VAT in the Internal Market VAT in the Internal Market Compliance and Cash Flow Compliance and Cash Flow How to enhance economic dynamics in the Internal Market? How to enhance economic dynamics in the Internal Market? International Tax Conference - Stockholm, 16. June, 2009 “European Tax Systems coordinated for growth?” Karl-Heinz Haydl, VAT Manager at GE and Member of BusinessEurope VAT Working Group

Starting Point: VAT Systematic- Indirect Tax   VAT is a consumption tax  Levied on transactions (supply of goods and services)  VAT is borne by the final consumer  Business is the tax collector on behalf of the government  Self-declaration tax  Government controls the declarations and payments of the business VAT process  Government bears the insolvency risk  Businesses have to bear the administration costs  Golden principles: principle of neutrality, proportionality and administerability LEGITIMATE BUSINESSES are the key partners for governments in the VAT system !!!

VAT... a simple tax... in a complicated world !!!

 Variety of business models  Complex products and services structure  International Trade / Globalization  Technological development  Single Market, Transitional VAT System  New enemies/risk areas – organized VAT pirates / fraudsters … lead to big administrative and financial burden for both business and tax administrations !!!... what drives the complexity in today´s VAT world?... these developments put legislators (Commission, national governments), tax administrations and tax collectors (business) under big pressure !!!

 Compliance check: + Improve working relationship – would a VAT partnership approach be helpful?  act based on mutual trust  gain common understanding  act transparent  set up effective and timely communication... where to start? How can we get more efficient in practice?... will increase legal certainty and will reduce risks on both sides !!! We all play a key role in establishing and living such a partnership !!!

 Compliance check: + Reporting (VAT returns, EC Sales Lists, Intrastat):  are we reporting the right data? Why are we reporting it, is there an add value?  can tax administrations digest the volume of data? What is currently done with the reported data?  is the quality of the reported data reliable? Is the joint and several liability proposal a way to improve quality of reported data? Would a proper functioning VIES system improve the quality of data?  what about harmonized VAT reporting requirements across the EU based on existing best practices?... where to start? How can we get more efficient in practice?

 Compliance check: + Formality and technicality should not take precedence over neutrality and proportionality:  Invoicing, e.g.: # Why e-signatures? Do they give legal certainty? Do they allow smooth cross-border e-invoicing? # Why input VAT rejection because of a e.g. missing date of supply on an invoice, if it is a bona-fide transaction that clearly took place?  Fair penalty regime # Penalties only if risk of tax loss at stake and based on the gravity of the error?... where to start? How can we get more efficient in practice?

 Compliance check: + Audits:  better, timely and target/risk oriented controls: # more efficient, can VAT partnership approach help? # can risk management and use of new technology help (e.g. e- invoicing, etc.)? # can external controls built on internal controls help?... where to start? How can we get more efficient in practice?

 Simplification / Cash flow: + Build on existing best practices around the EU:  Long-lasting very positive experience in certain MS on various reliefs, why do we not make benefit out of this across the whole EU? Examples are: # Consignment stock / call-off stock relief # Postponed accounting (Art th Direct., Art. 211 Direct. 112/2006) # VAT Grouping # TOGC relief # Why is bad debt relief not applicable in the 12 “new” MS?  VAT refunds (both domestic and 8 th /13 th Directive procedure) # Why does it take that long in certain MS take to refund the money to business? Can tax administrations get more efficient by learning from each others´ good practices?... where to start? How can we get more efficient in practice?

 Simplification / Cash flow: + Drive further timely and efficient implementation of adopted or suggested measures (examples):  VAT Package # Real simplification or only an attempt to simplify? Implementation in practice in EU 27 will tell. Why additional reporting requirements for services? # ERP systems changes require sufficient lead time. New VAT return and EC Sales List formats are still unknown in most of the MS. How can business be compliant from day 1? Light touch approach?  OSS # Mini, Maxi OSS?... where to start? How can we get more efficient in practice?

 Simplification / Cash flow: + Think about new simplification measures and drive them further for implementation (examples):  Transfer of goods re. underlying supply of services # VAT Package brings simplification on supply of services, however, underlying transfer of goods can still lead to VAT registration obligations just for pure documentation purposes. Any simplification plans?  Uniform application of the reverse charge system across the EU # Any efforts to focus on this topic?  Supply of mere goods vs. supply of goods + installation # Any plans on uniform definition and on uniform application of reverse charge system for supply of goods + installation across the EU?... where to start? How can we get more efficient in practice?

 Need to actively tackle the VAT challenges of the 21 st century: + better risk management – chase the bad (fraudsters), go easy on the good + enhanced cooperation between tax administration and honest business + better / more target oriented regulations – shape the policy framework together + Further simplification - learn from best practices around the EU  Better regulations, better risk/resource management on both sides and better use of new technology increases efficiency and reduces VAT Fraud and compliance burden and costs on both sides There are a lot of win – win situations for both sides... we need to act alltogether NOW !!!... mindset change and immediate actions required !!!... can we still afford „yesterday´s“ approach in today´s modern and complicated world?

Summary: Common goals  paying/receiving the right tax at right time  easy to handle VAT system required in practice for both sides  being efficient to reduce admin and cost burden on both sides  society issue: joint effort – “kick the bad guys out of the system”

… business is the key partner for a Tax Authority … Summary: Common goal … not to be confused with …

Structure and process-what is needed to meet common goal? Tax administration  Adequate systems and processes  Sufficient and targeted resources  Risk assessment processes  Understand taxpayers / Respect constraints  Frequent dialogue with taxpayers Taxpayer  Adequate systems and processes  Sufficient resources  Risk management processes  Understand tax administration  Frequent dialogue with tax admin. Summary: Common goal With each other 4 each other!

“If we are together nothing is impossible. If we are divided all will fail.” Winston Churchill

TOGETHER !!! Conclusion

VAT... let´s keep/make it simple... in this tough and burdensome world !!! Let´s keep the donkey down !!!Thank you very much for your attention !!!