EU Green paper on VAT
EU Procurement paper
DG Trade Consultation
Q.1 - Do you think that the current VAT arrangements for intra-EU trade are suitable enough for the single market or are they an obstacle to maximising its benefits?
Q.2 - If the latter, what would you consider the most suitable VAT arrangements for intra-EU supplies? In particular, do you think that taxation in the member state of origin is still a relevant and achievable objective?
Perhaps consideration could be given to relating taxation to the country of establishment of the service provider i.e. if the service is provided remotely, taxation should occur in the country of origin. However, if the provider establishes himself in the country of destination, taxation should occur in the host country.
Q.6 - Which of the current VAT exemptions should no longer be kept? Please explain why you consider them problematic. Are there any exemptions which should be kept and, if so, why?
In addition to maintaining exemptions for certain public interest activities, we believe that the reduced rate of VAT should apply not only to new-build but also to the repair, maintenance and improvement of all existing buildings (including housing and historic buildings). Where this is not the case, and the lower rate applies only to new build, VAT provides a perverse incentive to neglect the maintenance of existing homes.
Regeneration: application of the higher rate of VAT is a brake on regeneration and re-use of vacant or under-used buildings. Putting buildings back into beneficial use, both in town centres and rural areas, is an essential part of improving the quality of life. Restoration projects, even on a small scale, can have a major effect by bringing in private capital to stimulate further projects, increase the attractiveness of an area and start a virtuous circle of economic revival.
Housing: the VAT impact on regeneration is felt most keenly in the area of housing. There is a huge disincentive to refurbish empty properties as opposed to new-build, especially on Greenfield sites. Financial disincentive to repair and maintenance work caused by high rates of VAT is often the root cause that allows homes to fall into disrepair.
Sustainability: reducing the rate of VAT on refurbishment will encourage the repair and adaptive re-use of empty properties rather than building new ones. It will also help member states to meet their ambitious carbon reduction targets, by reducing the cost of retro-fitting existing buildings (note, achieving zero-carbon targets for new constructions may be relatively straightforward, but 95% of our future housing stock already exists and it is existing buildings which emit most carbon).
We believe that there should be a Europe-wide fiscal incentive to sustainable development and the reduction of resource consumption, and would like to see a mandatory provision for VAT on property maintenance and repair to be set at lower rates that those of new construction (ideally zero-rated) – not restricted to labour-only for domestic renovation, but extended to include materials and non-domestic work.
Q.11 - What are the main problems with the current VAT rules for international services, in terms of competition and tax neutrality or other factors?
Ensuring legal certainty on taxation in the country of consumption is probably the main concern. Clarity and simplicity are key, so that SMEs may understand the rules without too much difficulty. Internationally agreed approaches are necessary to avoid double taxation or non-taxation of services. This is particularly important as trade in services becomes increasingly globalised.
Q.15 - Might guidance on new EU VAT legislation be useful even if it is not legally binding on the member states?
Q.20 - Would you prefer to have no reduced rates (or a very short list) which might enable member states to apply a lower standard VAT rate? Or would you support a compulsory and uniformly applied reduced VAT rates list in the EU notably in order to address specific policy objectives as laid out, in particular, in Europe 2020.
In response to the EU's Procurement Green Paper we advocated availing of a revised VAT regime to apply standard (lower) rates of VAT across both new and existing construction, with a priority exemptions policy based on sustainability. Reducing the cost of repairs, maintenance and retro-fit would be synergetic with other 2020 policy objectives designed to reduce carbon emission and use of resources.
Q. 29 - In which areas of VAT legislation do synergies with other tax or customs legislation need to be promoted?
We also believe that reducing VAT on retro-fit would be in line with other EU objectives outlined in various proposals set out in the Single Market Act: - Proposal 8 - Energy Tax, - Proposal 11 - Energy Efficiency Plan, - Proposal 12 relating to improving access to contracts for SMEs, - Proposal 13 - Small Business Act: Think Small First, and - Proposal 14 (revisions to the accounting directives aimed at simplifying annual reporting).
