VAT

The Commission proposal seeks to remove the VAT exemption for postal services, which has been in place since the 6th VAT Directive was adopted in 1977. Traditionally, this sector was dominated by state-run monopolies, facing little or no competition. It therefore made sense, at the time, to make such services exempt from VAT, in line with the treatment of other public services. However, in the 25 years that have passed since then, postal markets have undergone tremendous changes. The market is being liberalized at European level, and there have also been changes at national level, with several old PTT:s being turned into limited companies. The Commission argues that this has resulted in an uneven playing filed, especially as only services provided by the public operators are exempt from VAT, with the services provided by their competitors being subject to full VAT. It should be stressed that this is not a win-win scenario for either category of operator - the current system has advantages and disadvantages for both. Public operators have a competitive advantage for customers who are not able to claim back VAT, such as private individuals, charities and banks. Although their prices do include a degree of "hidden VAT" (VAT it has paid on its purchases, which it is not able to reclaim), they are likely to be able to offer a total price that is lower than a private operator who has to add up 25% of VAT. Private operators, on the other hand, are likely to be more attractive for VAT registered companies as, although the overall price may be higher, the customer can reclaim the VAT which generally results in a lower net cost to the business. A further disadvantage of the VAT exemption for public operators is that it favors self-supply, i.e. it is more cost-effective for the operator to carry out a service itself rather than subcontracting it as it can not reclaim VAT paid. A case in point is Royal Mail which has recently announced that it will discontinue its (outsourced) mail trains, and instead transport the mail by road with its own fleet of lorries. It is against this background that the Commission proposes that the exemption shall be removed, and proposes that VAT shall be charged at the standard rate for all items of mail, over 2 Kg. in weight, while at the same time giving Member States the option of applying a reduced rate of VAT to items of addressed mail weighing less than 2 kilos. (Commission proposal February 02, 2004 )

Nigel Stapleton, who was named as the new postal regulator last week, believes that private sector competitors 

to the Royal Mail should be exempt from paying VAT.  His views will set him on a collision course with the 

European Commission. In March this year, Frits Bolkestein, the European Commissioner responsible for 

the internal market and taxation, said that, as state monopoly postal services across Europe are 

opened up to competition, all suppliers should have to pay VAT.(EU Update 17/11/03)

Tax plans by the European Commission could leave the Royal British Legion facing a big VAT bill on Remembrance Day poppies. The proposals are part of a move to end VAT breaks for British charities worth about £100 million a year. Legal experts today said the plans, being studied in Brussels , would affect the "supply of goods and services" even by recognised charities, and poppies would be hit.  The Legion supplied 33 million poppies in the run-up to Remembrance Day. Last year the appeal raised £22.1 million. It pays nothing in tax as poppies are zero-rated for VAT, but it estimates that without zero-rating it will have to pay £ 500,000 a year. (EU update 17/11/03 )

 Europe is considering closing a loophole that allows ISPs and e-commerce operations to pay less tax. In a proposal published last week the European Commission said it wanted to ensure a "level playing field" concerning VAT (Value Added Tax). One of the proposed reforms highlighted in the document was the "abuse" whereby operators base their businesses in the Azores or Madeira , a move which results in them playing less VAT. Last year, for example, UK ISP Freeserve moved its business for its Anytime unmetered ISP service to Madeira to take advantage of the island's 13 per cent VAT rate, as opposed to 17.5 per cent in the UK . However, the EC believes such moves aren't on and reckons that the lower VAT rate "must be strictly limited to goods and services giving rise to consumption in those territories". Said the document: "Recent experience has shown that the current derogations can give rise to abuse: for example, there have been cases of businesses in the e-commerce and telecommunications sectors moving to the Azores and Madeira in order to apply the lower rates applicable there to services they supply to final consumers throughout the Community. "Steps must be taken to put a swift end to such practices as they are a misuse of the derogations which were granted solely to allow the Member States concerned to take account of the remoteness and special geographical situation of those regions," it said. Freeserve - which has fought a long running battle over a loophole that, until recently, meant that AOL UK was exempt from paying VAT - was quick to comment. Said a spokeswoman: "Lets not forget that Freeserve wouldn't be in Madeira in the first place if it wasn't for the fact one of our competitors was able to take advantage of not just differential VAT rates in the UK but not paying any VAT at all. "Now that loophole has been closed the EC are looking at Madeira and the Azores but the current situation isn't likely to change for years to come. "We would suggest that as the market for ecommerce continues to grow, the sensible solution would be to apply a common VAT rate for all online transactions across Europe ." ® (The Register 28/07/2003 ) 

