EU VAT plan attacked

Customs & Excise has sharply criticised European Commission plans to modernise and simplify the VAT system, in a consultation document sent to British businesses last week.

The document responded to Commission proposals, made in June, which called for easier methods for companies to recover VAT paid to companies in other countries and the use of tax ‘blocks’ to standardise rates through Europe.

But Customs’ response said standardisation would cost the exchequer #500m because it would mean introduction of VAT on company car purchases. It added that the new rules would not prevent differences of treatment in various states and attempts to simplify the system would not work.

The consultation paper, stated: ‘At this stage, the UK has concerns about a number of aspects, not least the significant administrative impact which the new arrangements would have. Customs is not convinced that the proposal, and particularly the envisaged tax-blocking rules for cars, provides the simplification aimed at.’ A Customs spokeswoman said: ‘We want to consult businesses and see what their views are.’

John Arnold, the director of European VAT services at Moret Ernst & Young in Amsterdam, said Customs opposed the proposal because it would have to undertake the work and pay out returns. He said: ‘They are worried that more businesses will reclaim VAT if the system makes it easier.’

He added that more problems would be created if different country’s rules were not fully harmonised. He said: ‘Companies could be shopping around Europe to get a better reduction.’

Martin Ruffles, a VAT manager at Arthur Andersen, said the significant problem was going to be collecting VAT in other states. He said it would be very difficult for the UK treasury to retrieve VAT through a settlement clearance mechanism: ‘That is always going to be a stumbling block. There is absolutely no chance of it meeting the 1 January 1999 deadline.’

Douglas Gordon, a VAT partner at Grant Thornton, said: ‘Anything which simplifies the system should be welcomed.’

Customs has set a deadline of 11 December for responses to its consultation document, prior to discussion between member states. The EC proposals will then require unanimous agreement by the Council of Ministers to be passed.

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