VAT on insurance and financial services (debate) 
President
The next item is the report by Mr J. Muscat, on behalf of the Committee on Economic and Monetary Affairs, on the proposal for a Council directive amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services - C6-0473/2007 -.
I should like to take this opportunity to welcome my friend, Mr Muscat, and to congratulate him on the recent and very important success in his political life. This will perhaps at some point cause him to leave this House but, for the time being, it is a cause for celebration, both for himself and certainly for many of us.
Joseph Muscat
We are discussing new and more transparent rules in the financial services sector at a time when we are going through one of the biggest crises in this sector. The current situation shows that we cannot let things run their own course and there is a need for regulation. 'Regulation' does not mean bureaucracy - certainly not excessive bureaucracy - but assurance that things are being done in the best possible way, and not by means of formulas and papers that lead nowhere. When my fellow Members and I prepared this report we had two priorities. Firstly, to ensure that any changes that take place do not have negative repercussions for the consumer.
In other words, there should be no additional burdens on the consumer, and that is why we are saying that the possibility of introducing VAT on financial services should apply only to transactions between one business and another and should therefore be recoverable. At no stage should our text propose that VAT on a financial service that is not taxable be passed on to an individual - that is, the consumer. This is stated clearly and directly in the proposed text, despite possible reservations on the part of other institutions. Some people criticise the fact that the industry will save on expenses and that Member States' income may be reduced - an interesting argument which, however, quite frankly I think comes most of the time from those with a restricted view of the economy and fiscal policy. Firstly, in a competitive sector like that of financial services and in a system where you have safeguards against agreements between companies, any expenses not incurred by companies should either be passed on as benefits to the consumer or else be used to compensate for other existent expenses. Secondly, as Europe we should understand once and for all that we are not competing alone on the market; we have to ensure that the systems used by other Member States - and by the European Union as a whole - are attractive to serious companies wishing to enter the market and establish themselves as true European operators. Facilitating the systems is a way of offering an incentive in this sector, generating market potential and creating work, productive work.
Through this report we are helping to create a European market by removing obstacles. We are doing what has been talked about for many years; we are fulfilling one of the aims of the action plan in this sector. We are proving that we can be proactive, solve problems and act on new ideas. Perhaps we may disagree on technicalities, perhaps some may say that we can use one system and not another, but I believe that this Parliament must give an indication that this is our ultimate aim. Obviously there are certain points on which we are not all agreed, myself included: for example, broadening the definitions. I believe that it would have been better if the committee had followed my recommendations on this, which were always either to keep to the Commission's text, or else to further restrict the definitions. In spite of this, we should also note that the committee chose to proceed strategically, and so this report was approved with just one vote against. I await the reactions of my friends as well as those of the Commission.
László Kovács
Member of the Commission. - Madam President, I would like to start by thanking Mr Muscat for his work and the support he has given to the Commission's proposal, and I wish him success in his future role in Malta.
The Commission proposal addresses three major issues.
First, the existing provisions are increasingly subject to legal challenge in the European Court of Justice. Something needs to be done about this.
Second, we need more consistent application of the VAT rules on financial services and a more level playing field in the internal market.
Third, we must take steps to improve competitiveness in the sector.
There are concerns that the financial services and insurance industries in the European Union are less efficient than they should be, and consequently EU industry faces higher costs for financial services and insurance than its competitors in third countries. This is not solely a result of the EU's VAT rules, but they do have a role in contributing to this situation. I have to add that VAT exemption is not applied uniformly in the different Member States, and this causes competitive distortions within the European Union. For example, the possibility of recovering tax paid to specialist third-party service providers (outsourcers) varies depending on national interpretation of the VAT rules.
For the Commission, improving the competitiveness of our European financial and insurance companies was therefore a factor in making this proposal, but the reality is that this must be balanced against the need of the Member States to ensure stable tax revenues.
The proposal has three elements.
First, to increase legal certainty for all concerned, we propose a modernised definition of the exempt services.
Second, to avoid their business customers incurring non-deductible 'hidden' VAT, the proposal aims at allowing all banking and insurance companies to opt to tax their services.
Third, the proposal contains an exemption from VAT on cost-sharing arrangements, including those which operate across borders.
These proposals could result in some limited initial VAT revenue reductions for the Member States, but these can be justified if, as we expect, the proposed changes lead to increased competitiveness.
I therefore welcome the observation in the report on the problems of non-recoverable VAT and its relevance to business efficiency and the Lisbon strategy. I also welcome the fact that the rapporteur recognises that change may result in a reduction in VAT receipts.
