EU agrees reduced VAT on e-books, quick fixes and domestic reverse charge

Tue 2nd Oct 2018

European finance ministers today, 2 October 2018, agreed to allow member states to lower the VAT rates on electronic books and online newspaper subscriptions to the same nil / reduced rates as their paper equivalents. At today’s minister’s regular meeting, ECOFIN, in Luxembourg, they also agreed to three further measures: a trial of the anti-VAT fraud domestic reverse charge; the so-called ‘four quick fix’ reforms to the current VAT regime; and rules on the exchange of information to prevent VAT fraud.

ECOFIN did drop the concept of the Certified Taxable Person for the progress of the four fixes. A fifth fix, proposed by France, around VAT deductibility for VAT groups was withdrawn.

Compromise between France and Czech Republic triggers agreement

The EU has been debating the e-book rate anomaly for over three years, but the Czech Republic has been blocking it – holding out for the reverse charge reform. Countries such as the Netherlands had bemoaned the horse-trading and characterisation of the EU process as slow and opaque.

The four quick fix resolution will clear the way for highly ambitious plans to switch to a destination-based VAT regime in 2022. This may involve over €600billion in new VAT payments across the Union, which will still need approval by the EU Council.

ECOFIN agreement on e-books, VAT fraud and simplification measures

The four new policy measures agreed today are:

  1. Updating the EU VAT Directive to permit member states to set their VAT rates on electronic books and subscriptions to online newspapers and journals to the same reduced and nil rates as currently allowed for their printed versions. The Directive had been drawn up prior to the emergence of e-printing, and failed to provide a derogation from the higher, standard VAT rates. France, Luxembourg and Poland had all lost European Court of Justice cases in the last three years to overturn the anomaly.
  2. A two-year trial of the domestic reverse charge mechanism by member states looking to curb the estimated €50bn in VAT fraud. The measure permits any member state to withdraw the requirement to make the VAT cash payment; instead allowing the customer to record the transaction under the reverse charge mechanism. Member states will be able to use the generalised reverse charge mechanism (GRCM), only for domestic supplies of goods and services above a threshold of €17,500 per transaction, only up until 30 June 2022.
  3. Implementation of four‘quick fixes’ in January 2020 to improve the current cross-border VAT regime. These cover: harmonization of the VAT rules on call-off stock arrangements; simplifications of the VAT on chain transactions; relaxing the rules on proof of transport for nil-rating of cross-border transactions; and clarification on the requirement to formally check an EU VAT number a valid on VIES.
  4. Formal adoption of new rules to exchange more information and boost cooperation on criminal VAT fraud between national tax authorities and law enforcement authorities. VAT information and intelligence on organised gangs involved in the most serious cases of VAT fraud will now be shared systematically with EU enforcement bodies. Improved investigative coordination between Member States themselves and with EU bodies will ensure that fast-moving criminal activity is tracked and tackled more quickly and more effectively.

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