Global Tax 50 2016: Donato Raponi

Donato Raponi was also in the Global Tax 50 2015, and 2014

Donato Raponi has been a Global Tax 50 regular since 2014 when 28 member states prepared for sweeping changes to the way VAT was collected across the EU.

Since January 1 2015, VAT on business-to-consumer (B2C) transactions has been paid to the country where the consumer is located, rather than to the country where the business is based, as was previously the case.

These changes were made possible by the mini one-stop-shop – a single VAT registration portal that means EU and non-EU business only need to register once for VAT, rather than in every member state where they operate. This is known as the destination principle, and, during the past year, it has been solidified as the global best practice in the OECD's International VAT/GST Guidelines, and recommended in BEPS Action 1.

The changes have been so successful that since they were implemented, several more countries, namely South Africa, South Korea, Japan and New Zealand have implemented similar rules, and more countries have announced that they intend to do so soon. Russia's regime, based on the destination principle, will be effective from January 1 2017, with Australia's to be effective from July.

The EU had some minor difficulties when first implementing the VAT changes, mostly IT-related, but is using its experience to assist jurisdictions bringing in similar regimes.

"We are very proactive because we are participating through meetings," Raponi told International Tax Review. "The EU, especially in VAT, has very old experience, very large experience. It's the reason why we are contributing very positively. We are trying to pass on our ideas. It is very interesting to see other countries implementing what we decided to implement some years ago."

However, the ambitious 2015 changes were not the final step towards improving VAT in the EU. On April 7 2016, the European Commission (EC) adopted the VAT Action Plan, which aims to move the EU toward a single VAT area. Once approved by the European Parliament, it will fire the starting gun for further changes in VAT, affecting B2B supplies and supplies of goods.

"We are preparing the Action Plan, we will deliver the definitive regime next year," said Raponi.

In November 2016, the two important initiatives were announced.

"The first one is an e-commerce proposal. It has two sides: firstly, improving the mini one-stop shop, for example, introducing a threshold [under which the smallest businesses would revert to their domestic VAT regime for simplicity's sake]."

"The second aspect, which is really important, is enlarging the scope, especially to commodities," Raponi said. The mini one-stop shop applied only to electronic services, broadcasting and telecommunications, but the Commission has adopted a plan in principle to extend this simplification procedure to commodities within the EU. It will also apply to importation, for which the importation threshold will be removed and a simplified scheme to declare and pay VAT on importation will be introduced.

In most countries with VAT or GST regimes, low-value goods are subject to an exemption – in the EU, this exemption is for goods worth €22 ($23) or less. However, these rules were devised before the explosion of e-commerce, which increased the amount of goods sold to consumers by foreign companies.

In another example of EU VAT developments influencing the wider world, Australia is also set to remove its low-value goods exemption, which sits at A$1,000 ($745).

"Some months ago they [representatives from the Australian Tax Office] visited the Commission and also different member states," Raponi said. "So we had an influence, especially concerning the mini one-stop shop mechanism, because it seems that this mechanism is implemented in different countries around the world. It's a good example, because finally the mini one-stop shop has been very successful."

The member states collected more than €3 billion from the mini one-stop shop, and the number of businesses using the mechanism is increasing. "We started at 8,000, now we have 14,000 businesses using this mini one-stop shop, but also you know platforms and intermediaries are using it also," Raponi said. "You don't hear that member states are complaining, businesses seem to be happy. It's the reason why we are proposing to extend this mechanism."

The EC plans to continue developing its VAT system with the launch of the definitive regime next year. The only impediment to this is member states themselves – handing over tax sovereignty is a sensitive issue at the best of times, but particularly so in the face of growing Euroscepticism.

"We have to convince member states, especially concerning cooperation between them," said Raponi. "If we implement the one-stop shop, etc, if we also want to implement the definitive regime, we need more cooperation between member states, especially fighting fraud."

"From our point of view we are lacking this administrative cooperation. Taking into account the size of the market – the trade in the EU is €3 trillion – if you see how administrative cooperation is working, we think we have to improve a lot."

When the Commission presented its VAT Action Plan, it also presented an attached list of 20 actions for improving administrative cooperation between member states. "This is important, this is a key issue for the mini one-stop shop, it is also a key issue for the definitive regime," Raponi said.

Another area where the VAT unit's work could have a dramatic influence in the future is, surprisingly, direct taxation. The EU's appetite for a consolidated corporate tax base is being resurrected, and Raponi feels the experience and technical know-how gained in the VAT changes could be of use. "I think that the mechanism of one-stop shop could be used in different domains, especially in direct taxation also," he said. "This is one where we have to examine the possibilities."

Having one of the member states, where a business is established, collect tax on behalf of the other member state, where the consumer resides, is a concept that is working in VAT, and it is "simplifying the life of the business", said Raponi. "This concept should be enlarged, it's the reason why we are enlarging progressively, step by step. We started with the supply of services, now we are enlarging to the supply of B2C goods, and then with the definitive regime, we will also use the one-stop shop for B2B transactions."

"So this is a scheme which could be enlarged in different domains of taxation."