Parliament is dissatisfied with Commission proposals for recovery of VAT on telecoms. The opening up of the telecoms market as from January 1st, 1998, brings with it the problem of resolving the situation regarding VAT payments. Under the old arrangements, VAT was due in the place where the service provider was based, which, in practice, meant that any company operating from outside the EU could avoid the tax in the EU.
In order to resolve this anomaly, the Commission has proposed switching the place were taxation is due to where the customer is based in the EU. In the meantime, to deal with the urgent need to act quickly, Council adopted 15 pieces of legislation to apply to all the member states which means that, as from March 17th, 1998, VAT becomes due:
in a single member state at the rate prevailing in that state if both the customer and supplier are based in that state
at the rate applicable in the member state where the customer is based if the customer is established in a different member state to the supplier
in the member state where the customer is based or the service is used if the supplier is based outside the EU. The legislation does not cover customers based outside the EU.
The Council's decision applies until December 31st, 1999, or until the entry into force of alternative arrangements based on the Commission's proposal. Pat Cox (Munster, ELDR), reporting for the economic committee, notes that the telecoms industry seems broadly satisfied with Council's new arrangements. Operating on the principle of "if it works, why fix it", he is recommending that the Commission withdraw its current proposal and submit a new version.
This should take into account competitive factors in the industry, and the overall aim of an all-embracing EU VAT system based on collecting the tax in the country of the supplier and enabling the tax to be recovered from other member states. A report should be produced on the implications of introducing a single VAT rate for the sector throughout the EU.
Amendments to take these points into account were tabled. But, after Pat Cox explained that the Commission was not prepared to accept all the proposed amendments, Parliament agreed to his suggestion to refer the report back to Committee for further talks.