If any of you sell stuff on the online auction site Ebay then you will  probably have got a message from them today. In effect this says that due  to a new EU directive they will now have to start charging VAT on the  transactions carried out on their site. As far as I can tell this only  applies to their fees but it has certainly upset a huge number of people  tonight and it is the main topic of conversation on a lot of non-political  newsgroups. Everyone is cursing the EU for this.  This is an application of VAT that is NOT recoverable as input tax - possibly the first of its kind (but most unlikely to be the last). ( 4 Jun 2003 : Eurocritical@yahoogroups.com)

The following is part of a response from Lord Inglwood MEP concerning the levying of VAT on food. As seasoned EU observers, you will no doubt be as concerned the penultimate sentence, "However, the Commission does not intend to propose the abolition of the zero rates in the short term." The corollary of course is that zero rates on VAT and food will be abolished in something a bit longer than 'the short term'. (17 Feb 2003 SANITY)

 Verheugen, the enlargement commissioner, said in the course of a discussion with a delegation from Malta the other day that the derogations on VAT given to the UK and Ireland were merely 'transitional' and that they would have to come into line with a fully harmonised VAT system. VAT on UK food would be worth £8 billion a year to Gordon Brown/and Brussels. (Deloittes VAT Briefing 11/12/02). Brussels is trying to use Malta's accession treaty to lock Britain into imposing VAT on food within seven years. A summary of the terms published by the European Commission makes clear that when into the small print of Malta's treaty - to which the UK will be a ca-signatory - is a formal commitment that by January 1, 2010 , all EU members must levy VAT on food and medicines. (C Booker Sunday Telegraph 25/1/03)

The European Commission approved  plans to impose value-added tax on Internet sales of software, music and other "virtual goods" from outside the EU. The rules will only apply to non-business customers, and will account for less than 10 per cent of sales from non-EU suppliers. Nonetheless, the United States is unhappy about the legislation, because it will allow European companies to charge less tax than their US competitors. Under the proposals, non-EU suppliers of digitally-delivered goods and services will have to register with a VAT authority of an EU state of their choice and levy VAT at the rate applicable in the state of residence of the customer. This rate could vary from 15 per cent (in Luxembourg) to 25 per cent (in Sweden). European countries will pay only their home country's VAT. Deputy US Treasury Secretary Kenneth Dam is hoping that it will be possible to convince the EU that these new rules are unworkable. Failing that, Washington may lodge a complaint with the World Trade Organisation (WTO) (Euobserver.com 12/2/02) (EUobserver.com 8/5/02)

An EU VAT ruling last week could mean higher costs for businesses. The European Court of Justice ruled that government VAT rebates on business expenses; in particular mileage allowances were illegal. Dermot Gaffney, and indirect tax specialist at accountants KPMG warned that the costs to medium sized businesses could be as much as £90,000. (Scotsman, 12 November 2001)

