A never-ending story – is the EU VAT proposal on taxation of financial services back on the table?
On 30 January, the Bulgarian Presidency of the Council of the European Union published its priorities in the area of the EU taxation during its term. In this article I will address the noteworthy aspects of the Bulgarian tax policy roadmap with regard to the future of financial services taxation.
27 February 2018
At the dawn of the global financial crisis near the end of 2007 the European Commission presented a proposal to amend the VAT Directive to facilitate insurers and financial services providers. The proposal aimed to clarify the rules on the VAT exemptions applicable to the sector (increasing legal certainty and reducing the administrative burden) and to reduce the impact of ‘hidden VAT’ (VAT included in costs of insurance and financial services providers) (COM/2007/0747 final/2).
After almost 8.5 years of discussions on, and amendments of the proposal it was finally withdrawn by the Commission in the spring of 2016. The decision was made six months before, with the Commission noting that as the proposal dated from 2007, no agreement was to be foreseen and no Council Presidency had recently taken up discussions.
And that is about to change
In their recently published Tax Policy Roadmap, the current Bulgarian Presidency of the Council expressed the ambition to facilitate a strategic debate on the future of financial services taxation. The publication followed discussions in the High Level Working Party on Taxation (HLWP) earlier in January. With the debate, to take place within the HLWP, the Presidency seeks to assess the need for further action by the Council.
The special focus on the indirect taxation of the financial sector (and the possible resurrection of a legislative change to the EU VAT system as it applies to the sector) is new. It is included in addition to the ambition to move forward on the proposal for a Financial Transaction Tax (FTT). Although the Presidency explicitly refers to the withdrawn proposal, it seems to me that the discussions they want to facilitate are of a more general nature, possibly aiming at a new proposal for VAT in the financial sector.
A new direction?
Over the past years, the focus of legislation has been on increasing regulations on the sector. Now, the Bulgarian Presidency advances an opening to discuss the simplification of the VAT regulations and reduction of the administrative burden again.
In my opinion, a clarification of EU VAT rules as they apply to the financial sector would be a welcome opportunity to harmonize interpretations across Member States. Especially in the light of the changing political landscape following Brexit, it will be interesting to see where delegates from various Member States stand on these developments.
We will keep you posted on the developments.