The European Commission tabled on Thursday the latest part of the VAT system reform that would grant more freedom to the EU member states.The Commissioner for Economic and Monetary Affairs Pierre Moscovici accused a number of bloc members of being “black tax holes”, and promised to exude “intelligent pressure” on those who violate the EU’s tax laws.
“Some European countries are fiscal black holes,” said Moscovici. “Obviously many EU countries are places where aggressive tax optimisation finds a place…you realize that the tax flows are going to countries like Ireland, the Netherlands, Luxembourg, Malta, Cyprus.”
This is not the first time Moscovici has named member states who act as tax havens. On 5 December, when the 28 EU countries adopted a blacklist of 17 tax havens operating outside their borders, the Commissioner Ireland, Luxembourg, Malta and the Netherlands’ aggressive tax planning.
Next Tuesday, at their next ECOFIN meeting in Brussels, the 28 EU finance ministers are expected to leave eight countries, including Panama, blacklisted. Moscovici asked the 28 member states to make transparent commitments and to not weaken the list. “Any reduction of the blacklist can be read as a weakening and there is no secret, at the next meeting of EU finance ministers, the list will melt,” said Moscovici.
Brussels drastically reform VAT regime
On the new proposal, the European Commission advocates maintaining a minimum general rate of 15%, while opening the door to member states that will choose to impose lower rates of four distinct categories. The member states will be able to set two reduced between 5% and the general rate, an exception on VAT payment (zero rates) and the fourth rate between zero and the reduced amount.
As for the reduced rate, the Berlaymont proposes the elimination of the current list of goods and services to which a reduced rate may be applied. A new list of products to which the general rate must be applied, among which will be weapons, alcoholic beverages, tobacco, products related to gambling, precious metals, smartphones, household appliances or financial services will replace the eliminated list.
In any case, the EU executive calls for the introduction of a safeguard by which countries would have to ensure that the weighted average of VAT rates is higher than 12%, in order to avoid tax competition between the EU member states in the collection of taxes, bringing change to the current model that entered into force in 1993. The old model established a general VAT rate of at least 15% for all goods and services, but as the member states were able to apply the 5% reduced rate to the predefined list of goods, together with perks gained by certain member states during their EU accession process.
This has led to a “mosaic” of regulations in the EU that also generate “inequalities” within the bloc. the EU bloc. “Some Member States enjoy exceptions, while others are not allowed to apply reduced rates or zero rates to the same products or services,” said Moscovici.