In a last-minute turnaround, the UK has scuppered a Swedish proposal that would allow the European Union to levy VAT on e-commerce transactions. Europe has been wrestling with this issue for more than two years and the about-face could scupper the entire EU directive on digital goods and services, warned Deloitte & Touch. After nearly a year of wrangling, the Swedish presidency had revived a proposal that would allow non EU businesses to supply digitised products to consumers within the EU if they register for VAT in one member state. The revenue from these registrations would then be redistributed amongst the member states through a VAT clearing house. This proposal would have closed the loophole where EU companies were supposed to levy VAT on electronically delivered goods while foreign companies were not. However the UK came in with a last minute proposal to introduce a VAT moratorium on business to consumer (B2C) e-commerce. The UK’s stance is unlikely to gain the support of other members and can be construed as a major setback for the Swedes. Deloittes indirect tax partner Tony McClenaghan suggested that the UK may have wanted to avoid provoking a trade war with the US at November's World Trade Organisation. He added: "Non EU suppliers of music, games, books and software that can be downloaded from the Internet will welcome the move, which means they will not have to charge VAT. However, the news is a blow to EU suppliers of digitised products, already suffering from the economic downturn. As we still look a number of years away from getting agreement on how to apply tax to this type of electronic transaction, many of these companies will be encouraged to relocate offshore in order to save tax." (14 May 2001 AccountingWEB.co.uk)

 For over 20 years a committee has worked in secret to chart the way to ‘harmonise’ VAT. In the EU Advisory VAT Committee there is no voting, no minutes are published and a consensus view ‘emerges’. The Commission chairs it. The 6th VAT Directive set it up in 1977. In 1997, the Commission proposed to turn the Advisory VAT Committee into a Regulatory Committee legislating for the whole EU. It would work by qualified majority voting, and end the national veto. The Member States have yet to agree to give up their remaining powers over VAT. (From the book: The Last Days of Britain the Final Betrayal by Lindsay Jenkins, 27/2/01)

GORDON BROWN'S pre-budget proposal to reduce VAT on church repairs from 17.5 to five per cent has been deemed illegal by Brussels. In a written answer to the Tory Euro-MP Caroline Jackson, the European Commission said that the 6th VAT Directive did not allow the Chancellor to cut taxes on places of worship. The statement said: "Only the renovation and repair of private dwellings can qualify for the reduced rate. "There is therefore no possibility in the short term for the United Kingdom to apply a VAT rate of five per cent to repairs to churches." It would take a unanimous decision by European Union finance ministers to change the law. (Daily Telegraph Eurofile 3/2/01)

The British Government has caved in to the EU on VAT many times over the last few years. VAT has been imposed on art sales and toll-bridge crossings in defiance of Ministers' wishes. It has been levied on fuel at a higher rate than desired. Measures in the 2000 Budget to relieve inner-city building repairs and church renovations from a 17.5% surcharge on their expenses cannot be introduced immediately for fear of upsetting the European Commission. As former Commissioner Monti used to enjoy pointing out, VAT is a truly EU tax, and the sooner member States' governments stopped pretending otherwise, the better. A new European Court of Justice ("ECJ") ruling threatens to impose VAT at the standard rate on many services provided by doctors in the UK. D v W (case 384/98) was referred by the Austrian courts to the ECJ and concerned the liability to VAT of a genetic test carried out by a doctor at the request of a court dealing with a paternity suit. The doctor wanted to reclaim input VAT on supplies incurred in carrying out the tests, and chose to charge VAT on her services. The case came before the local Austrian tax court which referred it as it was bound to do to the ECJ. The Austrians lost the case. More significantly, the court made the following observation: "Clearly the concept of 'provision of medical care' does not include medical interventions carried out for a purpose other than that of diagnosing, treating and ……. Curing diseases or health disorders. Services not having ….. a therapeutic aim must be subject to VAT." Over the years of VAT in the UK (since 1973), UK Customs and Excise have gathered together a list of services provided by doctors which it has been UK public policy to ensure shall not bear VAT. These include medical certificates, reports, signatures on documents etc. Writing a report to an insurance company on a claim by a person injured in a road accident, compiled following a medical examination, has always been considered, at least in the UK, to be part of a doctor's activities as a medical man. The ECJ has now redefined medical care for tax purposes in the UK. Many doctors' surgeries will now be forced to register for VAT, and the insurance companies already hit by ever rising medical costs will be forced to bear an additional financial burden which is estimated to exceed £50m. The NHS budget will also be affected, probably by the same amount. Individuals who pay their own medical expenses will bear a further £50m or so of extra charges. (Posting by christopher.arkell@virgin.net 26/1/01)

