Should financial service companies be allowed to opt-in for VAT?

The European Commission recently proposed reforms to the application of VAT to financial services. In particular, the Commission proposed that firms should be allowed to opt into taxation of currently exempt insurance and financial services. An interdisciplinary research project addressed both the legal and the economic implications of the proposals. From a legal perspective, an option to tax could potentially follow significantly different legal designs, which would give rise to discrepancies in the application of the option amongst Member States. On the economic side, the research indicated that firms would have an incentive to opt in only for business-to-business transactions. An estimate of the upper bound of the amount of tax revenue that might be lost from allowing opting-in was calculated at less than 0.5% of total revenue.

Rita de la Feria, Ben Lockwood