Updating VAT rules on financial services

Pressmeddelande   •   Sep 25, 2008 14:34 CEST

MEPs have backed an update of the rules regarding the VAT treatment of financial services and insurance, with a number of amendments. The aim is to ensure legal certainty in a sector which has changed dramatically since the current rules were drawn up over 30 years ago. The report was adopted by 493 votes in favour to 90 against and ten abstentions.

Most financial services are exempt from VAT, but the legislation setting out how this exemption works in detail dates from 1977 and is out of date. The increasing level of cross-border supply of such services within Europe's single market and the greater use of outsourcing of services to third countries have led to situations not provided for in the original legislation, which means there is unhelpful legal uncertainty.

Clarifying the scope of the exemption

While looking set to approve the update in general, MEPs adopted - in a report drawn up by JosephMUSCAT (PES, MT) - a number of amendments which would clarify the scope of the VAT exemption - for example by explicitly including all derivatives. They also adopted a number of amendments aimed at ensuring a level playing field between different Member States and different types of financial institution.

Option to apply tax

Another aspect of the proposal from the Commission would give financial services companies everywhere in the EU the option of taxation on their services, which would enable them to claim back VAT they pay on their expenses in providing those services (which is not possible if the ultimate supply is exempt). MEPs want to ensure that the Council adopts uniform rules for applying this possibility across the EU and that its operation is subsequently reviewed by the Commission.

Cost-sharing groups

The Commission's other proposed innovation is to allow for cost-sharing group so economic operators to pool investments and re-distribute the costs for these investments exempt from VAT. MEPs want to broaden the scope of this arrangement.

As usual with taxation matters, Parliament's position is not binding, and the final decision requires unanimity among the 27 Member States in the Council.