GORDON BROWN’S plan to help Britain’s crumbling churches by giving them millions of pounds in VAT tax relief is being thwarted by Brussels. The Chancellor has been told that he may lose the flagship measure, announced with great fanfare in his Pre-Budget Report in November, because it is illegal under European law. Mr Brown is also at the mercy of Brussels over two other key measures, "Brit discs" for lorries using British roads and stamp duty relief on house sales, both of which can go ahead only if they get state aid clearance from Europe. The extent of the problems surrounding the measures is revealed in a letter from Dawn Primarolo, the Paymaster General, to the Tory MP John Redwood. She says: "There is no general relief from VAT for churches and the introduction of any new zero rates is precluded under European law. Although there is provision for reduced rates in EC law, they do not apply to churches." She said that she had written to the Commission suggesting early legislative proposals to allow the change. It is claimed that commission staff contacted Whitehall in the run-up to Mr Brown's announcement, after reading press reports of what it might contain, to alert them to the difficulty with reduced VAT on church repairs. (The Times Saturday December 23 2000)

The EU calculates the VAT Britain would raise if there was no zero-rating, eg. books, children's clothes, food, houses, etc. and sends a demand to HMG for that amount - so HMG makes up the shortfall in VAT revenue from taxed income! (Eurofaq posting SMD 17/12/00)

VAT on energy saving materials is 17.5% while the rate on fuel is 8%. The government claims it has fought to correct the anomaly. Dawn Primarolo said that an EU directive prevented the government from reducing the rate on energy-saving materials. She has now admitted in a parliamentary answer that France and Italy have reduced their rates from 22.5% to 5.5% and from 20% to 10%. (FT 26/1/00)

Commissioner Bolkestein proposes to fill in some of the gaps in the Union’s existing seven-year-old transitional VAT regime by, for example, extending VAT to postal services and closing loopholes in the rules on banking and insurance and Internet shopping. The proposal to levy VAT in the "country of origin" has been dropped. (European Voice 4/5/00)

Accountancy software companies still can't deliver £/euro VAT reports. UK businesses dealing with the euro could be facing a VAT reporting meltdown warn Exchequer Software, as most accountancy applications are still unable to meet Custom and Excise's regulations on VAT returns. Euro-based organisations without the appropriate systems in place face an increased administrative burden, as well as high costs and complexity in compiling their VAT reports. Any UK businesses using the euro as their base currency are currently required to state VAT returns in Sterling. Those using accountancy packages without this reporting capability will have to manually compile Sterling returns. "Most UK businesses are not competing in Europe on a level playing field," said Eduardo Loigorri, managing director at Exchequer Software. "Companies using the euro as a base currency are immediately at a disadvantage because of the extra paperwork required to meet Custom's regulations. This is compounded by the fact that they cannot use their accountancy applications to automatically generate reports in Sterling."(http://www.accountingweb.co.uk/)

Dawn Primarolo has been put on the spot over VAT twice in Parliament in recent days. Last week she had to confirm that both Italy and France had significantly lower rates for the installation of energy saving materials than the UK and, on being pressed, she blamed EC law for the high UK rate. ( http://www.accountingweb.co.uk/cgi-bin/item.cgi?id=12006&d=101). The government has now admitted that it has applied to the EU for a reduced rate on behalf of the Isle of Man. (FT 16/2/00)

The first truly big casualty of the European Union’s droit de suite tax on the sale of modern art will be the forthcoming sale of the Gaffé collection. René Gaffé was a Belgian businessman who knew some of the greatest artists of the early twentieth century. His collection of modern art was considered to be one of the best in the world. When his widow Jeanne died last October, she left it to UNICEF to dispose of it as it saw fit. The organization had intended to auction it in Paris and this was scheduled for the end of June. But, in the meantime, France introduced the droit de suite tax on resale of works of art by living artists and those who died within the last seventy years, which applies to all those in the Gaffé collection. UNICEF decided to take the pictures to New York, where they will be auctioned by Christie’s in November. Paris has lost what its auctioneers called "the sale of the century". This confirms all the doubts and warnings that surrounded the introduction of the droit de suite, which completed its progress through the European Parliament in July. Britain is not due to introduce the tax until 2006 but there are already gloomy prognostications about the presently flourishing British art market. (EUobserver.com 26/7/01)The government has compromised its opposition to the resale rights of artists. It agreed to a limit of £6,120 on royalties and a four-year transition phase. (FT 16/2/00)

