Authority and Scope of The Tax
The European Community Treaty ("EC Treaty") authorised the Council of the European Union ("Council") and European Commission ("Commission") to make Regulations and issue Directives. Regulations are binding in their entirety and are directly applicable to all member states. Directives, meanwhile, are binding as to their required result allowing each member state to choose the method and form of implementing the Directive.
In addition to Directives and Regulations, the EC Treaty also authorised the Commission to render decisions on determining whether a member state has been in noncompliance with a Directive or Regulation. When a member state has infringed the EC Treaty then the Commission and the Council are authorised to begin a process of coercing compliance. First the Commission will issue a confidential letter of formal notice that requests information in the investigation of a possible infringement and this provides a two-month deadline for a resolution. If the two-month deadline passes, then the Commission will submit a press release announcing a reasoned opinion providing a series of reasons why an infringement is suspected. There is a further two-month deadline for the member state to end the infringement. If the member state fails to respond to the reasoned opinion then the Commission submits a press release that it has referred the controversy to the European Court of Justice ("ECJ").
The scope of the ECJ's authority is limited by the national sovereignty of each member state. It cannot annul national laws or force administrative compliance and instead enforces compliance by imposing penalties on the non-compliant member state.
The EU VAT system is imposed by a series of European Union directives, the most important of which is the Sixth VAT Directive. This Directive has been updated and replaced by another Directive since 1 January 2007. Important changes will occur when a subsequent Directive will address the issue on "the place of supply of services" and will be in force on 1 January 2010.
Read more about this topic: European Union Value Added Tax
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