For consumers, I agree that the implications are not always clear-cut, but I believe they will eventually benefit from cost savings achieved within the industry.
I also welcome the positive remarks about the scope of the proposal and the creation of legal certainty. The new definitions proposed by the Commission are necessary to bring the legislation into line with economic realities.
I sympathise with the remarks on the need for prudence and the absence of reliable figures which would allow the impact of change to be fully assessed. This latter lacuna should not, however, be laid at the feet of the Commission, as neither the industries concerned nor national administrations could provide the necessary data.
Like Mr Muscat, I am conscious that cross-border consolidation in the finance industry increasingly results in VAT revenue accruing to the Member State where the service is created, rather than where the consumer of the service is established. A move from exemption to taxation, which would result from greater access to the option to tax as we have advocated in this proposal, would correct this trend. I think this is the best way to deal with the concerns which have been raised.
Finally, I would like to inform you that detailed discussions on this proposal already started in the Council under the recent Slovenian presidency. The current French Presidency is also committed to making progress on this particular dossier, and I therefore welcome the positive engagement by Parliament which can further encourage the Council to make progress.
David Casa
The report we have before us is particularly significant, especially when you consider that in the last few years the economy has taken a slightly different turn from previous years. Without doubt, this report aims to better reflect the current situation. That is why it is important to guarantee the legal basis so that the companies concerned can operate with less bureaucracy, as the rapporteur rightly pointed out. This could be achieved by removing the anomalies in the current law regulating VAT on financial services: a law that has been in existence for the last 30 years and is not clear enough. This is a report that will help as much as possible to provide more stability and we must ensure as far as possible that all the countries are harmonised with regard to the applicable rates to reduce discrepancies as much as possible. It has long been felt that there is a need for change in this situation and I think that the rapporteur was right when, while keeping in mind the need to simplify the work for financial companies, he also took care - and I think that this is the most important thing - to ensure that consumers would benefit from this proposed change.
Today is the last day that my fellow Member from Malta will attend this plenary and I think that I too would like to wish him well in his work in the coming years. He has gained four years' experience in this Parliament, and this experience has, I believe, transformed his character from that of a politician who did not really believe in the European Union and the benefits it could offer Malta, to that of one who, through this report, has shown us that he truly believes that from here we can change politics not only in our own country, but also in the European Union. Today we have a transformation that I would like him to take back to my country because I believe that the experience he has gained in this Parliament can be taken back to my country and the way we do politics there can resemble the way we work in this Parliament: that is, the national interest remains important, as well as the interest of the European Union, because today we form part of it. I wish him well in his work, I wish him success in his role as leader of the opposition; I am not going to say I hope he has a long career as leader of the opposition, because I do not think that that is the way I should talk about my fellow Member, but I hope that he transfers the positive experience gained in this Parliament firstly to his party, and lastly to our country.
Antolín Sánchez Presedo
on behalf of the PSE Group. - (ES) Since 1977, most financial services, including insurance and investment fund management, have been exempt from VAT. During this period, two problems have essentially arisen: the definition of the scope of the exemption and the impossibility of recovering VAT incurred in order to provide exempt services, giving rise to the phenomenon of hidden VAT. Globalisation, European financial integration and market consolidation, which have affected the organisation and outsourcing of operations to provide these services, have further added to the complexities.
This report is the first attempt to update a directive which, in addition to being confusing - leading to the intervention of the European Court of Justice - is obsolete.
I want to congratulate the rapporteur, Mr Muscat, on his excellent work in producing this report on an issue which is so economically sensitive and technically complex.
His proposals to modernise the definition of insurance and financial services, which are consistent with the Financial Services Action Plan and strict in dealing with exemptions, have merited general acceptance. His commitment to preventing price rises for consumers as a result of taxable persons opting for taxation has also merited general approval.
The final result, encompassing a specific exemption from VAT for businesses involved in cost-sharing arrangements, will increase certainty for the industry and budgetary security for the Member States, prevent competition distortions and improve competitiveness for the banks and insurers without increasing the costs to consumers.
I want to express my satisfaction at the incorporation of two aspects contained in these amendments: the reference to co-insurance, and the improved definition of the concept of intermediation, which is restricted to professional activities rendered as a distinct, direct or indirect act of mediation and which specifies that intermediaries are not counterparties to the subsequent transactions.
