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Thursday, January 10, 2008

VAT and CAP

EU ministers find consensus on VAT reform


Revenues from value-added tax on a number of services, including transport hire, electronic services and telecommunications, will fall to the country where the consumer is located rather than the one where the company providing the service is established, after Luxembourg finally agreed to lift its veto on the plans.

The change comes as part of a broad VAT reform package to which EU finance ministers gave their backing on 4 December 2007, after around five years of stalemate caused by the unanimity requirement on all matters relating to taxation.
The aim of the package is to minimise the regulatory burden for companies engaged in cross-border operations and prevent distortions of competition between member states operating different VAT rates. It does so by shifting the place of taxation from the supplier's location to that of the consumer, so that all customers are charged the same VAT rate regardless of the service provider's country of establishment.
The main bone of contention related to the application of this system to electronic services – a sector which barely existed when the EU first introduced its rules on value-added tax, but which is now a booming industry.
Luxembourg has become home to a number of big electronic service companies, including Amazon.com, Skype and PayPal, thanks to its business-friendly VAT rate of 15%. This rate is the minimum allowed within the EU, and Luxembourg had previously vetoed the new proposals, saying it would lose out on VAT revenues worth around €200 million per year.
However, it finally agreed to a compromise, under which the changes will only be phased in as of 2015, rather than implemented directly as of 2010. The deal will allow countries that are home to telecom and electronic service businesses to keep their hands on 30% of VAT revenues collected after 2015, with the rest going to the country of consumption. This share would be cut to 15% after 2017 and zero as of 2019.
The system will be based on the creation of "one-stop shops" so that businesses only have to fulfill their tax obligations in the country where they are established. It will then be up to member state authorities to transfer VAT revenues to the country of consumption, whose rates and controls will apply.
Ministers also endorsed Commission plans to launch new proposals to fight tax fraud early next year, and agreed to extend temporary derogations to the 15% VAT rule for the Czech Republic, Malta, Poland, Cyprus and Slovenia.
The exceptions will allow the five countries to apply reduced or zero VAT rates to a series of goods and services, including foodstuffs, pharmaceuticals, construction work and restaurant services, until 2010. By that time, ministers hope it will be possible to agree on a new VAT regime, which could include provisions for reduced rates on "green" products (EurActiv 13/11/07). source:EuroAktiv

CAP reform: Commission eyes subsidy cuts for big farms



The Commission has presented a series of reform recommendations designed to modernise the EU's Common Agricultural Policy (CAP). A tighter subsidy regime and a greater shift of funds from direct payments to rural development support are among the proposals on the table.

The last round of CAP reform efforts was launched in 2003 and featured a 'decoupling' of agricultural production from subsidy payments in order to prevent over-production and waste.
The new system involves a Single Payment Scheme (SPS), in which subsidies are allocated according to indicators such as land size rather than production volume. Cross-compliance measures, whereby farmers are required to meet certain environmental, food safety and animal welfare standards, were also introduced as a pre-condition for receiving payments under the SPS.
In addition to cuts in intervention prices for several sectors, the reforms also featured a shift or so-called 'modulation' in monies from the first "pillar" of the CAP (direct aids and market support) to its "second pillar", rural development. This measure was presented as an instrument to "green" the CAP, which accounts for over 40% of the EU budget.

source:EuroAktiv

My comment: Finally! It was about time EU stopped investing in the low end of production. I mean, it's obvious we need production, as it's the base of the economy, but with the ageing population, I think it's essential to start working on the high end. Meaning, science, technology and new sources of energy.

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