The European Commission plans to reform current legislation on financial services and insurance, with the aim of cutting administrative costs and removing competitive distortions with respect to VAT across different Member States.
The Commission and the European Banking Federation held a one-day conference on May 11th to discuss these issues and the Commission has launched an online consultation on the matter.
Hein Blocks, Chairman of the European Banking Federation Executive Committee, said that the current VAT regime is a “major obstacle to cross-border consolidation in the banking sector”, adding that it puts banks at a competitive disadvantage compared to non EU competitors. The issue of VAT has therefore become a cornerstone of the policy for financial services in the coming years.
Laszlo Kovacs, Commissioner for taxation and customs, said that they hope to put forward a legislative proposal before the end of 2006.
“I encourage all stakeholders to provide feedback during the public consultation to enlighten the debate and to help the European Commission to come up with the best proposal,” he said.
Why revisiting the current legislation?
The long list of cases handled by the European Court of Justice in the recent years underlines the need to revamp the legislation.
In a background note the Commission explained that financial services and insurance are currently exempt for VAT legislation adopted in 1977.
This exemption creates “hidden VAT” charges in services provided by financial and insurance companies because they cannot deduct VAT paid by themselves for services or products such as computers.
“Their charges to customers will therefore reflect this VAT cost and, as it cannot be recovered by business customers, cascades through the system increasing the cost of the goods and services they themselves supply,” said the Commission.
“VAT should not generate unnecessary obstacles to the achievement of an integrated, open, efficient and competitive market for financial services.”
Main objectives of the new legislation
The Commission’s main objective in modernising VAT legislation are to ensure that insurance and financial services customers are not left with hidden VAT costs, while ensuring continuity of tax revenue for member states, cutting red tape, clarifying exemptions and creating a level playing field.
In its consultation document, the European Commission has pointed to 5 main options for structural reform.
At the same time the Commission stresses that suggesting these options for consideration does not imply that they reflect any preferences on the part of the Commission and that other options may also emerge.
Further information on current consultation on financial services is available on the following website:
http://europa.eu.int/comm/taxation_customs/common/consultations/tax/index_en.htm
