taxud/2414/08 - European Commission - Europa

(bb) Cross-border VAT grouping
The introduction of VAT grouping provisions for cross-border supplies of services would
have failed to achieve tax neutrality. Various techniques applied in the different Member
States such as national VAT grouping, differences in VAT rates as well as differences in
applying the rules for the right to deduct input VAT lead to cost advantages for economic
operators in those Member States where they are applied. Introducing VAT grouping
provisions for cross-border supplies of services would have lead to a situation where
these advantages would have been rendered transferable between Member States with the
consequence of violating the principle of tax neutrality and of causing competitive
distortions In addition the administrative charges for practising cross-border grouping
were considered inconsistent with the objective to reduce the administrative costs for
business and fiscal authorities. Cross-border grouping would have introduced a general
principle of exemption for a specific group of economic operators. Where such a general
principle is introduced, the principle of equal treatment would have required admitting it
also for other economic operators leading to a general rupture in the fundamental
principles of VAT and unforeseeable budgetary risks for Member States.
(cc) Limited and uniform threshold for input tax deductibility
The introduction of a limited and uniform threshold for input tax deductibility as it is
currently practised in some third countries such as Australia and New Zealand would
have been inconsistent with the principle of tax neutrality, requiring that input VAT
should only be deductible in as much as taxable output is generated. Granting this
possibility to a specific group of operators would again have required admitting it also
for other economic operators leading to a general rupture in the fundamental principles of
VAT and unforeseeable budgetary risks for Member States. In addition the economic
structures in Member States was much more heterogeneous than in New Zealand and in
Australia; against this background a uniform threshold would have increased economic
distortions between Member States.
Against this background only two solutions which were consistent with the principle of
tax neutrality and reduced the impact of non-deductible VAT on the costs of economic
operators remained: Giving the economic operators concerned the option for taxation and
co-operating on a cost-sharing basis which excludes the effect of input VAT in the costs.
(dd) Option to tax for the economic operator
The reasons for the Commission to propose an option to tax for the economic operators
are numerous:
- VAT is a consumption tax; in the case of exempt financial and insurance services
being supplied to other businesses hidden VAT is not created by consumption but
by non-taxation; Member States do not have a right to that VAT income;
- The problems in determining the correct taxable amount for applying VAT to
financial and insurance services and which have led to the VAT exemption in
question persist. However, some suppliers of insurance and financial services are
9