EC Policy on VAT Assessment

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The financial services industry encompasses a broad range of organizations that deal with the management of money. These include insurance firms, banks, credit card companies, consumer finance companies, stock brokerages, and some government-sponsored enterprises.


Nonetheless, the players in the financial services sector have emerged in recent years as among the largest groups of companies in the world and, despite this fragmentation, financial service companies as a group have become by far the most profitable in the world. For example, the UK-based financial services conglomerate HSBC and Barclays are among the world's largest corporations. For this reason, the European Commission in the 1990s took up a plan to include financial services and insurances in the value added tax (VAT) system for all member states, with the primary purpose of making the markets for financial services efficient. The plan was embodied in the Sixth VAT Directive of EC, part of the Financial Services Action Plan which was issued in 1977. Under the EC Treaty, all member states are obliged to adopt EC Directives into their own statutes although they can choose the forms or methods by which to implement them1. The 1977 VAT directive, however, was met with hostility by member states, which were reluctant to implement the tax measure. This paper tracks the difficulty of modernizing the VAT system for financial and insurance services for EU that would be acceptable to all and would advance the EC policy of promoting integration and competition in this industry for Europe's future growth in prosperity and employment. ...
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