Weekly Tax News – 11 June 2019

Simplified VAT for SMEs still discussed in the Council

The dossier on the simplification of value added tax (VAT) for small and medium-sized enterprises (SMEs) will probably not be on the agenda of the next ECOFIN Council on 14 June. The compromise text should return to the technical level due to disagreement among the Member States on the national and European threshold for VAT exemption for SMEs. In particular, the new compromise text sets the national annual turnover threshold until which SMEs are VAT-exempt at €100.000 (compared to the €85.000 of the original Commission’s proposal), while the threshold of the annual turnover reached in the European Union is set at €115.000 (the Commission proposed €100.000). Some countries, such as Sweden, would find this threshold too high, while others, like the Netherlands and Ireland, would have indicated that they could not accept lower thresholds. The date of application is also being debated: the European Commission initially proposed to apply this new Directive from July 2022, but the Presidency of the Council wants to push it to January 2024 and some Member States even argue in favor of 2025 or 2026.

Taxation of aviation sector discussed by EU Transport Ministers

On Thursday 6 June, the idea of taxing the aviation sector was discussed once again at Council level. It is the third time the idea is being discussed in the last couple of months and this time the discussion was held in the framework of the meeting between EU Transport Ministers. The discussion did not take into account any of the specific proposals that are reportedly to be considered, such as a tax on ticket and flight prices, a tax on kerosene and an increase in the VAT. The national delegations were divided in this regard, with France, Sweden, Belgium, Luxembourg and the Netherlands rather in favour, whilst Cyprus was quite reluctant fearing a rise in air ticket prices due to its dependence on air transport.

European Commission referred Austria to the Court of Justice of the EU

On Thursday 6 June, the European Commission decided to refer Austria to the Court of Justice of the EU for its failure to apply a special VAT scheme for travel agencies. In particular, the issue is related with the VAT to be applied on the margins made from sales of travel services to customers, in exchange of which, the travel agents cannot deduct VAT they pay while buying services from other businesses. Nevertheless, Austria currently excludes the travel services sold to other businesses from the scheme, but such exclusion is not allowed under current EU rules and, according to the Commission, can lead to a distortion in competition. Furthermore, the European Commission challenges that Austria infringes the VAT Directive (2006/112/EC) by calculating the VAT to be paid by travel agents on an overall turnover within a tax period, whilst EU case law states that it needs to be calculated for each individual sale (and not on a group of sales). The decision of the Commission to refer Austria to the Court of Justice of the EU follows a letter of formal notice sent in 2014 and reasoned opinion sent in 2018.