commissioner reports
things have progressed well since.
"I am pleased to say that all priority actions which were due for
2012 have already been realised," Semeta says. "In particular, progress
has been made in ensuring greater involvement and more transparency in
establishing and interpreting EU VAT law. This responds to a major
request of stakeholders during the consultation phase leading up to our
In June, the Commission set up a formal expert group on VAT, which
will consist of up to 40 persons appointed either in their personal
capacity or on behalf of business, consumer and tax practitioner
organisations. Semeta sees this expert group allowing for an organised
and structured exchange of views between the Commission and stakeholders
when preparing legislative initiatives in the context of the VAT
In July, an EU VAT forum was established where businesses and tax
authorities strive to improve the way VAT works in practice. The forum
will be made up of one representative from each member state and
representatives from up to 15 stakeholder organisations.
"While both these groups will deal with VAT, their focus is
substantially different," says Semeta. "The VAT expert group will enable
better dialogue between the Commission and stakeholders in the process
of preparing legislative proposals. The EU VAT forum creates a platform
where business and national tax authorities' experts can informally
discuss cross-border tax administration issues related to VAT."
"The common link that the groups have is that they should help us
move towards a VAT system which better meets the needs of all involved,"
he adds. "We have also published all the guidelines agreed by the VAT
Committee since it was set up in 1977, as a further measure to make
information on EU VAT law available and accessible to the public."
Besides these concrete actions, the Commission is doing preparatory
work on a number of substantial topics including a review of VAT rates, a
standardised VAT return and VAT rules on intra-EU transactions and
Semeta expects these to result in new initiatives in 2013-2014.
Given the difficulty of coming up with proposals that are
sufficiently far-reaching to address the problems of Europe's ageing VAT
system, while still being acceptable to all 27 member states, it is
surprising that there is nothing Semeta would have liked to have
reformed that he was unable to get on the table.
"Given the importance of VAT receipts for the national budgets, it is
understandable that member states are only prepared to consider
changing the EU VAT rules if they are convinced of the potential
benefits of such a change," says Semeta. "The same applies to
stakeholders: changes to VAT law often require them to adapt their IT
systems, so the cost of this must be worth it."
Semeta believes the Commission's strategy for VAT reform takes a
measured approach to avoid any risk to national revenues or sudden
upheavals for businesses. He says that the changes "which will lead to a
better functioning, better protected VAT system" will therefore be done
in a steady and gradual way, in full consultation with all interested
Taxpayers have largely welcomed the Commission's proposals to make
the EU's VAT system simpler and more efficient. Where it has met with
more resistance, however, is the third pillar of its reform programme:
Semeta recently proposed a Quick Reaction Mechanism (QRM), that would
enable member states to respond more swiftly and efficiently to VAT
fraud. Under the QRM, member states would be able to apply a reverse
charge mechanism within the space of a month, which current EU VAT rules
do not allow.
"We have also, in this proposal, taken on board the fact the new
fraud schemes may appear in the future, in which case other anti-fraud
measures could also be authorised," says Semeta. "The QRM should greatly
improve member states' chances of effectively tackling problems such as
carrousel fraud and preventing huge financial losses."
Legitimate taxpayers have said they share the Commission's concern
with tackling fraud, but they are worried that measures such as the QRM
will increase their compliance burden. Semeta, however, believes that
because massive VAT fraud distorts competition as well as stealing
revenue, it is in the interests of legitimate traders that it is stopped
as quickly as possible.
"When such situations arose in the past, member states have sometimes
been tempted to take immediate measures without an appropriate legal
basis in the EU legislation," says Semeta. "This created uncertainty for
The purpose of the QRM proposal is to include a procedure in the VAT
Directive which would provide a legal base for member states to take
immediate measures in specific situations. Semeta says that because the
type of measures that can be taken will have been defined beforehand and
known by taxpayers and authorities, there will be greater legal
certainty and clarity for all.
Financial transaction tax
The other big reform in the Commission's sights is the FTT. France
and Hungary have already pulled ahead of the pack with their own
versions of the tax, but Semeta has much broader hopes for it.
Nevertheless, the FTT remains one of the most controversial areas of his
plans and, while it enjoys strong support from many member states
looking to ensure the financial sector pays for its role in the economic
collapse and resulting bailouts, it has met with stiff opposition from a
number of countries including the UK, which fears it will hit the City
"It has now been confirmed by finance ministers that, although
unanimity cannot be reached on the FTT, there is a strong number of
member states which still want to push ahead with it at EU level," says
Semeta. "Therefore, the ball is now in member states' court to make an
official request for enhanced cooperation."
The member states in question must send a formal request to
Commission, setting out the scope and objectives of what they want to do
through enhanced cooperation. From discussions in the ECOFIN, and with
individual member states, Semeta believes that the Commission's proposal
is seen as the right basis to proceed, even if it is decided to take a
more gradual approach than it had initially foreseen.
"I was always a strong advocate of an FTT for all 27 member states,
as I am convinced that this is the best way to achieve its objectives
and to respond to the calls of citizens right across Europe," says
Semeta. "However, if this is not possible, enhanced cooperation on the
FTT is definitely the next-best solution. The Commission is ready to
respond quickly to any request for enhanced cooperation, and support all
efforts to make an EU FTT a reality."
On the horizon
The Commission is doing a lot of work on the mini one–stop-shop (OSS)
for telecommunications, broadcasting and electronic services, which
should enter into force in 2015. Semeta says that throughout 2012, the
Commission has been putting together implementing rules to ensure legal
certainty when the time comes to apply this new scheme.
"For example, we have made a proposal on how to design the IT systems
which will be used for information exchange between tax authorities,"
says Semeta. "I believe that this OSS will be a milestone initiative for
the EU VAT system.
By allowing businesses to declare and pay VAT in the member state
where they are established, rather than where the customer is located,
Semeta envisages the OSS greatly simplifying life for businesses and
says it should help to improve tax compliance.
"The success of this mini OSS will also determine whether we can
broaden out the concept to cover other transactions," he says. "The
Commission is therefore putting a lot of effort into ensuring that it
can be up and running smoothly in 2015, and I would expect similar
effort from the member states on this."
There will be plenty of work ahead before Semeta's indirect tax plans
are realised and life is unlikely to get any less busy any time soon.
But if he is successful, the garden of Europe's indirect tax system may
prove to be that much better tended.