Cross-border VAT ruling system piloted

Tuesday 19 November 2013

A new cross-border ruling system aimed at resolving VAT disputes involving more than one country is set to end next month.

The UK is one of 13 European Union (EU) member states that have agreed to participate in the pilot,which will allow them to arbitrate cross-border VAT disputes between themselves. Taxable individuals or businesses planning transactions that cross participating jurisdictions will be able to request a ruling from the state where they are registered for VAT purposes before they complete them, setting out details of the transactions they plan to carry out. The request must be introduced as compliant with that country’s VAT regulations - although if there is more than one company involved, one must act on behalf of all the others.

It is intended to take some of the pressure off the Court of Justice of the European Union, which has been overwhelmed with high volumes of VAT disputes in recent years, by allowing some cases to be taken to national courts rather than directly to Europe. However, because the pilot scheme will be limited to complex cases, officials acknowledge that there is no guarantee any decisions will be made.

Currently, parties can take their case to their own national court and, if the result is inconclusive or they still do not agree with the ruling, it can reach the EU level. The Chartered Institute of Taxation (CIOT) says that the length of time taken to progress cases through the national and then potentially European courts can jeopardise business confidence and affect their prices, making the new mechanism good news for customers. For companies, VAT can be a sizeable chunk of the cost of any transaction, and uncertainty regarding their tax position can put them off cross-border transactions entirely.

“This new pilot project offers a consumer and business friendly alternative to expensive and impractical court proceedings in several countries,” said Stephen Coleclough, CIOT president.

“Problems can arise when parties encounter potentially contradictory views of different countries’ tax authorities. What businesses and customers want most is certainty when they negotiate transactions; we are encouraged that this system will go some way towards providing that.”

CIOT says that even though VAT systems across the EU are generally harmonised, EU VAT Directives allow for specific exemptions which can complicate transactions. Since differing interpretations of the same legislation can also have a significant impact on businesses’ tax position, the matter can often become more difficult than it seems.

The pilot began in June and is expected to run into next month. Law firm Pinsent Masons says that considering how difficult it can be to resolve VAT disputes for businesses trading across borders, such as exporters or contractors taking overseas assignments, its success could be a subject of considerable interest for companies.

“Opportunities to resolve such anomalies via tax authority action have, until now, been limited as VAT is not covered by tax treaty networks and the mutual agreement procedure in place for corporation tax, so it will be interesting to study the outcomes of this pilot exercise,” said Darren Mellor-Clark, VAT expert at Pinsent Masons. However, he added that six months seems like a fairly short period of time over which to assess the mechanism.


By Victoria McDonnell

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