By Huw Jones
LONDON, Nov 15 (Reuters) - European Union governments have little appetite to radically reform 30-year old rules that bar financial services firms from charging value added tax (VAT), a document showed on Monday.
EU finance ministers will discuss a set of draft changes when they meet on Wednesday but no major advance is expected.
Rules dating to 1977 exempt financial services and insurance from VAT but the bloc's executive European Commission wants to expand the definition of exempt services and apply it equally in all member states.
The sector is increasingly outsourcing back office and other functions but cannot recover VAT it pays on such purchases.
The Commission says the sector recoups this by creating "hidden VAT" charges on services it provides to other firms, distorting competition and markets.
The Commission proposed changes in 2007 to clarify definitions of financial and insurance services exempt from VAT to reflect how the sector has become more complex over the past 30 years.
It also wants to give banks the right "opt in" and pay VAT so they can deduct it from services they buy. Banks and other financial firms would also have the right to pool VAT-exempt services.
A member state working group has made some progress but a document prepared by EU president Belgium for Wednesday's meeting says delegations are reluctant to go beyond clarifying the definitions of exempt services.
"Few of them support the proposed opt-in provisions, and even fewer support those on cost sharing," the document said.
"And whilst the majority of proposed definitions seem to be acceptable to delegations, they will need to be considered against the background of adjustments to the overall tax burden on the financial industry, and in the light of regulatory changes ensuing from the financial crisis," it added.
Unanimity is required among the 27 EU states for any changes to be made to the VAT law.
The European Court of Justice has made several rulings trying to clarify the patchwork of member state intepretations of what sort of services are exempt, prompting the Commission to step forward with its proposals.