I want to end by wishing Mr Muscat great success. I am confident that he will soon be enjoying this success through his participation in European integration from the Council.
Zbigniew Krzysztof Kuźmiuk
on behalf of the UEN Group. - (PL) Madam President, as I take the floor on behalf of the UEN Group in this debate, I should like to draw attention to three issues.
Firstly, the European Commission's proposals on changes to VAT on financial and insurance services improve legal certainty not only for economic entities providing these services but also for fiscal entities in the individual Member States.
Secondly, the solution whereby Member States commit to allowing taxpayers a choice regarding VAT on financial and insurance services, whilst leaving many detailed arrangements applicable in this area within the scope of activity of the Member States is a good one. It amounts to decentralisation of taxation powers, and therefore to implementation of the principle of subsidiarity.
Thirdly, ongoing analysis of the financial implications of the proposed changes is essential. In particular this should concern reduced VAT income in the individual Member States as a result of increased levels of deductions by entrepreneurs. The impact of these changes on the cost of financial and insurance services for consumers should also be studied.
Louis Grech
(MT) The rapporteur has upheld the framework of the Commission's proposal so that we are confronted with the problem that we have been putting off for more than 30 years. This sector is very important for an ever increasing number of countries, Malta being one of them. In the report we find regulations that facilitate the work of important companies and facilitate a true free market without borders, leading to the creation of wealth, jobs and more choice. One of the priorities is that there are provisions in place so that consumers are protected and by no means have to pay additional taxes. In fact, consumers should benefit from every reduction in expenses and from every increase in the efficiency of the system. If the need arises, further analysis should be made in the future to include other safeguards.
Mr Muscat's report leads to more clarity and legal certainty in the area of taxation in the field of financial services, especially at this time, when we are going through a major change in the financial markets.
To conclude, I would like to thank Mr Muscat, who has made a significant contribution in the last four and a half years.
László Kovács
Member of the Commission. - Madam President, I would like to thank you for your comments and the valuable views you expressed during the debate. As I said in my opening remarks, obtaining a positive opinion by Parliament on the Commission's proposal for VAT on insurance and financial services is very important. We have taken note of the concerns raised in the report, in particular the lack of neutrality in recovery rates, the difficulties with statistics and the risk of diversion of tax revenue from non-recoverable VAT on inputs.
While the Commission could in principle look favourably at some of the amendments, such as those on derivatives, we will not formally amend our proposal. We will, however, endeavour to take the amendments suggested by Parliament into consideration as much as possible during deliberations in the Council.
I would like to express my gratitude for your positive endorsement of our proposal. A positive opinion from Parliament will be a good signal serving to raise awareness on the part of the Member States of the need to act.
Joseph Muscat
Firstly, I would like to thank Parliament's services and the Commission for all their help with this delicate dossier, even though the work is not yet finished. However, as far as Parliament is concerned, like the Commissioner, I too hope that our message is very clear. I think what we have to agree upon - and there is unanimous agreement in Parliament - is that, yes, let us make regulations, let us make changes where changes are needed, let us ensure that the system is simpler, but let us be careful that the consumer does not have to foot the entire bill. I believe that this is the main message for the Commission, and even for the Council, from us in Parliament. I wish everyone well with the work until this dossier is finished. I thank my friends for their good wishes, especially Mr Casa, who has given us a fine acknowledgement of a new political season for the Labour Party and for the nation.
President
Thank you very much, Mr Muscat. I too hope that your work will be successful and will make Europe stronger and stronger.
The debate is closed.
The vote will take place on Thursday, 25 September 2008.
Written statements (Rule 142)
Gábor Harangozó
in writing. - Firstly, I would like to congratulate the rapporteur, Joseph Muscat, for a very comprehensive report allowing for the issue of a common system of value added tax for insurance and financial services from the point of view of businesses, tax administrations and consumers. I believe that, although it is difficult - on the basis of this proposal - to clearly assess what will be the extent of the benefits for consumers in terms of efficiency and cost reduction, we ought to ensure the legal certainty and consistency of insurance and financial service- VAT related issues. As a matter of fact, it is essential to ensure that VAT facilitation measures for businesses would not be implemented at the cost of the consumers. However, it is worth noticing, together with the rapporteur, that much flexibility is given to the Member States, which might lead to uneven implementation results from one Member State to the other. Finally, I would like to put the emphasis on the fact that, given the uncertainty of the impact of the implementation of these measures, we ought to remain vigilant and therefore support the obligation for the Commission to report on the issue to both the Council and Parliament.
