EU roadmap for VAT

Mon 8th Feb 2016

The European Commission (EC) has issued a new roadmap for the improvement of the EU’s Value Added Tax regime.  The 2016 plan looks to improve the efficiency of the indirect tax regime, reduce fraud and lighted the administrative burden for all companies.

EU VAT destination principle

The report addresses the difficulties around the current interim VAT system. The EU VAT regime was originally intended as an origin-based system whereby VAT would be charged in the country where the goods or services where provided from.

However, this could not be achieved due to lack of harmonization on rates and other issues between the member states. Instead, an interim system was introduced in 1993 at the time of the creation of the single market. This involved two parts to cross-border EU transactions: an exempt intra-community supply; and an intra-community acquisition taxed in the country of destination (via the reverse charge).

This has left the EU VAT regime vulnerable to VAT fraud because of the first part of the transaction, the ability to purchase goods VAT free.

After over 20 years of working with this interim regime, the EC’s report addresses some definitive solutions for the future, and alternatives to tackle VAT fraud – estimated to cost EU member states over €100billion per annum. This includes a plan to apply the destination principle – taxing transactions in the country of consumption.

The roadmap restates the four alternatives for addressing intra-community transactions:

  1. Taxation of intra-EU supplies where the goods are delivered;
  2. Taxation of intra-EU supplies where the customer is established regardless of the place of delivery of the goods;
  3. Reverse charge where the customer is established; and
  4. Reverse charge where the goods are delivered.

Extension of the Mini One-Stop-Shop

In addition, the roadmap looks at plans for the EC to propose that the Mini One-Stop-Shop single VAT reporting be rolled out for all 28 members states.

Overhaul of VAT rates

The roadmap foresees a review of the country variations on VAT rates and the use of reduced and super reduced VAT rates. This will include an assessment of the multiple derogations granted to many states on certain goods and services.