EU ponders four VAT quick fixes
The European Union’s Commission has suggested that it may reconsider its planned four quick VAT fixes ahead of the introduction of its proposed Single VAT Area for 2022. The measures have failed to be ratified a number of times by EU finance ministers because of disagreement on the late inclusion of a fifth measure by some member states.
The quick fixes are part of a range of measure aimed at simplifying EU VAT compliance for businesses, and reducing the estimated €50bn in VAT fraud in the Single Market area. Plans to create a single VAT area, moving to destination-based VAT calculations, is still on schedule for 2022.
Several member states have previously objected to the new ‘certified taxable persons’ status, key to three of the four quick fixes, as being difficult to manage and biased towards large companies. This has further slowed down progress on the four quick fixes, which were intended to be implemented in 2019.
Fifth quick fix blocks progress
The EC’s Tax Commissioner, Pierre Moscovici, has heavily questioned the last-minute introduction of a fifth fix for VAT exemptions for groups of taxpayers that pool services and share costs – particularly in financial services. The commission was critical of the proposal on the basis that it may undermine the operation of freedom of establishment. In particular that the additional fix would be optional, and therefore only available to banks or insurers within implementing member states. He further pointed out that the proposed amendment has not having been put through a full impact assessment.
The quartet of original measures, scheduled as immediate changes to a transitional VAT system, have been unable to proceed as France, and other member states, have sort to add the fifth measure targeting VAT exemption on financial services cost sharing arrangements.
Four quick fixes ahead of 2022 Single VAT Area
The four quick fixes were originally proposed on 4thOctober 2017 to improve the day-to-day functioning of the current VAT system, until the definitive regime will have been fully agreed and implemented.They include:
- Simplification of VAT rules for companies moving goods from one Member State to another Member State where they are to be stored before being supplied to a customer known in advance. The described situation is referred to as “call-off stock arrangements”. This simplification is limited only to certified taxable persons – a concept which is explained in the following section;
- Simplification provided for chain transaction situations identifying the supply with which the intra-Community transport of goods should be linked. This simplification is limited only to certified taxable persons;
- Simplification of the proof of transport of goods between two Member States needed for the application of the exemption to intra-Community supplies. This simplification is limited only to certified taxable persons;
- Clarification that, in addition to the proof of transport, the VAT number of the commercial partners recorded in the electronic EU VAT-number verification system (VIES) is required in order to apply the cross-border VAT exemption under the current rules.
Certified taxable persons
A business can apply to its national tax authority and become a Certified Taxable Person (CTP) by proving compliance with pre-defined criteria such as:
- Regular payment of taxes
- Internal controls
- Proof of solvency
Once certified, the company will be considered a reliable tax-payer. Both the CTP and the companies that do business with it will enjoy a number of simplified procedures for the declaration and payment of cross-border VAT. The status of Certified Taxable Person will be mutually recognised by all EU Member States.
However, several countries have complained this ‘Certified Taxable Person’ citation is unfair on small companies and start-ups. There is now a strong chance of the relief having to be withdrawn for the reforms to progress.
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