The Paymaster General wrote to you about this particular legislative package on 19 February 2007.[13] It is due to return to ECOFIN in June and the German Presidency has continued with the technical discussions, as expected, in the meantime. This letter provides an update.

  Overall, there has been very little real progress on the proposed Directive to introduce a range of simplification measures, including the electronic One Stop Scheme and the proposal to give Member States more flexibility in setting National Thresholds. By contrast, the technical work on the proposed Directive to reform the existing cross-border refund procedure is almost concluded. There is therefore a very real possibility that the German Presidency could push for agreement to that proposed Directive, while technical work on the other elements of this legislative package continues.

  The proposed changes to the cross-border refund procedure will greatly improve the current system from a business perspective, and this proposed reform is something UK business wants and has been pushing for, for some time. As a result, the Government would be prepared to agree to this reform separately and to a quicker timescale to the other elements of this legislative package if it came to that at ECOFIN in June.

  The other VAT proposals that are likely to feature as part of an overall discussion at the June ECOFIN are the proposed changes to the rules on the place of supply of services (EM 5051/04 and 11439/05). The Committee cleared those proposals last year, but they have yet to be agreed in ECOFIN. On issue likely to give rise to some debate at ECOFIN will be the possible implementation date for these changes.

  As you are aware, this implementation date creates some uncertainty with regard to Directive 2002/38/EC, which concerns the VAT treatment of radio and television broadcasting services and certain electronically supplied services. That Directive was last extended in November last year (EM 15428/06) and that extension is due to expire on 31 December 2008. If the changes to the rules on place of supply of services were to be introduced with effect from a date after 31 December 2008, it would be necessary to extend those arrangements once again. In addition, if the rules on place of supply of services were to be introduced with effect from a date before the completion of work on the proposed electronic scheme, it would also be necessary to introduce some form of appropriate simplification mechanism for EU businesses as an interim measure. Directive 2002/38/EC sets out an electronic scheme for non-EU businesses that could potentially be used by EU businesses and that is one possibility the German Presidency may well suggest.

10 May 2007