A directive makes auction houses, agents and galleries charge a levy on sales of works of art and photographs of up to 4%. This is paid to artists, or their estates, for 70 years after they die. Such a regulation would drive contemporary art sales to New York said Christie's (FT 13/3/96). Called droit de suite it is a thinly veiled tax implemented by qualified majority voting. When added to the VAT on art sales the new tax makes the art market internationally uncompetitive. (D Telegraph 3/2/97). If London loses its dominance of the art market it will also affect tourism and scholarship. Business will be lost to the US with no obvious gain (FT 19/7/97) . Brussels destroys the London art market as a result of the determination to create a level playing field. Droit de suite could equally be applied to any valued second-hand commodity, such as cars. The benefits go not to today's struggling artists but to a few hugely successful artists and their heirs. Harmonisation is not an end in itself. It should be pursued only when the benefits outweigh the costs. (FT12/2/98). The loss of the art market would cost 6,000 jobs in London. (D Telegraph 16/7/98) The British art trade won a further reprieve when a meeting of European Union officials to discuss droit de suite, failed to reach agreement. This is the fourth time the Committee of Permanent Representatives was unable to agree on proposals to extend the tax throughout the EU. (FT 16/12/99). Jan Jansson a famous Dutch forger claimed that only 1-% of his forgeries has been detected. He says he does all artists, including Picasso, Chagal and Matisse. It is estimated that between 10% and 40% of famous paintings and drawings are forged. (BBC Radio 4 Today Programme 12/12/99). The government is preparing to compromise over the European Union proposal to give artists a share of the proceeds of re-selling their works, droit de suite. Ministers have opposed the plan, arguing that it would damage Britain's thriving art and antiques trade, which handles about 70% of European art sales with an annual market value of £2.2 billion. A qualified majority in favour of the plan already exists among of the EU states. (FT 16/2/00)

There are problems (with the French Art market) to be tackled urgently, of which the French hauts fonctionnaires seem felicitously unaware. Not many worry about the value-added tax levied on works of art coming into the country, set at 5.5 percent for "original" works (signed paintings or sculpture, but for some categories the rate shoots up to 19.6 percent) with catastrophic consequences for the French artistic heritage. This measure adopted by the European Union, largely under French pressure, could not have been better conceived to dissuade anyone living outside France's borders from sending art for sale to Paris - and this includes works of primary importance to le patrimoine national in American, Japanese or Swiss collections. Being sold in New York reduces the chances they might have of being bought by French museums or collectors. . All analysts add that the revenue from increased international sales and the secondary activity that these generate (hotels, art restorers, packers, etc.) would immeasurably exceed the 5.5 percent levied on what now comes in. The EU tax is a magnificent present made by Europe to the New York market, which has been growing exponentially at the expense of Paris and London. Some say that the glee at the thought of the harm caused to London was such that the French were happy to shoot themselves in the foot. . The silliness does not stop here. It takes so much time to pay the tax at Charles de Gaulle Airport and the paperwork is such a headache that even professionals prefer to leave it to a shipping agent acting as a transitaire - which adds at least 3,000 francs (about $400) to the bill. The psychological harm this causes to Paris among international art buyers is huge. . There is also the crucial matter of the museums' attitude and the extraordinary prerogatives they enjoy. A 1921 law allows them to substitute themselves for the highest bidder at auction by invoking a "right to preempt. Sometimes museums do not "preempt" but deny an export permit when application is made for one. . It happened in 1986 when the American collector Ian Woodner bought a pastel self-portrait by Chardin at an auction in Clermont Ferrand, France. Alas it was wanted for the Musee des Beaux Arts at Orleans, which houses an outstanding pastel collection. As if the lawmakers were determined to make sure that great art shall not return to France from the United States, they devised another rule, which applies to 20th-century pictures and sculpture. The droit de suite guarantees 3 percent of the hammer price to living artists, or to their heirs for a period of 70 years following their death. Matisse died in 1954, Picasso in 1973. Just guess how many Matisses and Picassos have been sent for sale to Paris from Tokyo or New York. Can the whiz kids who concoct such laws ever see that they backfire? And that a truly open market - with no value-added tax on art imported from outside the European Union, with no droit de suite on art repatriated from abroad - would immensely benefit both the national artistic heritage and the French Treasury? (International Herald Tribune 20/1/01) .