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A 114-point consultation was received in December 2010 from the European Commission in the form of a Green Paper on the modernisation of EU public procurement - Towards a more efficient European Procurement Market.
We consulted other national bodies across the EU and worked closely with the small practice procurement sub-group and others. Key 'asks' are summarised in our top three concerns as follows:
1. The principals of proportionality and freedom to provide services should be applied in all areas:
- Notice dissemination, access, processes, eligibility, procedures (using light tenders), criteria banding, weightings, selection, evaluation and contractual terms.
- Opening up of aggregated contracts and restraint on discriminatory employment practices for tier 2 suppliers.
- Greater use of open design competitions should be encouraged.
To increase market access for micro & SME consultancies.
2. Market distortions should be removed by:
- Lowering thresholds as far as practical.
- Removing incentives on bundling and aggregation of contracts.
- Prioritising qualitative based procurement procedures for design services.
- Factoring CO2 emissions into the procurement process.
- Synchronising professional indemnity insurance markets across the EU.
To guarantee best possible outcomes.
3. The core values of professional services should be recognised by:
- Drawing a clear distinction in the Directive between professionally accredited services and others.
- Using procedures that achieve Most Advantageous Tender and the deliverance of the best possible outcomes (rather tenders based on lowest price or even most economically advantageous tender).
- Improving policy on employment practice.
To ensure that quality, standards and innovation can be delivered effectively and efficiently, and intellectual services are not de-skilled.
The EU Commission will organise an event at the end of June to evaluate responses.
A copy of the full response may be obtained from: Ian Pritchard, Director International Relations & Regulation.
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The European Services Forum recently asked the RIBA for an urgent response to a request for the Services & Investment Unit of DG-Trade, to a consultation on Competitive Neutrality, in preparation for a discussion with the OECD in Paris.
As there was insufficient time to trawl all of the members organisations of the Architects Council of Europe (ACE) in the time available, and it would not have been appropriate to give an entirely UK-centric response, the RIBA confected a response drawing on previously established positions contained in earlier ACE documents.
How much concern do your businesses have about their ability to compete on a level playing field amid changes occurring in the global economy? To what extent do such concerns relate to the growing state role in national economies and to what extent do they relate to broader concerns such as preferences for domestic firms or discrimination against foreign firms?
Our key concern (re: the absence of a level playing field) centres around reciprocity - in all areas. It is vital that the EU seek to ensure:
- Greater symmetry in access to public procurement markets.
- Greater correlation between international and external market opening in services regulations (elements of the Services in the Internal Market Directive relating to multi-disciplinary practices, majority shareholding in companies, cross-border recognition of PII insurance as well as identification of single sources of information on procurement cf. Points of Single Contact) would be useful if extended to international markets.
- Renewed efforts to break down regulatory barriers through ambitious Free Trade Agreements/Mutual Recognition Agreements and enhanced support for international standards.
Regulatory treatment, procurement requirements, financing, intellectual property rights and technology policy, and competition policy are among the areas where differential or preferential treatment may have significant effects on the ability of firms to compete. What are the major concerns for your firms?
Major concerns/barriers encountered by providers of architectural services include:
- Restrictions on establishing commercial presence (Mode 3).
- Restrictions on repatriation of fees.
- Discriminatory taxation procedures (double taxation or inability to get tax relief on foreign earnings).
- Unduly onerous and/or opaque temporary visa procedures (movement of natural persons – Mode 4).
- Citizenship or residency requirements to practice.
- Limited recognition of EU qualifications (or none at all).
- Compulsory membership of professional associations.
- Generally opaque regulatory environment.
Architecture is a regulated profession in most countries, so registration is the main barrier to architects wishing to establish a commercial presence in order to provide services independently and practice, under title, in an on-going manner.
There are also issues relating to company ownership, the ability to be a majority share-holder in a company and restrictions on the ability to set up multi-disciplinary practices in some jurisdictions.
Establishing a commercial presence to offer architectural services is invariably dependent upon obtaining registration with the relevant licensing authorities - but in the absence of a MRA covering qualifications in the field of architecture, registration is either impossible or subject to lengthy and potentially inconclusive case by case assessment.
