EU VAT Expert Group proposes 2019 B2B VAT simplification
The European Commission’s VAT Expert Group has published its opinion on the implementation of the VAT reverse charge on B2B EU cross-border goods transactions by 2019. Such a change would represent a big simplification for companies engaged in intra-community (between EU member states) trade, and eliminate most of the instances where companies need to VAT register as non-resident traders.
This would follow a similar move for B2B services as part of the 2010 VAT Package.
The 4 year transitional VAT system still with us 21 years later
The current VAT system for goods, based on the origination principle, was introduced in 1993 with the implementation of the EU single market. It was intended as a stop gap to enable states to develop a simpler method of VAT reporting, based around where the goods originate from, and to work toward the harmonisation of their indirect tax regimes. However, this has never been achieved to date.
Some of the problems with this system include:
- VAT registration and compliance burden on businesses selling into other EU states which can put off free trade, especially for small and medium sized businesses
- Risks of fines or goods delays due to a lack of understanding of other countries VAT regimes
- Significant scope for VAT fraud with the associated lost tax revenues and increased cost of anti-fraud audits and bureaucratic measures
- VAT refund delays and cash flow implications for companies incurring VAT in another country
- Legal uncertainties, costs and delays on VAT audits, appeals and litigation
VAT Expert Group’s proposes five tax models
The VAT Expert Group (VEG), was established by the EC two years ago to advise on the simplification of the European VAT system to help boost trade and cut VAT fraud.
The first stage of this, developing a definitive system for B2B intra-community, has given rise to five potential taxation models. This includes the extensive use of the reverse charge. Many countries already make extensive use of the reverse charge where the customer has a local VAT number.
The VEG and EC agree that moving to a system of taxation based upon the place of origination is unreachable. There will now be a public consultation. The consultation will give interested parties an option to comment on the viability, cost etc of the five options through and online questionnaire, and submit analysis of the costs and resources devoted to compliance under the current regime.