The Commission has issued a hasty new directive (1999/85/EC 22nd October 1999) to lower VAT rates for labour-intensive businesses throughout the European Union in order to reduce unemployment. The EU is using fiscal measures that should be reserved for national governments. It is quite ridiculous that member states have been given only nine days to conform to measures that will affect the employment prospects of millions of EU citizens. The experiment is for a temporary three-year period beginning on 1st January next year. Clearly EU long-term policies have created a jobless crisis and now The Brussels Commission, Romano Prodi's self-styled EU government, is being forced to manipulate tax levels because "the problem of unemployment is so serious" in several Member States. The policy, which will create competition, flies in the face of the EU's tax harmonisation policy linked to the single market. (UKIP Press 31st October 1999)

VAT is charged at 17.5% on repair works to existing buildings whether listed or unlisted, but alterations to listed buildings are zero-rated. This means that if you own an historic building and wish to prevent its decay the full rate of tax is paid. In the House of Lords, in response to a question about lowering the VAT rate on repairs to historic buildings, for the government Lord Macintosh claimed that European agreements made this impossible. (Private Eye 29/10/99)

VAT

Typical VAT rates in the EU. Some have variable rates, e.g., lower for transport but most services are charged as follows:

(http://www.fimed.it/fimed/table.htm)

The EU directive on mutual assistance will establish a "euro-taxman" by giving tax collectors from other EU nations access to British Inland Revenue files. It is designed to prevent tax evasion by EU nationals living in other countries and would require member states to share information on anyone suspected of owing income tax, VAT, capital gains tax and a number of other duties. The plan means we will have the building block of a federal tax system across the EU. (Daily Telegraph 7 June 1999)

British antique dealers said that the European Commission decision to double value added tax on works of art imported into the UK from outside the European Union would drive the international art an antique market out of London. The commission over-road the British government's objections and confirmed that VAT must be doubled to 5% from July 1, bringing it into line with the minimum rate for the rest of the EU. Dealers expect much of the dealing in antiques to switch to New York and Switzerland following the imposition of the full 5% rate. New York has already overtaken London as the main market for art and antiques. Expensive central London galleries are expected to close down. (Financial Times 29 April 1999)

VAT on houses will most likely be introduced to harmonise with European rates. It is 23% in Sweden, 12% in Denmark and Belgium. (Eurofacts 5/3/99)

Britain has lost its battle to block European Union plans to double VAT on imported works of art that would damage its £2.2 billion a year art market. The government reluctantly conceded defeat and announced that it would be introducing legislation to raise the rate from 2.5% to 5%. The EU decided to push ahead with the VAT rise despite evidence in a report by its own consultants that the tax was harming Britain and helping the New York art market. (Daily Telegraph 3 July 1999)

UK VAT tax matters submitted from the UK VAT tribunals (for example, those sitting in Manchester or London or Belfast) to the ECJ for 'preliminary rulings' are argued on not just by the parties concerned in the UK - e.g. Customs & Excise and the appellant - but by 'agents' (legal representatives) of other member states as well. In the Goldsmiths case (a Manchester VAT tribunal matter) the judgement delivered by the ECJ was given after hearing from the German VAT official as well as UK Customs & Excise and the taxpayer. That other countries not only sit in judgement on our legal cases, but also join in the argument as additional 'interested' parties is probably not generally understood in the UK. The Goldsmith case for example is on http://europa.eu.int/jurisp/ Case C-330/95 (Eurofaq C Arkell 16/1/99)

