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
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
"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 reform.
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
"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
"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: tackling fraud.
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
"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 taxpayers."
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
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 of
"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
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