EU White Paper looks to reform European VAT regime

Tue 6th Dec 2011

The EU VAT regime, the rules of which are set in Brussels and implemented at the country level, is facing wholesale reform following the publication of a new White Paper by the European Commission.

The Paper has three aims:

  1. The simplification of the cross border VAT system for the benefit of companies operating across the region. This would include more clear and transparent rules on VAT registrations, VAT returns and the rules for ongoing VAT compliance. Whilst the proposal for a one-stop-shop single VAT reporting system has been postponed – member states wish to see the outcome of the 2015 electronic services portal – it is expected that this key measure will be implemented at some time in the future.
  2. The new system will improve the ability of member countries to collect taxes whilst aiding economic growth. It proposes the withdrawal of many VAT exemptions and reduced VAT rates (e.g. food, heating) so as to avoid the need to markedly increase the standard VAT rates. The Commission has set out broad guidelines on the use of strandard and reduced VAT rates.
  3. The Paper proposes some short term and longer term measures to curb the huge losses suffered through VAT fraud. It is estimated that over 12% of VAT due goes unpaid through missing trader, or ‘carousel’ fraud. In 2012, the Commission will put forward a number of measures to improve the ability of countries to combat such fraud.

Lastly, the Commission has dropped plans to change an underlying principle of the VAT system from collection at the point of departure to collection at the point of consumption or destination.