The European Ministers of Finance (the Council) held a policy debate on proposals for a directive and a regulation aimed at clarifying the rules on the treatment of insurance services and other financial services as regards value-added taxation (VAT). It asked the Permanent Representatives Committee to oversee further work on the proposals, taking account of the views expressed by delegations. Under EU rules, as laid down most recently in directive 2006/112/EC on the common VAT system, financial services are exempt from VAT. Originally established in the 1970s, the rules have however led to diverging interpretations by the member states, causing distortions of competition. Applying the VAT exemption causes high compliance costs and administrative burdens as a result of this, and inconsistent implementation has resulted in an increasing number of court cases, especially as concerns new types of services. The Commission's proposals therefore set out:
- to clarify the definitions of exempt services, thereby increasing legal certainty for both economic operators and national tax administrations;
- to give economic operators (rather than the member states, as is currently the case) the right to opt for taxation instead of remaining within the VAT exemption;
- to allow economic operators to pool VAT-exempt investments.
The Council agreed that work should be pursued as a priority on the modernization of the definitions of exempt services. Furthermore:
- as concerns the option to tax, the Council asked the Commission to explore the possibilities for allowing a departure from the current VAT exemption;
- regarding the definitions of exempt services, it was agreed that due consideration should be given to the need to ensure a level playing field for economic operators and for member states, to the overall competitiveness of the EU's financial industry and to the implications for government budgets. More specifically:
- the modernisation of the definitions should achieve neutrality and consistency in the application of the VAT exemption to the constituent elements of all exempt services;
- for investment funds and pension funds, the Council asked the Commission to report on the overall effect of changes in the regulatory climate, so that the available options may be considered;
- for derivative financial products, it was agreed that the measures to be adopted should not affect the inherent taxable nature of goods and services, and the exemption should be limited to transactions that can be considered effectively as exempt financial or insurance services.