The introduction of the euro will highlight differences in VAT. CDs in Germany attract 16% VAT whereas in Denmark they attract 25%. Businesses will have to think about their pricing structures. Pressure is likely to build up to harmonise VAT. (FT 2/12/98)

In January 1998 the Commission's VAT committee was changed from being "advisory" to becoming "regulatory". (European Journal December 1998) (FFP 26)

Gordon Brown was accused of deceiving the voters after European Commissioner Mario Monti said he was "fully on board" for standardisation of VAT and businesses taxes. D Telegraph 28/11/98)

VAT will have to be levied on imported art so driving out the international auction trade.(Management Today Jan. 93). The rate has been set at 2.5%. Under pressure from the Commission the rate is rising to 5 % in 1999(FT 12/93). The effect of the tax has been to reduce the level of imported art from £1bn to £600m in 1996 (FT 19/7/97) The Commission claims that this low rate is a severe distortion of the market and will take the Government to court if it does not raise VAT to 17.5% on auctioneer's commission and at least 15% on imported art and antiques. Britain has 70% of the European international art market so the tax penalty is almost wholly directed at a successful UK businesses. The UK accounts for half the entire EU art market and supports 40,000 jobs . (D Telegraph & FT 25-26/7/97). 40% of London's top art sales have moved to New York and Geneva, with more to follow (S Telegraph 11/10/98)

A substantial number of Labour MPs believe that Westminster should surrender control over a range of taxes to Brussels. More than four in ten want VAT and company taxes harmonised. 55% want environmental taxes and excise duty determined by Brussels (The Times 15/9/98)

Thousands of small businesses exempt from Vat could be forced to charge the tax. H M Customs & Excise issued proposals to include half a million businesses that are distorting competition. The threshold in the UK is relatively high compared to other EU countries; some require all businesses to register regardless of size. (FT 11/7/98). The overwhelming proportion of EC mortgage payers are in the UK. HM Customs & Excise were told by the ECDG in charge, Monti, at the beginning of 1998 that the UK's exemption level of £49,000 was far too high and it had to be lowered to harmonise with French/German/Belgian levels. The level suggested was to bring it down to the personal tax exemption level - £4,195. HMCE put out a 'consultation' paper on this point. Big businesses are supporting a lowering of the VAT threshold, saying it distorts business for them (Unilever, Rentokil have told the CBI that this is to be their line). Robinson and Chancellor Brown have also been instructed to 'review' the VAT threshold in the 1999 budget. All this is in advance of the Common system of VAT to be instituted around 2002/3, before the final derogations from the present main VAT Directive (1977) run out. The effect on small businesses of the lowering of the threshold will be to increase their compliance costs (i.e. getting an accountant to do the increasingly complicated forms) by £1,200 pa (Christopher Arkell, Director - SMB Accountancy Services Ltd 8/8/98)

Tax Commissioner Mario Monti heads a committee that is concerned about harmful tax competition. He is currently reviewing 75 taxes. The emergence of Internet marketing will provide an excuse for imposing VAT on books, children's clothes, fares, funerals, etc. (Times 11/8/98)(FFP)

Britain is one of the few countries where goods and services can be bought VAT-free, e.g. children's clothes, books and food. The EU wants to prevent unfair competition in Internet marketing by making countries apply similar VAT rates to online sales. The EU receives 1.6% of each country's VAT revenue and it sees Internet trading as a major source of new income. Trade with non-EU countries will be VAT-free. (Telegraph Connected 25/6/98)

EU income. All customs duties collected at port of entry go to the EU's credit. As free trade agreements proliferate so this source of income has reduced to18% of EU revenue. In addition to the 0.84% of all VAT revenue the EU receives a proportion of each country's GDP. In 1998 this levy is 0.35%. There are considerable imbalances between contributions, GDP and share of EU spending. (European 22/6/98)