It is for this reason that we support the pursuit of ambitious and comprehensive Free Trade Agreements - specifically with Canada (in the context of which we are developing a MRA on architectural services). However, while the ACE is capable to negotiating MRAs with other main partners, it is unwilling to continue its significant investment in this area unless and until the EU can do more to legally underpin other agreements under international law (noting the impasse with regard to the US negotiations, and the lack of follow-up with Mexico).
It would be useful if there was maximum correlation between the list of the EU’s future negotiating partners for FTAs and the list of signatory countries to the General Procurement Agreement (GPA) – in order to afford greater opportunities for EU professionals to bid for future public works. Indeed, it would be useful if the EU’s negotiating partners were to publish information on trade-related regulations online and establish enquiry points.
In what ways can corporate governance practices, particularly in the context of state-owned and state-supported enterprises, contribute to competition on equal terms among all enterprises?
What are the longer term impacts of policies by host countries seeking to foster specific national enterprises or national champions in general?
How do they affect the competitiveness of and innovation by other domestic enterprises? How do they affect competition globally?
Are there ways in which greater international cooperation can contribute to increased opportunities for all enterprises to compete more effectively in the domestic and the global economy?
Greater reference could be made to International Standards. The ACE has worked with the International Union of Architects (UIA) to develop
- An Accord on International Standards of Professional
- Draft Disciplines on Domestic Regulation.
The UIA Accord was based, in part, on the old Architects' Directive (key elements of which are now incorporated in the Directive on the Recognition of Professional Qualifications).
Both the Accord and the Draft Disciplines have been notified to the WTO.
Mode 1: cross-border supply
Mode 2: consumption abroad
Mode 3: foreign commercial presence
Mode 4: movement of natural persons
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The CETA is a top trade priority for both Canada and the EU. The most recent round of talks, held in Canada, made little progress because of Canadian elections, though the outcome was positive for the CETA as the governing Conservative Party secured a majority and will now be able to move forward with its trade agenda.
In the Trade Policy Committee, the EU Member States have approved the use of a 'negative list' approach (i.e. all services are subject to trade liberalisation unless they are specifically listed as exemptions e.g. for health, moral, environmental or national security reasons) as their offer for services and investment in Mode 3 (foreign commercial presence). The EU MS also agreed an offer based on the negative list approach for services negotiations in Mode 1 (cross-border services) and Mode 2 (consumption abroad). The Commission is now working on the offer with the MS, which are now undertaking the lengthy process of reviewing the thousands of services delivered across EU MS to determine which will be targeted for exclusion. Public services, education and health are possible exemptions.
This issue is tied partially to the offers on services and investment, in particular, offers in Mode 4 (movement of natural persons). The negotiations on Mutual Recognition Agreements (MRAs) on diplomas and qualifications do not necessarily have to be concluded by the end of the CETA but could continue later, provided a framework is fixed in the CETA.
To this end, the RIBA has led work for the Architects Council of Europe (ACE) with the European Commission, the European Services Forum (ESF), the Canadian Trade Representatives and the Canadian Architectural Licensing Authority (CALA) to develop a WTO-compliant agreement on architectural services (based on the 1998 Accountants Agreement).
Other matters include expedited visas, partners/spousal visas. The EU and Canada are discussing the inclusion of five categories of business persons: short-term visitors, intra-company transfers, professionals, investors and managements & graduate trainees.
Canada is to table a very ambitious offer that will require reciprocal access in both directions. There is convergence on the matters of exceptions and support for the creation of a public tendering database, based on the existing European model. The EU has requested full coverage for municipalities, school boards, hospitals, port authorities and utilities. Canadian interest is focused mainly on preventing technical barriers at national/sub-national level.
8 (of 22) chapters are now closed, including competition, regulatory co-operation and trade facilitation. Texts on public procurement and services are near completion, with discussion now focused on residual areas of divergence. The negotiators are intent on exchanging offers imminently so that they may be negotiated during July. They will then seek political direction on outstanding issues in an effort to conclude negotiations by the end of 2011.
The ACE and CALA have exchanged further comments on their draft MRA, and will schedule a further meeting in the autumn with a view to finalising its content.