FEE received a briefing from EC Officials on developments on a number of VAT issues at European level.

Financial Services

The EC's request for submissions earlier this year on the issue was apparently the most fecund of such consultations yet conducted, with four times as many responses received than is usually the case. In some respects though this is hardly surprising, given the importance of VAT treatments for financial institutions and because the target constituency would usually be more in tune with EU debate.

Part of the rationale at inception for not applying VAT on Financial Services was the technical complexity of attempting to do so. Commission studies in recent years have led to the conclusion that this is no longer the case – it would be technically feasible though admittedly very complex.

It seems there is now a general consensus among Member States that leaving the system unchanged is not an option. Apparently this view was echoed in the submissions by interested parties; no one advocated the retention of the status quo. The current exemption model is not seen as being in line with EU competition policy.

The current plan is that legislative proposals for change will be published in the first half of 2007. It seems the initial focus will be on revising the definitions of what constitutes exempt financial services. This will serve a twofold purpose – to reduce the number of cases being referred to the European Court of Justice for clarification under the existing definitions, and to assist Member States in applying the rules consistently within their own jurisdictions.

Vouchers and Coupons

The VAT treatment of vouchers and other forms of prepayments is regarded as creating several problems, and the EU will launch a consultative process on reforming existing treatment, possibly before the end of this year. This is likely to cover:

• Differences in interpretation by Member States
• Suggestions for VAT treatments by reference to the type of voucher – for example a single purpose voucher could be regarded as a straightforward pre-payment
• How voucher sellers would be treated – the EU is conscious that it should not create additional administration for retailers

Recast of the Sixth Directive

The drafting of a new Sixth Directive, which is intended to be a consolidation of the existing EU VAT law is largely complete, and it is hoped this will become EU law by the end of the year. Directives normally require implementation by a specified time frame into the domestic law of the EU Member States. However, because this is a consolidation exercise, it is being suggested that the domestic law is already in place, so the publication of the new VAT directive should not necessarily trigger a re-write of either the Irish or UK VAT legislation.

Electronic Invoicing

The existing EU measures in this area are to be comprehensively reviewed within the next twelve months.