In its unending quest to remove the distortions caused by exemptions in the field of tax, the European Commission is considering introducing VAT on Financial and insurance services. At first glance this may appear a sensible move as there is no economic or social reason for exempting such services. Equally, few would feel initial sympathy for large organisations such as banks and insurance companies having to deal with the added compliance burden of such a VAT change (except of course if it led to any additional costs to the customer!). The 'shock horror' element of this all comes when one looks at the detail. How would you feel about having VAT charged on your mortgage interest or on your deposit account? The former is political dynamite and the latter is a recipe for driving customers into offshore accounts.  (F. Lagerberg Taxation 5 March l998)

In 2001 the EC is to introduce a system whereby VAT would be charged at the rate applicable in the supplier's country. This will immediately drive manufacturers to relocate in the area with the lowest VAT rate. The EC will be forced to counter this with a uniform rate for the whole EU. (European 27/4/98)

Commission proposals on VAT submitted in December 1996 recommend that all VAT be paid directly to the EU, any surplus will be returned to the member states. These proposals add to the sixth VAT directive that calls for VAT harmonisation by 2004. VAT will be extended to food, clothing, newspapers, new houses and children's clothes. (Eurofacts 11/4/97). VAT on heating fuel was compulsorily introduced to conform with an EC agreement (Eurofacts 7/8/98)

Customs and Excise have ignored an EC Directive on VAT for company cars and is now liable to repay GBP26bn to companies (S Telegraph 1/5/94). The European Court of Justice has ruled that governments can refuse companies the right to reclaim VAT on company cars. Countries can retain VAT rules that were in place before 1977. As a result 4,000 British claims will fail. (D Telegraph 19/6/98)

A non-slip portable access ramp is liable to VAT. If it is labelled for wheelchairs it is exempt from VAT. But if it is for wheelchairs it must be CE tested and this is very expensive. A CE approved product (identical to the non-CE version) must have a technical file, a hazard data sheet, a risk assessment statement and a multi-lingual guide to use. Anyone who wants such a ramp pays the VAT and buys the cheaper version. However, some agencies are obliged to buy CE tested products and have to pay the extra cost. (TPG Disabled Aids, Hereford 23/4/98)

New VAT regulations will mean that EU recipients of non-EU telecoms services will have to pay VAT. This creates many anomalies including double taxation of services. (FT17/1/97)

The ECOFIN Council has agreed to fix a minimum standard rate of VAT of 15%. This could affect the temporary concessionary rate of 2.5% for imported art. It could also affect the Labour Party's pledge to lower the rate on domestic fuel. (CEC briefing 5/12/96) A draft directive will set minimum tax rates on all forms of energy (FT6/12/96).

Extensive work by the accountants Grant Thornton suggest that the government's shortfall in revenue could be explained by fraud arising from the frontierless tax regime for VAT. Shortfalls in France were similar to the UK ( FT 14/9/96)

Under new EEC tax rules a company selling to agents in the EEC has to pay VAT on sales and then claim it back again, except it won't get the money back for three months. (FT 9/2/93)

WITHOLDING TAX

Although our population is not going to increase much in the future the Government says, because household size is reducing, there is a need to build 4.4 million new houses. Because VAT is charged on house conversions but not on new homes it is cheaper to build new. EU rules forbid any reductions in VAT so cheaper conversions will never be economical. The EC would like us to impose VAT on new houses according to the Sixth VAT Directive to equalise the tax burden on housing. As a consequence room occupancy levels will fall substantially in the future. (S Times 25/1/98) (FFP14) . The Junior Environment Minister, Nick Raynsford, wants to end the anomaly of VAT on housing conversions, mainly from offices. Ministers are trying to find a way around EU rules to make the abolition of VAT on conversions possible. (Property Week 19/6/98). The Guardian reports that Prescott is moving toward imposing VAT on new houses (http://reports.guardian.co.uk/articles/1998/11/16/33368.html)

Famous opera singers are required to register for VAT in all EEC countries and make regular VAT returns in the language of each country. Some countries have different tax rates according to the type of concert given. ( S Telegraph 25/4/93).

The new VAT rules are so bureaucratic that Sony has been forced to register an additional 26 times and has taken on 200 extra staff to meet the new requirements. (FT 15/6/93).